For months, economic commentators and Biden administration officials have been puzzled by the low ratings of the president’s economic management. Despite strong job growth and near full employment, the country’s middle-class households experienced a significant decrease in income last year, according to a recent report from the U.S. Census Bureau.
In 2022, households in the middle of the economic distribution saw their incomes fall by 2.3% when adjusted for inflation. This decline was widespread, affecting men and women, couples and single-person households, and both full-time and part-time workers. It is important to note that this decrease in income does not reflect a reduction in labor effort, as the number of full-time workers has grown faster than the total labor force. Additionally, it does not reflect a decline in salaries received, which actually increased by 4.6% in 2022. However, due to the high inflation rate of 7.8%, most households’ incomes did not stretch as far as they did in previous years.
This decline in income is part of a long-term trend that has been observed over the past few years. After reaching $78,250 in 2019, inflation-adjusted household income declined due to the effects of the pandemic. Although it stabilized in 2021, it fell again in 2022. At the end of 2022, the average household’s purchasing power was 4.7% lower than it was three years ago.
The stabilization in 2021 was largely due to government subsidies provided through the American Rescue Plan and bipartisan economic aid. However, many of these subsidies are set to decline in 2022, which will further decrease household incomes. In fact, after-tax household income decreased by 8.8% in 2022 compared to the previous year. This decline was observed among white, black, and Hispanic Americans.
There is hope that the worst is over for American families in terms of declining incomes. Inflation is expected to be lower in 2023 compared to 2022, and wage growth has remained relatively strong, outpacing inflation in recent months. Additionally, the impact of reduced government subsidies will be less significant in 2023. The effects of economic legislation may also begin to be felt by workers, which could improve their perception of President Biden’s economic management.
Voters are sensitive to changes in purchasing power, and if inflation-adjusted household incomes continue to rise in the next year, President Biden may receive higher ratings for his economic management. This could alleviate major obstacles to his reelection. However, if this does not happen, Republican opponents may struggle to counter this issue, especially if the race is as close as recent polls suggest.