Americans were worried about the economy even before inflation exploded, Fed survey shows

Americans already were getting nervous about the state of the national economy late last year, before the spate of surging prices and fears of a looming recession that have arisen in 2022, according to a Federal Reserve survey released Monday.

The Fed’s annual Survey of Household Economics and Decisionmaking for 2021 showed that just 24% thought national economic conditions were good or excellent. That was down from 26% in the pandemic-scarred 2020 and a tumble all the way from 50% in 2019.

Similarly, those rating their local economies favorably totaled 48% last year, actually an improvement from the 43% in 2020 but a sharp decline from 2019’s 63%.

The survey was conducted in October and November and came from interviews of more than 11,000 respondents.

By then, inflation had just started heating up, with the consumer price index rising 6.8% in November from the same time in 2020, on the way to an 8.5% peak in March 2022. Also, first-quarter growth as measured by gross domestic product declined 1.4%, the first negative reading since the pandemic outbreak in the first quarter of 2020.

Despite their concerns about a slowing economy, households reported fairly strong financial circumstances. Some 78% said they were doing either OK or living comfortably, the highest reading yet for a survey that goes back to 2013. Low-income families saw particular growth in that category, jumping 13 percentage points from 2020 to 53%.

Similarly, 68% said they could cover a $400 expense either with cash or a credit card, also a new high. The share of those saying they were worse off financially than a year ago fell four percentage points to 20%, but was still notably higher than 2019’s 14%.

The survey came well ahead of the Fed’s moves to start slowing the economy with interest rate hikes as inflation raged in late 2021 and so far this year. In addition, the central bank halted its monthly bond purchases and in June will start reducing its $9 trillion in holdings.

A separate survey released Monday from the New York Fed showed decreasing expectations for government help through social programs.

Since the start of the pandemic, Congress approved more than $5 trillion in various aid forms. Expectations for rising welfare and unemployment benefits tumbled from respective highs of 49% and 45% in April 2021 to 35% and 26% a year later.

Respondents to that survey also indicated decreasing expectations for housing assistance and student loan programs. The likelihood of an increase in the federal minimum wage also declined from 50% in April 2021 to 39% this year.