May 18, 2022 - Economy & Business

Inflation has squelched the optimists

Illustration of a lawn mower next to cut grass forming the shape of a sad face
Illustration: Annelise Capossela/Axios

The broad optimism that Americans felt about the economy in the spring of 2021 — optimism that even a global pandemic and hundreds of thousands of COVID deaths couldn't squelch — has finally been undone by inflation, and health worries that are getting worse rather than better.

Why it matters: The sharp rise in food and energy prices over the past year has had a particularly harsh effect on the finances of suburban and rural Americans.

Driving the news: Every six months, McKinsey and Ipsos conduct a massive survey of Americans, asking about their perceptions of the current state of the economy. This time around, sentiment has fallen sharply.

By the numbers: For the first time since the survey began last year, Americans have a negative outlook on the economy. The overall index fell to 99 (a "negative outlook") this spring from 103 (a "positive outlook") a year ago.

  • City-dwelling Americans remained optimistic overall, with their score falling modestly from 112 to 109.
  • In the suburbs, pessimism started to bite more seriously, with the score falling from 103 last fall to 96 this spring.
  • Rural areas seem to be faring the worst. The index shows the score for rural Americans at a shocking 85, down from an already-weak 95 a year ago.

Between the lines: Overall inflation is bad, with prices rising 8.3% over the past year. Food and energy prices, however, have shot up much more quickly than that, up 17.4% in April from a year previously. Gasoline prices alone were up 43.6%.

  • Inflation therefore hits hardest where Americans have large families with more mouths to feed, and in places where everything is a drive away and there is no public transit.
  • A child free city-dwelling couple who has locked in a low mortgage rate and doesn't own a car will experience inflation very differently than a rural family of five struggling with gas bills, heating bills, and supermarket sticker shock.

Meanwhile: Urban Americans' biggest concerns are health-related. Among younger workers, 64% of 25-34 year-olds said that physical health issues were impacting their ability to effectively to their jobs, and 67% said the same thing of mental health issues.

  • Those numbers are up 7 points and 8 points, respectively, in just a single year.

The bottom line: Americans are not feeling OK. That's unusual.

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