Americans are feeling opportunity slipping away. After a summer of rising gas and food prices, many feel economic conditions are tough and likely to become worse as the war in Ukraine continues to tighten supply chains and a strong job market starts showing signs of deceleration—creating an environment that is taking a toll on the budgets of those with lower incomes.
A growing pessimism is one of the key findings of the fourth, semi-annual edition of McKinsey’s American Opportunity Survey (AOS), which explores in depth Americans’ perceptions of the current and future state of the US economy—and their place within it. McKinsey worked alongside the market research and opinion-polling firm Ipsos to query 2,010 Americans in fall 2022. The data allowed for a better understanding of how outcomes and perceptions are affected by people’s access to resources, as well as by factors such as gender, age, income, education, ethnicity, urbanicity, and immigration. The breadth and depth of our sample gave timely insights across demographic categories and geographic cuts (see sidebar, “About the survey”).
This article, part of a series, presents the survey’s findings on access to economic opportunity, the steady rise in prices, and the hard budget choices households are facing.
Access to economic opportunity
Americans were slightly pessimistic last spring. A summer of stifling economic conditions has tipped the scales broadly to pessimism. Across every demographic group and metric, Americans have moved toward a negative view. McKinsey’s scores of US economic outlook—scaled from 0 to 200, from low perception of economic opportunity to high perception of economic opportunity, with 100 being neutral—showed a 14-point drop from 99 to 85 in overall economic sentiment compared with a survey of six months ago and an 18-point drop from a survey of a year ago (Exhibit 1).
Unlike previous surveys, the lack of optimism cut across all income levels, genders, and ages, with the sharpest declines among those aged 25 to 34 years old—a group we would expect to be optimistic given they are at the start of their careers and in a relatively job-rich economy.
There are a range of potential drivers that could explain this declining optimism. Those 25 to 34 years old may have historically been saving for and looking to buy a first home. Today, that group is seeing interest rates rise to levels not seen in more than a decade. As for older Americans, many of them may be on fixed incomes—facing rising prices for everyday expenses. Even the wealthy, who may have endured shifting economic tides early in the cycle, may be seeing their financial buffer—a stock portfolio or retirement account—shrink.
Persistent inflation weighs on Americans’ near- and long-term outlook
In one significant way, Americans have reason to be optimistic. The US unemployment rate is almost unchanged: 3.7 percent, compared to 3.6 percent in April when we last conducted the survey. And three-month moving wage growth remains strong: 6.4 percent in October, compared to 6 percent six months ago.
Inflation, however, remains stubbornly high: 7.7 percent year over year in October, compared to 8.3 percent in April. Thus, in real terms, the average American household income today buys less than it could six months ago.
In a context in which price gains outstrip wage growth, more respondents than last year believe America is doing a poor job of providing opportunities for all people (Exhibit 2). And they expect that the trend will continue for themselves and the country in a year and five years from now.
Even cohorts who are relatively economically well-off were pessimistic. Adults aged 25 to 34 suffered the highest drop, underscoring the challenges facing those entering their prime earning years. Higher-income Americans (more than $100,000 annually) experienced the highest drop of 24 points in overall economic sentiment compared with that of six months ago. Although the survey did not ask directly, high-income Americans may have been initially insulated from high inflation (as seen in the spring 2022 run of AOS), with financial tools to alleviate the effects, but the sustained rise in prices and perhaps other factors ended up diminishing their optimism.
Spending more and cutting back—yes, both are true
We asked Americans about their spending habits, and they reported what seemed to be two approaches: some are spending more, and others are cutting back, with variation across categories of expenditure (Exhibit 3). Americans have notably increased spending on essentials such as groceries, utilities, transportation, housing, and healthcare. At the same time, many others are cutting back in many of the same categories. What determines the approach? Income—those with lower incomes have slashed discretionary spending and, in some cases, essentials.
While 19 percent of American households are spending less on groceries, for those making less than $50,000 annually, 23 percent say they have cut their grocery budget. By contrast, just 12 percent of those making more than $100,000 annually have cut back.
With cash buffers from the stimulus checks running low among low-income households, Americans are increasingly resorting to drawing down savings and running up credit card debt. Twenty-four percent of respondents saw a decrease in their debt payments or savings, a 4 percent increase in the past six months. The rising interest rate environment and increased reliance on debt financing may increase financial difficulties for American households in 2023.
Ultimately, the prolonged squeeze on budgets has worn down even the most optimistic Americans. Higher interest rates and prices have combined with lower values and returns on investments. There may still be opportunity. But for many, it feels further away than it did just a few months ago.
OTTAWA – The federal government is expected to boost the minimum hourly wage that must be paid to temporary foreign workers in the high-wage stream as a way to encourage employers to hire more Canadian staff.
Under the current program’s high-wage labour market impact assessment (LMIA) stream, an employer must pay at least the median income in their province to qualify for a permit. A government official, who The Canadian Press is not naming because they are not authorized to speak publicly about the change, said Employment Minister Randy Boissonnault will announce Tuesday that the threshold will increase to 20 per cent above the provincial median hourly wage.
The change is scheduled to come into force on Nov. 8.
As with previous changes to the Temporary Foreign Worker program, the government’s goal is to encourage employers to hire more Canadian workers. The Liberal government has faced criticism for increasing the number of temporary residents allowed into Canada, which many have linked to housing shortages and a higher cost of living.
The program has also come under fire for allegations of mistreatment of workers.
A LMIA is required for an employer to hire a temporary foreign worker, and is used to demonstrate there aren’t enough Canadian workers to fill the positions they are filling.
In Ontario, the median hourly wage is $28.39 for the high-wage bracket, so once the change takes effect an employer will need to pay at least $34.07 per hour.
The government official estimates this change will affect up to 34,000 workers under the LMIA high-wage stream. Existing work permits will not be affected, but the official said the planned change will affect their renewals.
According to public data from Immigration, Refugees and Citizenship Canada, 183,820 temporary foreign worker permits became effective in 2023. That was up from 98,025 in 2019 — an 88 per cent increase.
The upcoming change is the latest in a series of moves to tighten eligibility rules in order to limit temporary residents, including international students and foreign workers. Those changes include imposing caps on the percentage of low-wage foreign workers in some sectors and ending permits in metropolitan areas with high unemployment rates.
Temporary foreign workers in the agriculture sector are not affected by past rule changes.
This report by The Canadian Press was first published Oct. 21, 2024.
OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.
However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.
The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.
Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.
The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.
The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.
This report by The Canadian Press was first published Oct. 17, 2024.
OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.
In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.
The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.
Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.
In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.
It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.
This report by The Canadian Press was first published Oct 16, 2024.
