Low-income Americans are struggling. It could get worse

Washington
CNN
 — 

Chiugo Akujuobi has survived on food pantries and donations from friends since fleeing their family home in Houston earlier this year. They said they grew tired of frequent transphobic comments from relatives.

The 26-year-old now sleeps on a friend’s couch in North Texas. They graduated with a bachelor’s degree from Scripps College in 2021 and have struggled to find a full-time job, instead taking on some work doing graphic design, social media marketing and copywriting on a contract basis.

Akujuobi is one of millions of Americans who are struggling in today’s economy. This calendar year, Akujuobi estimates they made less than $10,000. The poverty line was $15,480 for a single person in 2023, according to the latest data from the Census Bureau.

The cost of living crisis in the US has eased somewhat, but low-income Americans are still struggling after years of high inflation and elevated interest rates. Their situation could worsen if President-elect Donald Trump keeps his promise of slapping hefty tariffs on America’s three biggest trading partners, which could reignite inflation, economists say.

“I don’t know how I’ve survived for this long,” Akujuobi said. “If it gets worse, I know that poor people will still be resourceful. We just make do with what we have.”

Inflation is down considerably from the 40-year highs of 2022, when gasoline prices topped $5 a gallon and home prices surged by double digits.

However, prices were up a cumulative 22.2% in November of this year compared to January 2020, according to the latest Consumer Price Index, which tracks price changes of commonly purchased goods and services. And after jacking up interest rates to a 23-year high, the Federal Reserve finally began to cut rates in September, though officials have said in recent speeches that borrowing costs are still exerting pain on parts of the economy. Fed officials have also said they’re in no rush to lower borrowing costs.

Many Americans are still in a tough spot: Nearly 30% of all US households this year said they spend more than 95% of their disposable income on necessities such as housing costs, groceries and utility bills, according to a Bank of America Institute report, up from 2019 levels. That share is higher, at around 35%, for households making less than $50,000 a year.

“Lower-income households are always going to be the ones that feel the brunt of high inflation and high interest rates,” said Elizabeth Renter, senior economist at NerdWallet.

Wage growth finally began to outpace inflation in early 2023, with US households on the lowest end of the income spectrum seeing their wages grow the second-fastest, according to Atlanta Fed data. But their earnings have slowed sharply since then, trailing the wage growth of the richest Americans as of November.

Companies that offer bargains and staple items, such as Ross Stores, Dollar General and Walmart, have reaped the rewards from price-conscious consumers. Walmart posted higher-than-expected revenue for the first three months of the year, and Dollar General had reported increased foot traffic.

Retailers have also noted signs of low-income consumers feeling strained.

“If you listen to earnings reports from some of the retailers who deal a lot with low- and moderate-income people, they uniformly say that people are under pressure,” Fed Chair Jerome Powell said at an event in New York earlier this month.

If Trump proceeds with imposing 25% tariffs on imported goods from Canada and Mexico and an additional 10% duty on Chinese goods, prices could increase next year by 0.75%, according to an estimate by economists at the Yale Budget Lab provided to CNN.

That would equal a loss of about $1,200 in annual purchasing power per household, in 2023 dollars, according to the estimate. But prices could rise slightly less if Americans purchase goods that are produced domestically or from countries with lower tariffs.

However, a high-inflation episode would likely look different from the most recent one that erupted in 2021, which was generally due to pandemic-fueled demand and supply shocks, economists say.

This time, Americans won’t have support from savings they accumulated during the coronavirus pandemic and benefits from pandemic-era programs that have now expired, such as an extension to the child tax credit and free school lunches.

“Households are not in as good a shape as they were coming immediately out of the pandemic, but we’re talking about a different inflation scenario,” said Shannon Grein, an economist at Wells Fargo. “You can think of tariffs as these as one-time price adjustments. Companies aren’t going to keep increasing their prices month after month because of new tariffs versus the supply and demand imbalances during the pandemic.”

Still, low-income households would be heavily impacted in this scenario, Grein said.

“Next year, we’ll likely have an environment where spending is positive, it’s slowing, but it’s masking a lot of these vulnerabilities that are coming to a head and impacting the lower-income segment dealing with inflation and rates to a much larger degree,” she said.