Inflation is everyone’s problem and unemployment is a problem for some people.
Keep this fact in mind as key economic numbers continue to advance and economic sentiment remains very poor. The Commerce Department reported this week that real GDP fell 0.4 percent in the first quarter of the year, largely due to fluctuations in inventory orders and international trade. Consumer spending and business investment both looked strong, indicating that the economy is growing a little faster than it was last quarter, and no one is teetering on the edge. Employment data looks better: Companies added 431,000 employees to their payrolls in March, with the unemployment rate dropping to just 3.6 percent.
But US consumers still say the economy is on the “wrong track” and that financial conditions are getting worse. The Commerce Department also reported that prices rose 6.6% year-on-year in March, the biggest rise in 40 years, as food costs rose more than 9% and energy costs a whopping 34%. Although wages are growing at their fastest pace in decades, they are not keeping pace with price increases for many Americans.
However, is the economy now really as bad as it was in 2008, for example, when the financial system was dependent on life support and millions of homeowners were underwater in their mortgage? Is it worse than it was in 2011, amid a very uneven recovery and levels of a long-term unemployment crisis? Are the problems of getting too much money more serious than the problems of getting too little?
The answer to all of these questions may be in the negative. However, why the economy feels so bad for many is no mystery. The direction of the economy is uncertain. The Federal Reserve is trying to rein in inflation without causing a recession, as it has successfully done once in the recent past, while failing many more times. Meanwhile, conservatives across the country are trying to stem inflation with policies known to work, such as trying to put out a fire with nail polish remover.
Beyond that, the economy feels bad for many because It feels bad for many. Periods of economic downturn tend to inflict concentrated economic pain on a few people, leaving many unaffected; This was true in the Great Recession and the COVID Recession, both of which were as massive and as high as the unemployment rate rose during each. Most Americans haven’t lost their jobs, and the wealthy, in particular, are less likely to be out of work. Everyone experienced the fear of living in an economic crisis, with many people suffering from lower job opportunities, lower wage growth and so on. But the pain was uneven.
In contrast, no one gets away with inflation, even if price hikes affect some people more than others. It includes people with fixed incomes, such as retirees. It also includes lower-income families, which have less room in their budgets to absorb higher prices, as well as fewer opportunities to cut costs by switching from quality goods to lower-income goods, compared to higher-income families. In fact, the bottom of the income spectrum has been experiencing higher inflation rates than the top, as well as struggling with it more, dollar for dollar.
Today’s inflation is on top of a prolonged affordability crisis as well. Home prices are cutting budgets and forcing families to make horrific cost-cutting decisions: live away from family, commute long distances, give up having a third child, rent forever rather than try to buy. The costs of childcare, aged care, higher education, and Medicare also remain prohibitive – affecting families in a much higher income range, although those at the bottom are of course the most burdensome.
One of the good things about this mixed and unusual economy is that it helps the worst in one important way. Extremely low unemployment rates and a total shortage of workers drive employers to offer jobs to people who often struggle in the labor force — such as individuals with a felony on their record, for example.
But it has also led to higher gas prices and grocery bills, when rent was initially too expensive and childcare was already priced as a luxury, and at a time when Washington was concerned about causing a new downturn. No wonder everyone is crazy.