The comedown: After stimulus boom, Americans face a darkening economy

Jazmin Johnson never had more than $300 in her bank account. Then came a gusher of federal stimulus funds during the pandemic, and Johnson’s savings swelled, rising to roughly $10,000 one day last spring.

But roughly a year later, that boost is almost all gone. On a recent Tuesday morning, the mother of two sat at a food pantry in the Philadelphia suburbs, waiting to pick up free diapers and lamenting that her bank balance now stands at $511. On their last trip to the grocery store, Johnson told her 3-year-old that they could no longer afford his favorite red Hawaiian Punch.

That kind of turnaround is alarming for anyone going through it — and it may be the key to understanding why Americans have turned so sharply on this economy, posing a massive political threat to the Biden administration and Democrats in Congress ahead of this year’s midterm elections. The economy snapped back so quickly from the pandemic that people like Johnson are in a paradox: They’re worse off now, financially, than they were even when COVID was a much more severe health threat, the national unemployment rate was almost twice as high, and economic growth was uneven.

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By many measures, Johnson has vindicated President Joe Biden’s economic policies. The cash from Biden’s American Rescue Plan stimulus program gave her $4,200 in stimulus checks — for herself and two kids — followed by big increases in food stamp assistance and a significantly larger Child Tax Credit. That helped her go back to school last spring, where she got a degree as a medical assistant. A better job, and higher pay, soon followed, treating dementia patients at a hospital nearby. Despite the recent decline, her savings are still technically larger than at any other point in her life.

But Johnson does not feel like an economic success story. Instead, she has a sense of acute loss for that fleeting period last spring where remarkable new financial opportunities appeared possible. Like the country overall, Johnson has slowly and steadily gotten poorer over the past year. Her expenses have soared due to the fastest inflation in four decades, and the many pandemic-driven government programs that supplemented her income have been eliminated one by one.

"It was a weight lifted like I can't describe. I could actually buy what I wanted to at the grocery store," said Johnson, 22. "But now I keep telling my boyfriend that I'm stuck. Living is so much harder now."

The coronavirus — and attempts to mitigate its severity — severely damaged large sectors of the American economy when it first hit in February 2020, with unemployment spiking as schools and businesses closed their doors over the following month. But despite those severe shocks, the country’s economy emerged from the pandemic not only intact but propelled by a historic boom. Flush with cash from nearly $6 trillion in unprecedented federal stimulus, consumer spending exploded. America created more jobs last year than any other year in the nation’s history. The economy grew by the fastest rate in 38 years.

The only direction to go was down. Compared to almost any other time in modern history, American households still have lots of cash. But compared to last year, they have significantly less — particularly as costs have continued to rise faster than their wages for the last year. This economic comedown now appears poised to quickly get much more intense, with signs of early declines in business growth, consumer spending, and hiring as the Federal Reserve raises interest rates to curb rapidly rising inflation.

Interviews with more than three dozen people in Bucks County — one of most narrowly divided counties in one of the most critical swing states in the 2020 presidential election — turned up a lingering nostalgia for the pandemic economy, as inflation has eroded stimulus savings over the last year. It amounts to an intractable problem for the White House, which cannot bring back the stimulus checks and other relief measures that offered an unprecedented, but temporary, degree of financial stability for millions of people that is fading painfully with every trip to the grocery store and gas station.

"There's no doubt wealth is much higher now than it was two years ago or in the time before that," said Jason Furman, who served as a senior economist in the Obama administration and is now a professor at Harvard University. "But people have literally become poorer, by any concept, over the last year. Over the last 12-month period, just about everything has moved in the wrong direction. It should not be a mystery why people are worried."

Kitty Ghen, 63, and Nancy Strenger, 62, walked out of 86 West in Doylestown on a balmy Tuesday evening, the longtime friends emerging from the swank sushi restaurant into a busy downtown strip thrumming with diners and shoppers. The last two years have been good for them: Ghen received a federal grant from the Paycheck Protection Program at the start of the pandemic and later got a separate COVID-related business grant from the county. Strenger had enjoyed the rising value of her cryptocurrency investments.

But in a change from their normal routine, Ghen and Strenger each only had one drink at happy hour and headed back to their respective homes for dinner, having decided to cook more to save. Ghen is an acupuncturist and fears the current downturn in the stock market will lead patients to cut out her practice in favor of more essential medical needs. Strenger, who is retired, watched the value of her cryptocurrencies collapse this month.

"I don't get the food I used to get," Ghen said. "I'm more careful than ever."

Strenger added: "The stocks have amazingly been going downhill, and it really put a scare into me."

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With about 630,000 residents, Bucks County is a middle- to upper-income suburb of Philadelphia, and the borough of Doylestown represents its affluent economic core. COVID shut down the city’s downtown much as it affected cities across the country. But, financially, Doylestown and its 8,250 residents rebounded. More than $100 million in small-business loans flowed into the city from the stimulus package signed by Donald Trump in March 2020. Bucks County is receiving $122 million from Biden’s rescue plan, which passed last year.

The county added an additional 600 new businesses from 2020 to 2021, according to federal data. Home values in Doylestown increased by 35%, according to Redfin. A new bitcoin ATM opened at the Doylestown Global Gas Station on North Easton Road, as did one at a local Giant. These all mirrored national trends — Americans applied to start 5.4 million small businesses last year, a record that exceeds any other year by 20%, and asset prices nationwide were inflated by historically low interest rates intended to spur demand.

“Toward the beginning of COVID, we were really well-received; we were doing local deliveries; people were really willing to come out,” said Caitlin Hernandez, 31, owner of Makers Off Main, which sells handcrafted works from a collective of local artists and opened during the pandemic.

But this boom appears to have crested. Small businesses nationally have soured on the economy and are increasingly concerned about their ability to pass on higher costs to their customers. The percentage of small-business owners who expect better conditions fell from April to May for the fifth consecutive month, according to the National Federation of Independent Businesses — notching the worst reading in the 48-year history of the survey.

Discretionary purchases may be the first to go. Hernandez's art workshops, for instance, had been drawing about 10 people consistently; now, they're attended by only two or three people, or canceled altogether. "Supporting small businesses is harder when the economy is down and money is tight," she said.

Many business owners in Bucks County say demand is keeping up for now, but worry that it is at risk if persistent inflation forces them to implement another round of price hikes. Owen Burke, 20, the part-owner of the diner Coach’s, already raised the price of his Philly cheesesteak — called the “Buck” — from $9 to $11.95 in response to the rising costs of ingredients. His supplier just increased his price tag for fries from $30 to $50 for a case of seven bags. Some customers grumbled but most kept buying, though Burke is now worried they’ll revolt if he raises prices again.

The duration of the price hikes makes them particularly anxiety-inducing, because businesses can’t anticipate their impact on future sales. Up the street from Coach’s, James Lamb, 43, pointed at a row of candy bars and let out a small sigh. Already, his Evolution Candy store in downtown Doylestown had raised the price of Charms sour balls from $2 to $2.25. One of the store’s novelty items, a roughly foot-long Rice Krispy treat, once sold for $19.95 but now goes for $25.95. And the store may have to raise the price of their traditional candy bars — like Hershey’s and Twix — from $1.50 to $1.65.

"We want to go for $1.65, but the community might not be ready for it," Lamb said. "We're eating some things," he said of the higher prices being paid to suppliers, "because we can't eat it all at once and hike everything."

For about two decades, Colleen Lester, 53, had put off treating the chronic pain in her back and hip. But when her stimulus check arrived last spring, she was finally able to pay for a specialty chiropractor who relieved her symptoms. “It was peace of mind — not constantly worried about paying my bills. We always struggled financially, and I’ve always lived paycheck to paycheck,” Lester said. “I tried not to spend that money. It was, ‘Oh my gosh’; it felt so nice.”

But now Lester says she is back to scrambling to keep her bank balance above the $100 minimum. A day-care provider, Lester has cut back on buying healthy food at the grocery store and stopped purchasing organic food. She is also trying to eat less overall. She is unsure if she can continue to afford the treatment for her back. "I'm feeling the anxiety a lot now," she said. "What if something breaks? I really don't have anything in my bank account."

While it was primarily intended on boosting the economy overall, the biggest impact from the federal stimulus may have been on improving the safety net. From December 2020 to April 2021, when the Biden administration sent out $1,400 stimulus checks, the share of Americans nationwide reporting that they did not have enough to eat fell by 40%, according to University of Michigan poverty researchers. Financial instability fell by 45%, the researchers found. "Adverse mental health symptoms" fell by more than 20%.

These benefits have not entirely dissipated. Americans at the bottom of the income distribution appear, by many indicators, to be better off financially than they were before the pandemic. Nationally, Americans’ bank accounts still remain roughly 70% higher than where they were before the pandemic started, according to data from JPMorgan Chase. Seventy-eight percent of Americans reported doing at least OK financially at the end of 2021, according to a Federal Reserve survey — the highest rate since 2013, when the survey began. Delinquencies on auto loans, mortgages and credit card debts remain low by historical standards.

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But the trend is clear: The JP Morgan data shows a 35% drop in the bank accounts of poor families relative from last spring to this past February — a number that is not adjusted for 8% inflation as well over the last year — although balances increased slightly due to tax refunds sent in March.

The share of Americans who reported sometimes or often going hungry plummeted to 8% in April 2021. It had risen back to 10% by February of this year, according to a research paper by University of Michigan poverty researchers Patrick Cooney, H. Luke Shaefer, and Samiul Jubaed. Similarly, the percentage of Americans who said it was very difficult to pay for household expenses increased from roughly 9.8% in April 2021 to 14% this February, the paper found. Feeding America, one of the biggest national food bank organizations, said 80% of its organization saw demand increase or stay the same from April 2021 to March of this year.

These head winds are evident in Bucks County, too. Calls for help to Between Friends Outreach, a nonprofit that helps house and feed struggling families, are up from roughly 60 a month to 100 a month, according to Tara Stoop, the group's managing director. Doylestown FISH, another emergency assistance nonprofit, said requests for help plunged from 767 in 2019 to around 500 during the pandemic. This year, they're on track to surpass the 2019 levels of requests for help. Utility shut-offs were suspended during the pandemic before resuming last year.

"The requests for help with utility bills we used to get were for $500 or $600," said Marijane Harris, the group's president. "Now people are thousands of dollars behind. Our numbers have changed drastically."

The economic whiplash has been more drastic for parents than perhaps any other group. Johnson has lost not just Biden’s monthly Child Tax Credit of $300 per month for young kids, which expired at the end of last year, but also most of her food stamp payments, which were slashed from $600 per month (bumped up by a temporary federal assistance program during the pandemic) to $32. Baby formula that cost $13 is now $22 — when she can find it — and gas to get to work and pick up the kids costs hundreds more.

With her kids’ toys scattered on the carpet, Johnson looked out the window of her apartment — where the rent just increased from $325 to $500 per month — and remembered her feeling when the stimulus payments arrived last year. She is pregnant, and is not sure where she will live when she gives birth again next year.

The better future she dreamed about a year ago seems like it's slipping out of reach.

“As soon as [the checks] hit, I told everyone that I wanted to put it down for a house. I said this was the perfect time, the perfect opportunity, for somewhere to start,” Johnson said. Within hours, she called her grandmother and asked for advice on how to save for a mortgage. “I thought, ‘Maybe in a year or two, we’ll have the money.’”