Life is still more costly in the United States than it was about two years ago. But new research shows Americans are starting to feel better about the economy.
An opinion study by the Federal Reserve Bank of New York found that Americans are increasingly hopeful that the inflation rate will continue to go down. The survey also found that the number of Americans who expect their financial situation to improve within the next year is at its highest since June 2021.
In addition, the University of Michigan’s Surveys of Consumers recently reported the largest two-month jump in consumer sentiment since 1991. Consumer sentiment is a measure of how optimistic consumers feel about the economy.
That optimism is balanced, however, by the fact that most Americans remember paying much less for daily purchases such as fuel and food only two or three years ago.
Many food items such as bread, milk and chicken are more costly than they were in February 2021. But economists say price increases have slowed significantly in the last year. At the same time, Americans are seeing pay increases higher than the rate of inflation.
The inflation rate was about 9 percent in June 2022. Today, the rate is 3.4 percent. The U.S. Federal Reserve would like to see the rate at only 2 percent.
Grace Zwemmer is an analyst at Oxford Economics. She said it took some time for Americans to feel the effects of falling inflation. But, she said, “it appears the good news is finally getting through.”
Political observers wonder if the change in feelings about the economy will help U.S. President Joe Biden’s re-election campaign. Will people feel the drop in inflation or will they still remember that prices are much higher than they were two or three years ago?
Ryan Cummings is an economist who studies how politics affect consumer confidence. He said many Americans today base their feelings about the economy on what they hear from the politicians they support.
Cummings said Republicans are likely to speak negatively about the economic performance during Biden’s presidency, even as Democrats speak of the economic gains.
The University of Michigan research shows consumer sentiment among Democrats jumped almost 12 percent in January. That is the second-highest increase ever.
Many Americans say they want to see the government take steps to bring the prices of food, oil and meat back to where they were in 2020 or 2021. But economic experts say that is not a good idea. The moves that would be required to make that happen would hurt the economy overall. Taxes could increase and jobs would be lost.
David Andolfatto is an economist at the University of Miami. He used to work for the Federal Reserve. He said the better idea for Americans is to “just move ahead.” He explained that while the cost of living is higher than it was two or three years ago, many Americans are making more money than they were then.
“There’s no need for (the government) to bring the price level back down. It would be too painful,” Andolfatto said.
Claudia Sahm is another former Federal Reserve economist. She added that “people are angry” because they cannot afford the cost increases.
“Can you afford it?” she asked. “Not everybody can say yes to that question. But over time, more and more people will be able to say yes.”
I’m Dan Friedell.
