Higher prices and job struggles: The challenges many Ninth District households face

Wages are rising quickly by historical standards, but many workers still say their paychecks barely cover their necessities. Higher-paying jobs feel unavailable to people with caretaking demands, and lower-wage opportunities come with more demands from employers. As the recent end-of-year holidays approached, many households planned cutbacks on gifts and skipped family gatherings to eliminate travel costs. Debt was starting to climb, and savings were few and far between.

These were among the stories Federal Reserve Bank of Minneapolis staff heard during listening sessions in late 2022. They followed an initial round of sessions that covered the first half of that year. All of the sessions are part of ongoing work to better understand how current economic conditions have impacted households with low to moderate incomes.

We heard a lot about the severe challenges high inflation poses for those living paycheck to paycheck. The less income someone has, the fewer options they likely have to reduce their expenses. For example, when discussing food costs, many listening-session participants noted that they’ve already been buying store brands, shopping sales, and purchasing in bulk for a long time. Higher-income shoppers, by contrast, are more likely to be able to adopt such strategies to save money when inflation is high. The ubiquity of this reality is reflected in data on consumer spending.

As monetary policymakers grapple with difficult decisions about how to bring down inflation, it’s important that they know how the most-vulnerable members of our economy are experiencing inflation and the labor market. To that end, in collaboration with six organizations across the Ninth Federal Reserve District, we conducted seven different listening sessions with a total of nearly 50 low- to moderate-income participants. (See our “About the listening sessions” sidebar for more details.) Our conversations focused on people’s economic well-being from July through December 2022.

Gas prices still a drag on household budgets

Gasoline prices peaked as we gathered our initial focus groups earlier in 2022. According to the Consumer Price Index (CPI), a commonly used measure of inflation, a full tank of gasoline cost about 20 percent less in November 2022 than in June 2022. But prices are still higher than they were a few years ago. In February 2020, a gallon of gasoline cost 40 percent less than it did in November 2022.

The reduced prices of late 2022 still felt expensive for our participants, especially in rural areas. “When you look for work, you have to do the math,” said one woman working three part-time jobs. “Is it even going to be worth the money it takes to get me there?” A grandmother noted that the same petroleum-based, cost-benefit calculation factors into decisions about whether to apply for, or collect, assistance from a rural nonprofit or public agency office that might be an hour’s drive away or more.

Long drives, unpredictable or unaligned work schedules, and a lack of public transportation made it hard for rural residents to cut their gasoline budget. A foster parent and nurse providing a home for five children echoed other participants when she said, “We can’t carpool because our families’ needs are different.”

Filling the pantry is more expensive

Food prices have increased more steadily than gasoline prices. The CPI measure for food prices increased by about 4 percent from June 2022 to November 2022 and is up 21 percent relative to early 2020.

“For even basic, real-cheap meals, like eggs or cereal, prices are going up at a fast pace,” said one long-term-unemployed listening-session participant.

A few participants said they’d switched from buying fresh foods to canned or frozen foods, but most said they felt they couldn’t cut food costs any more. A few participants discussed cutting back on food altogether. “I buy vitamins to make sure we get everything we need,” said one child care worker. “We don’t even do meals ... we’re eating like rats.”

Renters and homeowners pay more for shelter

Homeowners said their housing costs, like maintenance, property taxes, insurance, and association fees, had increased rapidly. Renters in rural and urban areas alike shared concerns about increasing rents at their current homes and in the market overall. Even if cheaper options were available, moving presented a high cost.

“Taking care of everything when you move sucks,” said one woman balancing two jobs, attending school part-time, and raising a child on her own. “You have to pay to move, plus you have to pay to change your driver’s license and start utilities.”

As in our earlier listening sessions, renters were pessimistic about their chances to buy a home. Mortgage interest rates were already on their way up during our first round of listening sessions in the first half of 2022. They climbed about two percentage points more by year’s end. Renters aspiring to own a home talked about feeling hopeless when they looked at the combination of these higher interest rates and house prices.

“We expect to rent the rest of our life,” said one participant in rural Minnesota.

Both renters and homeowners mentioned increasing utility bills. The Ninth District’s cold winters can mean heating bills are more expensive than in other parts of the country. Because funding for utility assistance like the Low Income Home Energy Assistance Program is limited, not all eligible families can receive it.

Costs of other necessities threaten economic stability

Participants in both our first and second rounds of listening sessions described difficulties finding or paying for child care. These reports track with data telling us child-care-related work disruptions are common and the supply of child care remains low relative to pre-pandemic times. Two people noted that informal child care is now costlier.

“My daughter was going to get a fast-food job,” said one working grandmother who brought her grandchild to the listening session. “But the people who would watch her child now want $25 or $35 a day. It used to be $10.”

Several participants said they’d seen a rise in the cost of health insurance. Some noted that this made economic advancement more difficult for two reasons. First, earning too much pay would cause a household to lose eligibility for publicly subsidized health insurance. Second, they figured that the money spent on private health insurance premiums (and health expenses) would outweigh any increase in their paycheck. As one child care worker put it, “If you look at a job that pays more, the cost of insurance for a family plan means it won’t really be worth it.”

Decreasing hours, increasing demands, stretched budgets

While some participants had received wage increases in the recent past, they still lived paycheck to paycheck. “As my income has gone up, so have my costs,” said one woman training to be a certified nursing assistant in Montana.

Wages are only one part of the equation for hourly workers. Janitors described being asked to do more work in less time.

“In the winter, we used to get more time to get our work done, because things get dirtier,” said one. “But we get less time now, with the expectation that we’ll do the same amount and quality of work.”

Employees in the food processing, janitorial, construction, and service sectors all told of increasing demands at work without commensurate increases in wages.

“They’re assigning jobs to one person that used to take two people,” said one worker in the meat-processing sector. “You can’t do it, or it’s very stressful. That’s why people are quitting.”

The relationship between wages and expenses left many participants feeling like they should take on multiple jobs or pursue training and education to give them higher-paying opportunities. But these decisions came with trade-offs.

“I spend all day taking care of other people’s kids, and then I get home and push my kids away,” said one mother working in a child care center, teaching ice-skating lessons, and taking college classes to be an elementary school educator.

A few participants noted that some companies offer new-hire bonuses. But others said that these bonuses often require consistent attendance, which is difficult during the ongoing pandemic. One woman said that jobs with signing bonuses pay relatively low wages that may not sustain a family in the long term.

Illness is more than a health hazard

Hourly workers without any sick time described how illness could be an employment and financial hazard. One construction worker said he didn’t go to work because he had COVID-19, and was fired. A janitor described the difficult decision workers face when they get sick: “It’s not okay to go into work if you have a virus [because you’re putting other people at risk]. This conflict puts a lot of stress on a person.”

A worker at a food-processing facility noted that his employer offered compensation of $90 a week if people couldn’t work because they were stricken with COVID-19—not nearly enough money to make up for lost wages.

Parents said that, in the past, they could schedule their work around an illness in the family by making an appointment with their primary-care provider or going to an urgent-care clinic. Now, wait times at crowded primary- and urgent-care clinics have stretched into hours, and parents are having to take whole days off in order to get their children seen—if they can get them in at all. “My son was sick and couldn’t go to school,” said one janitor, a single parent. “But what happens with me? I can’t afford to quit working, not even for a day.”

Household savings are rare, debt is up

Many of our participants said they’ve never had any savings. Those with some savings reported using them recently for emergencies or to offset lost income. “I had to pull from savings when work was scarce,” said one person working retail. She’d left the labor force temporarily to take care of her mother. When it came to savings, she said, “It feels like I’m starting over.”

Some participants talked about borrowing money from family and friends to make ends meet. Among all the participants, janitorial workers talked the most about increasing their debt load.

“My credit card debt is maxed out, and that worries me,” said one janitor. The same woman had an expensive medical procedure and needed her social network to help with her bills.

“Before, we could pay our credit card off every month,” said another janitor. “Now, sometimes, we can’t make payments for two months in a row.” Their experience tracks with data showing that credit card delinquency is increasing in areas with lower household incomes; however, delinquency rates remain below their pre-pandemic levels.

A troubled outlook

As we did in the early part of 2022, we asked the participants in our more recent round of listening sessions whether they expected their economic conditions to improve. With some variation, most participants expected things to remain more or less the same. Some hoped their efforts to gain more skills, renegotiate labor contracts, or take other steps to improve their financial well-being would pay off. But mostly, they didn’t expect the job market or prices to change in their favor.

One part-time student and full-time health care worker in Montana echoed other participants when she lamented a lack of attention paid to low-wage workers. “There should be more [public] help with financial stuff,” she said. “When you can’t make ends meet, it’s very hard on your mental health. Especially if you have kids or people you need to support. There should be more awareness of that.”

“Prices will keep going up,” said one young woman working multiple jobs in rural Minnesota. “It’s hard to think about the future. Can I afford children? I don’t know if I can, when my parents are getting older and I’ll have to care for them.”

When we convened these sessions, the end-of-the-year holiday season was approaching. Some participants noted the additional concerns that time of year raised for families.

“This Christmastime is going to be difficult, because it’ll be hard to buy presents,” said one janitor. “There’s no money and less work.”

In the early summer of 2023, we plan to hear whether participants’ outlooks were on-target. That’s when we’ll reconvene our listening sessions to learn about price and job-market changes throughout the Ninth District. We’ll once again share our findings.