The economy, by all official accounts, has been doing quite nicely this year. Still, the facts and figures haven’t done much to assuage the financial worries of many Americans, who have consistently reported that things are not going that well.
The disconnect likely has a lot to do with what the U.S. Census Bureau found in its most recent income report: Americans’ real incomes fell by 2.3% in 2022 compared to 2021, thanks to record-high inflation. The Census Bureau calculates real income based on factors like wages from work, Social Security benefits, retirement income, public assistance, unemployment insurance benefits, etc.
That’s the largest decline in inflation-adjusted household income in over a decade. It’s been a rough few years in general for the American worker: Last year’s decline comes after real income stayed relatively flat in 2021 and declined in 2020. Before then, real income had been on the rise since 2012.
As this publication has written, all of the good economic news—low unemployment, healthy consumer spending—doesn’t mean much to the everyday consumer if they have less money in their pocket at the end of every week than they did before. Years of rising prices and recession fears have taken a toll—materially and mentally.
Inflation has been moderating this year, and wage increases are finally beating inflation. Still, everything from food to housing still costs a lot more than it did a few years ago—2022 saw the largest increase in the cost-of-living in over 40 years—and families haven’t gotten a real raise in three years.
“Though the economy is improving, the everyday consumer is not feeling the benefit to their wallet,” Christine Channels, head of client services and community banking at Bank of America, previously told Coins2Day.
Non-Hispanic whites saw the biggest drop in real income, at 3.6%. At the same time, those with no high school diploma actually saw their real incomes increase by a whopping 6.4%, giving more credence to the “richcession” theory. Six-figure earners are feeling inflation’s sting, with more and more reporting that they live paycheck to paycheck.
Poverty rate sky-rockets
At the same time, the Census Bureau reported that poverty increased sharply last year, particularly among children.
The Supplemental Poverty Measure rose from 7.8% in 2021 to 12.4% in 2022—the largest one-year jump ever recorded. Poverty among children more than doubled to 12.4%, after hitting a record low in 2021 of 5.2%.
It’s no coincidence that the poverty metrics spiked in 2022, when many federal COVID-19 relief programs expired. That includes the enhanced child tax credit (CTC), which was credited with significantly reducing child poverty. The credit included direct monthly payments to many families with children, which they then used to pay for things like food, clothing, and school supplies. Parents reported being more financial secure.
When Congress allowed the CTC changes to expire at the end of 2022, economists and experts warned that children would suffer. Child poverty essentially reverted back to its 2019 baseline last year.
“The increase in child poverty in 2022…is largely the result of the expanded Child Tax Credit’s expiration,” Columbia University’s Center of Poverty & Social Policy reported Tuesday. The report found that if expanded CTC had still been in effect in 2022, “the child poverty rate would have been 8.1%, preserving much of the historic decline in child poverty of 2021.” It could have kept 5 million children out of poverty last year.
As a result the expiration of pandemic-era benefits and rising prices, consumers have been accruing record credit card debt. With interest rates rising, they’re paying even more for that debt. Many have had to tap into their savings to cover costs, and soon, tens of millions of households will have an additional bill to pay when federal student loan repayments resume. It’s a lot to make work on falling income.