September 16, 2024 by Rachel Ryan

If you are a retiree dependent on a fixed income, or a young person looking to buy your first home, this economy is not working for you. However, if you are a homeowner and in the middle of your career, your wealth has increased nicely over the last few years. This dichotomy underscores the complexities of recent economic trends and its varied impacts across different demographics tends to get lost especially in a presidential election year. 

The biggest pain point for most Americans these last four years has been inflation. While the headline CPI number has been trending lower, food, energy and medical prices still remain stubbornly high. The price of groceries in the U.S. has increased by nearly 25% in the last 4 years and housing costs do not seem to be cooling.

Nearly all private pensions and about 25% of state/local pensions do not adjust for inflation. Social Security payments are legally bound to adjust for cost-of-living increases and keep pace with inflation.  However, even with the COLA increases, according to a study conducted by The Senior Citizens League, the cost of goods and services commonly purchased by retirees increased by 99% from January 2000 to January 2020 and Social Security benefits increased 53%. Clearly these last four years have negatively impacted the quality of life of those dependent on their pension and social security, without other sources of retirement savings/income to combat inflation.

The economy does not seem that great for younger Americans as the dream of homeownership seems more like a fantasy.  The typical home price has increased 47% in the past four years. With the rise in interest rates, the monthly mortgage payment on a typical U.S. home has almost doubled, increasing by 96% in the past four years.  The cost of homeownership now far exceeds the 30% of median income once considered the benchmark for "affordable" housing in America. Although wages have increased, the typical household makes $29,000 less than needed to afford a typical home.

Renting is often the only option for 20-35 year olds. Rents have increased outpacing wage growth and pushed homeownership further down the road for most.  In 2022, the average age of first-time homebuyers was 36, according to the National Association of Realtors (NAR). This is up from 33 in 2021. 

Thankfully, there are also signs the economy is doing well. Since the COVID recession, the US economy has been the strongest performer in the G7, with almost twice as much real GDP growth as the second-place country, Canada.  The labor market has rebounded with unemployment at 4.1%. Overall, wage growth has outpaced inflation for the past 15 months. The most significant rise in wage growth has occurred among young workers, specifically those under 25 years old, and hourly wage earners. Earners over 55 have seen their wages increase at slower rates. (Federal Reserve Bank of Atlanta)

The hot housing market is not all bad news. If you bought your home before 2020, you not only enjoy a sub 4% mortgage rate but have seen the value of your home appreciate significantly. The wealth gap has certainly increased between US homeowners (about 66% of the population) and renters.

A bright spot of the economy has been the significant growth in the stock market. The S&P500 is up about 72% since 2020, and a rising number of Americans own stocks, nearing close to 62%. The vast majority, 87% of Americans, those with annual household incomes of $100,000 or more, own stock. That compares with 25% of lower-income Americans (those whose annual incomes are less than $40,000). About two-thirds of middle-income Americans, 65%, own stock. (Gallup)

Over the past four years, the stock market has effectively hedged against inflation, even though the S&P 500 dropped by 19% in 2022. The robust housing and stock markets have boosted the nation's wealth and supported consumer spending despite inflation.

Depending on your situation, this economy can seem either stifling or flourishing.