Inflation, end of covid aid spark nostalgia for pandemic economy

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.

By many measures, Johnson has vindicated President 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, Pa. — 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.”

‘We can’t eat it all and hike everything’

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 swanky 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.”

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 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 percent, 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 percent, 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 Doylesville 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.”

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