THE COMEDOWN
AFTER STIMULUS BOOM, AMERICANS FACE A DARKENING ECONOMY
Jazmin Johnson never had more than $300 in her bank account. Then came a gusher of federal stimulus funds during the pandemic, and Johnson’s savings swelled, rising to roughly $10,000 one day last spring.
But roughly a year later, that boost is almost all gone. On a recent Tuesday morning, the mother of two sat at a food pantry in the Philadelphia suburbs, waiting to pick up free diapers and lamenting that her bank balance now stands at $511. On their last trip to the grocery store, Johnson told her 3-year-old that they could no longer afford his favorite red Hawaiian Punch.
That kind of turnaround is alarming for anyone going through it — and it may be the key to understanding why Americans have turned so sharply on this economy, posing a massive political threat to the
Biden administration and Democrats in Congress ahead of this year’s midterm elections. The economy snapped back so quickly from the pandemic that people like Johnson are in a paradox: They’re worse off now, financially, than they were even when COVID was a much more severe health threat, the national unemployment rate was almost twice as high, and economic growth was uneven.
By many measures, Johnson has vindicated President Joe Biden’s economic policies. The cash from Biden’s American Rescue Plan stimulus program gave her $4,200 in stimulus checks — for herself and two kids — followed by big increases in food stamp assistance and a significantly larger Child Tax Credit. That helped her go back to school last spring, where she got a degree as a medical assistant. A better job, and higher pay, soon followed, treating dementia patients at a hospital nearby. Despite the recent decline, her savings are still technically larger than at any other point in her life.
But Johnson does not feel like an economic success story. Instead, she has a sense of acute loss for that fleeting period last spring where remarkable new financial opportunities appeared possible. Like the country overall, Johnson has slowly and steadily gotten poorer over the past year. Her expenses have soared due to the fastest inflation in four decades, and the many pandemic-driven government programs that
supplemented her income have been eliminated one by one.
“It was a weight lifted like I can't describe. I could actually buy what I wanted to at the grocery store,” said Johnson, 22. “But now I keep telling my boyfriend that I'm stuck. Living is so much harder now.”
The coronavirus — and attempts to mitigate its severity — severely damaged large sectors of the American economy when it first hit in February 2020, with unemployment spiking as schools and businesses closed their doors over the following month. But despite those severe shocks, the country's economy emerged from the pandemic not only intact but propelled by a historic boom. Flush with cash from nearly $6 trillion in unprecedented federal stimulus, consumer spending exploded. America created more jobs last year than any other year in the nation's history. The economy grew by the fastest rate in 38 years.
The only direction to go was down. Compared to almost any other time in modern history, American households still have lots of cash.
But compared to last year, they have significantly less — particularly as costs have continued to rise faster than their wages for the last year. This economic comedown now appears poised to quickly get much more intense, with signs of early declines in business growth, consumer spending and hiring as the Federal Reserve raises interest rates to curb rapidly rising inflation.
Interviews with more than three dozen people in Bucks County, Pa. — one of most narrowly divided counties in one of the most critical swing states in the 2020 presidential election — turned up a lingering nostalgia for the pandemic economy, as inflation has eroded stimulus savings over the last year. It amounts to an intractable problem for the White House, which cannot bring back the stimulus checks and other relief measures that offered an unprecedented, but temporary, degree of financial stability for millions of people that is fading painfully with every trip to the grocery store and gas station.
“There's no doubt wealth is much higher now than it was two years ago or in the time before that,” said Jason Furman, who served as a senior economist in the Obama administration and is now a professor at Harvard University. “But people have literally become poorer, by any concept, over the last year. Over the last 12-month period, just about everything has moved in the wrong direction. It should not be a mystery why people are worried.”
Price-hike fears
Many business owners in Bucks County say demand is keeping up for now, but worry that it is at risk if persistent inflation forces them to implement another round of price hikes. Owen Burke, 20, the part-owner of the diner Coach's, already raised the price of his Philly cheesesteak — called the “Buck” — from $9 to $11.95 in response to the rising costs of ingredients.
His supplier just increased his price tag for fries from $30 to $50 for a case of seven bags. Some customers grumbled but most kept buying, though Burke is now worried they'll revolt if he raises prices again.
The duration of the price hikes makes them particularly anxiety-inducing, because businesses can't anticipate their impact on future sales. Up the street from Coach's, James Lamb, 43, pointed at a row of candy bars and let out a small sigh. Already, his Evolution Candy store in downtown Doylesville had raised the price of Charms sour balls from $2 to $2.25. One of the store's novelty items, a roughly foot-long Rice Krispy treat, once sold for $19.95 but now goes for $25.95. And the store may have to raise the price of their traditional candy bars — like Hershey's and Twix — from $1.50 to $1.65.
“We want to go for $1.65, but the community might not be ready for it,” Lamb said. “We're eating some things,” he said of the higher prices being paid to suppliers, “because we can't eat it all at once and hike everything.”
Economic whiplash
While it was primarily intended on boosting the economy overall, the biggest impact from the federal stimulus may have been on improving the safety net. From December 2020 to April 2021, when the Biden administration sent out $1,400 stimulus checks, the share of Americans nationwide reporting that they did not have enough to eat fell by 40%, according to University of Michigan poverty researchers. Financial instability fell by 45%, the researchers found. “Adverse mental health symptoms” fell by more than 20%.
These benefits have not entirely dissipated. But the trend is clear: data from JP Morgan Chase shows a 35% drop in the bank accounts of poor families relative from last spring to this past February — a number that is not adjusted for 8% inflation as well over the last year — although balances increased slightly due to tax refunds sent in March.