Struggles persist among individuals with lower income levels. The situation may potentially worsen.
This 26-year-old is currently crashing on a friend's couch in North Texas. They earned their bachelor's degree from Scripps College in 2021 but have failed to secure a full-time position. Instead, they've been doing some freelance work in graphic design, social media marketing, and copywriting on a contract basis.
Akujuobi is one of numerous Americans grappling with today's economic issues. They estimate their income for this year to be below $10,000, with the poverty threshold for a single individual being $15,480 in 2023, as per the latest information from the United States Census Bureau.
The cost of living crisis in the US has slightly improved, but low-income individuals are still struggling due to prolonged high inflation and elevated interest rates. Their situation might worsen if President-elect Donald Trump follows through on his pledge to impose significant tariffs on the US's top three trading partners, causing an influx of inflation, as economists predict.
"I have no idea how I've managed to survive this long," Akujuobi admitted. "If things get worse, the poor will always find a way to make it work. We make do with what we have."
Still Struggling
Inflation has fallen significantly from the 2022 highs, when gasoline prices hit $5 per gallon and house prices surged by double-digits. However, prices increased by a total of 22.2% from November of this year compared to January 2020, as per the latest Consumer Price Index data. The Federal Reserve finally started to reduce rates in September, although officials have warned that loan costs are still causing pain in certain sectors of the economy. Officials have also indicated that they're in no rush to decrease loan costs.
Nearly 30% of all US households this year reported spending more than 95% of their disposable income on necessities like housing costs, groceries, and utility bills, as per a Bank of America Institute report. This percentage is higher, at around 35%, for households earning less than $50,000 annually.
"Lower-income households will consistently bear the brunt of high inflation and high interest rates," said Elizabeth Renter, senior economist at NerdWallet.
Wage growth finally surpassed inflation in early 2023, with the lowest-income Americans seeing the second-fastest wage growth. However, their income growth has slowed significantly since then, lagging behind the wealthiest Americans as of November.
Retailers like Ross Stores, Dollar General, and Walmart have prospered from price-conscious consumers. Walmart reported higher-than-anticipated revenue for the first quarter of the year, and Dollar General reported increased foot traffic. Retailers have also noticed signs of financially strained low-income consumers.
"If you listen to earnings reports from some retailers dealing largely with low- and middle-income consumers, they all say that people are under pressure," Fed Chair Jerome Powell stated at an event in New York earlier this month.
More Hardship Awaits?
If Trump enforces 25% tariffs on imported goods from Canada and Mexico and an additional 10% duty on Chinese goods, prices may increase by 0.75% in 2023, according to an estimate by economists at the Yale Budget Lab. This would translate into a loss of approximately $1,200 in annual purchasing power per household, as per the estimate. However, prices might rise less if consumers purchase goods produced domestically or from countries with lower tariffs.
However, a high-inflation episode would likely differ from the recent one that surfaced in 2021, which was primarily driven by pandemic-related demand and supply disruptions, economists claim.
This time around, Americans won't have the support of the savings they accumulated during the coronavirus pandemic and the expired pandemic-era benefits, such as an extended child tax credit and free school lunches.
"Households aren't in as good a position as they were immediately after the pandemic, but we're talking about a different inflation scenario," said Shannon Grein, an economist at Wells Fargo. "You can view tariffs as temporary price adjustments. Companies won't continually increase their prices due to new tariffs, unlike the demand and supply imbalances during the pandemic."
Nevertheless, lower-income households would be significantly impacted in this scenario, Grein stated.
"Next year, we'll likely have a scenario where spending is positive, but it's concealing numerous vulnerabilities that are surfacing and impacting the lower-income segment dealing with inflation and rates to a much greater extent," she said.
Despite the slight decrease in inflation, Akujuobi and other low-income individuals continue to face financial challenges due to high living costs. The proposed tariffs by President-elect Trump could further exacerbate this situation, potentially leading to increased prices and reduced purchasing power for many households.
In light of these economic challenges, businesses like Walmart and Dollar General have seen an increase in sales from price-conscious consumers, indicating a continued struggle for many American households.
