Pressure is building across the US economy
Image: Yuki Iwamura
New economic data in recent weeks has highlighted growing strain across the US economy, increasingly challenging the White House’s bid to lower costs and improve Americans’ financial outlook.
A look at the current situation:
Prices are surging…
Inflation climbed to a 3.8% annual pace in April, its highest reading since 2023, as the Iran war continued disrupting global energy markets and pushing average gas US prices above $4.50/gallon.
The renewed inflation spike now threatens to keep interest rates elevated for longer, as Federal Reserve officials struggle to bring inflation back to their 2% target.
…as paychecks are now shrinking
For the first time in three years, inflation (3.8% annual pace) is increasing faster than average US wage growth (3.6%), reversing a slow rebound in purchasing power as households continue dealing with ~30% cumulative inflation since the pandemic.
Economists say higher prices may feel worse to consumers in recent months, as slower hiring has made it harder for workers to switch jobs for higher pay—unlike during the inflation surge of 2022-23.
Debt continues to mount
Americans are increasingly relying on credit cards and loans to keep up with rising costs. Consumer borrowing jumped by $24.9 billion in March, the largest monthly increase since late 2022, while the personal savings rate fell to its lowest level in three years.
Consumer confidence is collapsing
Americans are increasingly pessimistic about the economy, despite headlines describing relatively low unemployment and steady GDP growth.
- The University of Michigan’s consumer sentiment index fell by ~7% in April to its lowest level in the survey's 74-year history.
- Consumers now expect inflation to hit 4.8% over the next year, up sharply from 3.8% in March.
Main Street is also souring
Small business optimism recently fell to its lowest level since before Trump’s reelection. Owners are currently grappling with rising costs, weaker consumer demand, and high borrowing rates that continue squeezing expansion plans.
Looking ahead…America’s poor economic sentiment represents a growing challenge for Trump and Republicans heading into November’s midterm elections.
AtlasIntel, one of the most accurate pollsters in 2024, found this week that Democrats now lead the GOP on every major economic issue tested, including the cost of living (+15 points), the economy (+17) and economic inequality (+20).
📊 Flash poll: To all working professionals: would you consider the growth outlook in your industry/sector of the economy to be positive or negative over the next 12 months?
See a 360° view of what pundits are saying →
Sprinkles from the Left
- Some commentators argue that rising costs for child care, housing, health care, and everyday necessities are putting enormous pressure on working families, and that the government should invest more in programs like paid family leave, child tax credits, affordable child care, and protections for children online instead of prioritizing massive defense spending and cuts to social programs.
- Others contend that President Trump’s war strategy has created growing economic instability at home and abroad, arguing that rising gas prices, mounting military costs, global trade disruptions, and mixed messaging from the White House are leaving Americans to bear the financial burden of a conflict with no clear end in sight.
- “How to Fix Affordability” –Former Secretary of State Hillary Clinton
- “Trump's war brings dire economic straits” –Newsday Editorial Board
- “How Much Finance Is Too Much for the US Economy?” –Justin Fox, Bloomberg
Sprinkles from the Right
- Some commentators argue that Democrats are blaming President Trump for rising prices while ignoring that inflation and high gas costs were already major problems under President Biden, and say that Republicans should focus less on tariffs and more on tax cuts and deregulation to ease pressure on consumers and strengthen the economy.
- Others contend that while voters returned President Trump to office hoping he would lower everyday costs, policies like tariffs and pressure on the Federal Reserve risk driving prices even higher, and that lasting affordability will require more deregulation and fewer government-imposed costs on businesses and consumers.
- “Democrats ignore context on Trump economic record” –Las Vegas Review-Journal Editorial Board
- “How affordability turned from a Trump strength to a big weakness” –Ryan Bourne, Cato Institute
- “When inflation is already above target, shocks hurt more” –Washington Post Editorial Board
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