Americans are more pessimistic about their finances than at any time since the Great Recession as economic challenges such as inflation persisted throughout the past year.
Some 50% of respondents to a Gallup survey said they are “financially worse off” compared to one year ago, while 35% believe they are “financially better off,” marking the most dismal results for the poll since the economy crashed in 2008 and 2009. Lower-income Americans were the most likely to report that they have been worse off since last year. Approximately 61% reflected pessimism about their current finances in 2023, while 41% said the same this year.
There is a clear partisan divide with respect to perceptions of financial well-being: 61% of Republicans and 37% of Democrats say they are worse off. However, Americans tend to offer a more optimistic view of their finances under administrations that match their party preferences.
The results come after a volatile year throughout which the economy was throttled by inflationary pressures, labor shortages, and supply chain bottlenecks, contributing to negative economic growth in the first two quarters of last year. Year-over-year headline inflation was charted at 6.5% in December 2022, according to data from the Bureau of Labor Statistics, marking a decrease from the 9.1% inflation recorded in June 2022.
President Joe Biden noted during his State of the Union address on Tuesday that inflation, charted at 1.4% in the month before he assumed office, is presently on the decline. “Inflation has been a global problem because of the pandemic that disrupted supply chains and Putin’s war that disrupted energy and food supplies. But we’re better positioned than any country on Earth,” he commented. “Food inflation is coming down. Inflation has fallen every month for the last six months while take home pay has gone up.”
Even as nominal wages rose amid companies hiking pay to attract more employees, the country nevertheless witnessed a decrease in real wages of 1.7% between December 2021 and December 2022, according to data from the Bureau of Labor Statistics. The latter metric considers the effect of inflation on household purchasing power.
The pessimism regarding current finances also follows one of the worst years for the stock market in modern history. The S&P 500 Index dropped 20% last year, rivaling the 37% decline witnessed in 2008 amid the collapse of the banking system, as well as the 12% and 22% declines witnessed in 2001 and 2002 amid the dot-com bubble. Retirement account values, therefore, plummeted 25% for the first three quarters of the year.
Respondents to the Gallup survey maintained a fair degree of optimism regarding their future financial prospects. Some 60% believe their finances will be “better off” one year from now, while 28% believe their finances will be “worse off.” Gallup said Americans “remain optimistic about the year ahead for their financial situations, which they typically are, almost regardless of recent economic conditions.” Continual optimism that translates into strong consumer behavior could “help to minimize or avert an economic recession.”
The economic challenges have prompted most economists to forecast a recession for this year, although many still predict the United States can avoid a contraction. Bank of America Chief Investment Strategist Michael Hartnett said in a report that a recession would occur in the first half of the year before markets attain a “much more solid footing,” while an outlook from Goldman Sachs Chief Economist Jan Hatzius noted analysts at the company believe “there are strong reasons to expect positive growth in coming quarters.”