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Inflation, spending, wages, and buying power: the economy is doing OK, so why is everyone so stressed?

Two economic analysts explore financial sentiment versus reality
The economy is doing well, so why are Americans stressed?
With wage growth now passing inflation, buying power plays catch-up
Posted at 3:14 PM, Jan 23, 2024
and last updated 2024-01-23 17:18:53-05

From inflation and consumer spending to wages and buying power, it's hard to get an accurate picture of the U.S. economy. Juggling economic indicators and complex data can feel impossible, but it does impact your personal budget.

Greg McBride and Ted Rossman are analysts for Bankrate. They comb through all the reports and put them into practical terms for the millions of impacted Americans.

"Even though inflation is moderating, that doesn't mean prices are coming down," McBride explained. That means that many households still feel a pinch in their budget, thanks to three years of runaway inflation.

"There's a cumulative effect."
Ted Rossman

Even though holiday retail sales were much stronger than expected, a large number of adults in the U.S. are still worried about a potential recession and the economy as a whole. According to a new Harvard CAPS/Harris poll, three of the top four concerns for voters heading into the 2024 election are related to money. Those include inflation, the economy, and jobs.

"Big picture, I think the economy is in better shape than a lot of people realize," Rossman said, pointing to jobless claims near a five-decade low and wage growth finally outpacing inflation.

So why is everyone so stressed? Rossman says sentiment versus reality plays one role. McBride believes buying power plays another.

"When we see this dour mood that consumers have about the economy, that's really reflective of just where they stand from a standpoint of buying power," McBride said.

So, let's unpack that. Buying power is what happens after inflation and wage growth battle it out. It can be confusing, so Rossman suggests you picture a basket of household goods. In 2021, those goods might have cost $50,000. Now, he says it's probably closer to $60,000. While that includes everything from rent and gas to groceries and entertainment, wage growth hasn't always kept pace.

"It takes a while to catch up."
Greg McBride

The good news is that salaries are now beating inflation and growing at a faster rate. McBride expects families to start feeling the positives sometime later this year.

"As that continues to improve, you may see a corresponding increase in the mood of consumers," he says.

In the meantime, Rossman suggests three simple ways to stretch your money a little further.

  1. Stick to your budget
  2. Go on a spending detox
  3. Enlist accountability partners

That way, your personal finances are set up for success, no matter what happens with the economy as a whole for the rest of the year.