President Joe Biden is regularly promoting signs of a strengthening economy and easing inflation, but when it comes to the indicator closest to home, it’s a tough sell.
The surge in grocery prices since just before the Covid lockdown has been stunning: up more than 25%, a full 5 percentage points more than consumer prices overall.
Supermarket Sticker Shock
Grocery prices outpace consumer price index
Source: US Bureau of Labor Statistics
Note: Data normalized as of February 2020
The president has tried channeling consumers’ ire toward food companies and grocery chains, accusing industry giants of abusing market power to raise profit margins at the expense of customers. And he’s tried commiserating, complaining about packaged food “shrinkflation” in a Super Bowl-timed Instagram video and again in his State of the Union address.
But Americans’ regular trips to the grocery store — three times a week for the average US household — are a powerful driver of economic discontent, constantly reminding consumers of the higher cost of feeding a family.
The outsized increase in the cost of food is hurting support for Biden, especially among crucial Democratic constituencies such as minority groups. Low-income and lower-middle-class families are squeezed hardest because they spend a larger share of their income on food.
Kendra Cotton, executive director of the New Georgia Project, which seeks to register voters among marginalized groups, is hearing particularly from Black people about the cost of groceries and everyday expenses. Often, they blame the president, regardless of how much control he has, she said.
“You’ll hear a lot of commentary that government ‘hasn’t done jack for me,’” Cotton said.
In Georgia, a pivotal election battleground, lower-income voters have swung sharply against Biden, mirroring national trends.
Biden narrowly carried the state in 2020, with his strongest support among voters who had a household income below $50,000. Now Georgia registered voters with the same incomes prefer Donald Trump to Biden 50% to 41%, according to a Bloomberg News/Morning Consult poll in February.
Nationally, seven in 10 consumers say they are very or extremely concerned about the cost of groceries, more than any other spending category, including gasoline and rent or housing, according to a February poll by the grocery-industry trade group FMI. Forty-two percent said they were worried about having enough money to buy food in December, the last time FMI asked, compared to 26% at the March 2020 onset of the pandemic.
Groceries Top Inflation Concerns
Source: FMI, February 2024 survey
Omar Ceesay, a 44-year-old insurance claims adjuster and manager from an Atlanta suburb, said the $220 he used to lay out for groceries just a few years ago now only lasts a fraction as long. A 2020 Biden supporter who’s now undecided, he’s grown discouraged with the president over food prices and other economic challenges.
“We cannot readily point to anything that the Biden and Harris administration did directly that affects our bank account,” Ceesay said.
By volume, steak sales over the last 12 months were down 20% from the same period four years earlier, according to consumer research firm NIQ.
Americans are even buying less food overall, with industry executives suggesting consumers may be eating more leftovers and digging deeper into pantries to save money. Measured by unit, grocery purchases over the past 12 months were down 2% from the prior year, though spending is up because of higher prices, according to NIQ.
“For many households, the discretionary budget is what’s left over after paying for food, so the grocery store is the place where we tend to be most aware of inflation,” said Wells Fargo & Co. economist Tim Quinlan.
The White House is amping up criticism of food companies that Biden officials say won’t bring down prices despite healthier profit margins than in pre-pandemic times.
Grocery companies counter that they’re offering cheaper products to consumers looking to save money and working with suppliers to keep prices low. Economists are divided on the role corporate price-gouging may play in US inflation.
“Markups for all retailers spiked during the pandemic, but as they’ve come back down for all other retail groups, food and beverage markups remain elevated,” Jared Bernstein, chairman of Biden’s Council of Economic Advisers, said in an interview. “As their supply chains have improved and some of their input costs have eased, these producers appear to be lagging in passing savings to the customers.”
The Federal Trade Commission sued in February to block Kroger Co.’s $24.6 billion acquisition of Albertsons Cos., arguing the merger would drive up grocery prices.
Democratic Senator Bob Casey, facing a competitive reelection fight in Pennsylvania, has hammered away at grocery prices for months. In February, he introduced legislation — endorsed by Biden — to crack down on “shrinkflation” by targeting it as an illegal unfair and deceptive trade practice.
Casey said his constituents “are sick and tired of digging deeper into their wallets for their weekly grocery runs while corporate executives laugh all the way to the bank.”
The expiration of a pandemic boost in food stamp benefits last year has worsened the impact on millions of lower-income families.
The food sector’s concentrated supply chains, global turmoil, and extreme weather are responsible for the run-up in prices, said Gary Barraco, an assistant vice president at the supply chain software company e2open. Russia’s invasion of Ukraine also drove up the cost of crucial farm supplies including fuel and fertilizer, he added.
Food prices aren’t likely to go down before the November election, said Arun Sundaram, an analyst for CFRA Research.
Still, the US Agriculture Department forecasts grocery inflation will be contained to 1.6% for this year, citing slowing energy costs and falling prices for some agricultural commodities and farm supplies such as fertilizer.
How much food inflation eases will be partially driven by a struggle between grocery chains and their suppliers over costs. In France, grocer Carrefour SA pulled PepsiCo Inc. products from shelves in January because of price hikes.
Food producers and retailers are grappling with how to get shoppers to load up their grocery carts, including appealing to them through discount promotions, said Moritz Breuninger, a principal specializing in food and beverage companies at Kearney, a management consulting firm.
“You don’t want to give back what you’ve built” by dropping prices too much, Breuninger said. But food companies risk antagonizing retailers with more price increases. “They know it’s going to be a tough conversation.”
Big-picture numbers show the U.S. economy beating much of the rest of the world. Gross domestic product grew 2.5% in 2023, compared to 1.9% in Japan, 0.5% in the U.K., and negative 0.3%—a mild recession—in Germany. Unemployment numbers are similar. What these apparently favorable comparisons miss, however, is how spending and investing by the few Americans who own so much of American wealth and receive so much of its income drive an economy that leaves almost everyone else farther and farther behind. Unequal economies are also unduly vulnerable to recessions and financial crises. The seeming strength of the U.S. economy is a brittle platform for growth or, as the White House hopes, political support.
The most recent data measuring global economic inequality date to 2022. These show that the wealthiest 1% of Americans have nearly 35% of national wealth, and the top 10% enjoy 70%, leaving only 30% for the remaining 90% of American households. The share of U.S. income held by the wealthy is also disproportionate: The top 1% of households have 21% of U.S. income, while the top 10% has 48%. This may seem a bit better, but the very unequal wealth numbers are a testament to the fact that the top 10% owns a lot more wealth in part because it keeps far more of its income, much of which comes from investment earnings, not wages.
The difference between U.S. economic inequality and major markets is clear. The top 1%’s share of income in the U.S. is almost double the share of the top 1% in the U.K. Germany, and Japan. The difference between the U.S. and these nations is not as stark as it is for the top 1% measured by wealth, but the U.S. is also far less equal on other key measures of wealth and income inequality.
In the U.S., households save, spend, and go into debt very differently based on their place along the equality distributional curve. Recognizing this reality has important implications for conclusions drawn from the idea that consumption drives the U.S. economy. It does, but not because all households are able to spend on goods and services that power growth. Rather, the economy seems to grow when one looks at bottom-line data because some households are able to spend on selected goods–for instance, higher-priced homes, vacations, and luxuries–and the services that have played a very significant role in powering recent GDP data. The aggregate numbers are growing even though many Americans aren’t saving, spend only for essentials, and often take out more debt to do even that.
U.S. growth is also driven by homeowners who are disproportionately wealthy because of the unique nature of the U.S. mortgage market. The 30-year, fixed-rate mortgage is not standard in other advanced economies. But it has insulated home-owning Americans from the high-interest rates central banks around the world have deployed to quell inflation.
In a completely equal society, aggregate data represent individual experience. That is a nation in which the distribution curve is totally flat–not that there are any–would see each individual receive the same amount of gross domestic product and be equally employed. Thus, in nations such as Japan, the U.K., and Germany, bottom-line indicators better represent the experience of many households even though some always do a good deal better and others a lot worse. In the U.S., some do way, way better and all the rest do a lot worse. Averages instead of medians obscure these differences and aggregate adding up sum totals powered by a few big numbers makes this even worse.
This is clear when the big-picture numbers the administration favors in its Bidenomics defense are assessed with an eye to the actual distribution of economic largesse. As becomes quickly clear, gross numbers are the economic reality most Americans do not in the least enjoy. February payroll data looked good, leading the president to congratulate himself. However, the number of full-time workers has declined by more than 1.8 million since October 2023 while part-time workers grew by over 1.2 million despite accounting for only 17% of the workforce.
And what’s the point of a job if it doesn’t earn a good wage? The Atlanta Fed’s wage-growth tracker has been headed down for almost a year. Most of the pandemic’s big savings boost is gone for most households. Debt delinquencies are rising as wages fall behind and interest rates climb. No wonder then that about 65% of American consumers generally live paycheck to paycheck, paying even less on their credit card and auto loans or not at all to get by. These families are spending, but largely because they are also eating and driving.
Looking at the U.S. economy as aggregate data presents it to judge prosperity and resilience is like looking at a lake covered by ice and assuming one can skate on it from end to end. Weak spots in the ice plunge one quickly into the deep. So too do gaps in an economy driven by inequality. We know from long historical experience that unequal economies are more prone not just to recession, but also to financial crises. Economic policymakers would do well to remember these hard lessons and craft policy accordingly. And traders who are betting that U.S. exceptionalism can power markets to endless new heights just might want to curb a bit of their enthusiasm.
What’s consumers’ relationship with the economy these days? It’s complicated.
As last year drew to a close, inflation appeared to be heading decisively downward, consumer confidence was shooting higher, and many Americans’ wages were finally outpacing price increases. In the early months of 2024, those trends have been a little harder to see, at least on the surface.
The annual inflation rate has bounced around north of 3% for months, the latest retail sales data came in soft, and wholesale prices took an unexpectedly higher leap. None of that has much-rattled markets, where investors remain confident that the Federal Reserve will begin lowering interest rates this year, even if later than initially hoped — a long-awaited sign that the central bank’s crusade against inflation is finally coming to a victorious end.
But we aren’t there yet, and the Fed seems likely to reinforce that message when it meets again next week to plot its path forward. In the meantime, consumers continue to grumble about persistently high prices for everything from houses to burgers. Here’s what economists say the latest batch of indicators adds up to, and where it points in the weeks to come.
Somewhat higher gas prices
About two-thirds of the recent jump in wholesale inflation came from a surge in goods prices that federal economists largely traced to rising energy costs. That includes gasoline, which jumped 6.8% in the wholesale market last month.
Experts see this mainly as a normal seasonal trend. Demand for gasoline usually picks up as daylight saving time kicks in and the summer driving season nears. Prices at the pump are already rising modestly, with the average gallon of regular gas nearing $3.44 as of Friday, up 4 cents from a week ago — and that’s before pricier summer-blend gas has arrived at filling stations, AAA notes.
But energy markets are still dealing with some uncertainty, including from geopolitical factors like recent Ukrainian attacks on Russian refineries. On Thursday, the International Energy Agency revised its outlook for the year, predicting a slight supply deficit that could nudge up energy prices in coming months. Rising oil prices threaten to bleed into the cost of transporting goods, some experts said, which retailers could pass along to consumers.
“This could be a bit of a wild card,” said Ted Rossman, senior industry analyst at Bankrate. “If it all of a sudden costs 5 or 10% more to move goods around, that could contribute to inflation.”
With current gas prices still a few cents shy of their level a year ago, other analysts are more sanguine.
Pump prices are “very visible” to ordinary consumers, said Kayla Bruun, senior economist at Morning Consult, and could weigh a little on spending. “But as long as we have a strong underpinning of the labor market, it’s not necessarily something to be concerned about,” she said.
More cautious consumers
Still, new consumer sentiment figures released Friday showed shoppers’ views have leveled out after marching higher over the winter. “Consumers perceived few signals that the economy is currently improving or deteriorating,” University of Michigan researchers wrote of their March data.
In this climate, many people are getting more conservative with their spending than they were just a few years ago. Earlier in the pandemic recovery, many Americans’ bank accounts were flush with savings and stimulus money, and they flocked to reopened restaurants and fueled a boom in travel.
Some of that is still happening, but on a more measured level, experts said. Budget-conscious travelers have pulled back while more affluent ones continue to shell out as airlines chase premium-level dollars. Retail sales posted a 1.5% gain in February from the same month the year before, preliminary data showed Thursday, but they rose just 0.6% from January. “If you adjust for inflation, the sales were actually down a little bit,” Rossman said.
“A lot of people are saying, either with their words or even more so their actions, that maybe it’s not the best time to do a big home renovation or buy a new TV,” he said.
Americans’ wage growth is still trending above pre-pandemic rates, and unemployment continues to hold beneath 4%, despite ticking up last month. But persistently higher prices are eating into consumers’ income, even as inflation slows and some brands finally start to ease off their price hikes.
“People are spending for the most part because they have to, not because they necessarily want to,” Rossman added.
Known unknowns
Though the signals may look mixed at the moment, experts are broadly optimistic that the economy is on the right track.
What happens next is “going to depend a lot on the Federal Reserve’s interest rate path in the last six months of the year,” said Tuan Nguyen, U.S. economist at accounting and consulting firm RSM.
Already, though, RSM has updated its forecast for inflation to reach 2% as soon as midyear, more bullish than its previous estimate, based partly on “encouraging” retail numbers, Nguyen said. The Fed has pegged 2% as a target inflation rate it sees as supportive but not too restrictive of economic growth.
Rossman said this year’s economic data so far is “reflective of a slow-growth economy, but still a growing one.” That could boost the Fed’s confidence that it can keep rates “higher for longer” to tackle inflation without doing much collateral damage elsewhere, he said.
At the same time, Rossman noted that soaring credit card debt remains a key factor in how Americans will feel about the economy in the coming months.
“I think it does very much depend on where one falls on that spectrum, as far as are you in the 44% of Americans with credit card debt?” he said. “If so, those rates are at record highs, and that’s a tough burden.”