(Bloomberg) — Despite roaring growth and a resilient job market, more middle-class Americans are worried about the state of the economy than a year ago, a Harris Poll for Bloomberg News has found.

One big reason: The rapid increase in interest rates deployed by the Federal Reserve to rein in inflation, which are now expected to remain higher for longer.

In the Harris poll, the latest in a series taken for Bloomberg over the past year, 57% of middle-class respondents said higher borrowing costs were having a negative impact on their household finances.

That strain contributed to downbeat sentiment about pocketbook issues: Some 44% said they were stressed about the economy, up from 40% a year ago and 39% in March.

If the economic story for much of the past two years has been the impact of inflation that hit a 40-year high in 2022, a growing part of the pain for US households is the side effects of the Fed’s medicine. On credit cards alone, US consumers paid a record $130 billion in interest and fees last year, according to the Consumer Financial Protection Bureau.

The US economy grew at a 4.9% annual rate in the quarter ended September 30, which means the Fed may hike interest rates further if that rapid growth doesn’t slow as expected and continues to feed inflation. 

Middle-class consumers, meanwhile, see a relentless grind. 

Rebecca Acuna, 28, estimates she’s spending $200 more per month on groceries than she did a few years ago and is shouldering a higher utility bill after her provider hiked its prices. The soaring cost of borrowing is deterring her from replacing the car she’s been driving for 8 years.

“I could not imagine trying to finance a car with today’s interest rates – I’m going to drive my car until the wheels fall off,” said Acuna, a paralegal living in Indianapolis.

Among middle-class people surveyed by Harris Poll, 61% said their personal financial situation was worse or unchanged from a year ago. Only 12% said they were in a “much better” circumstance.

When asked about the year ahead, just 33% said they expected their own finances to improve. While that was more than the 19% who expect things to get worse, it still points to an electorate that isn’t particularly optimistic about pocketbook issues.

That presents a major hurdle for President Joe Biden, who fancies himself a champion of the middle class and has been building his case for reelection around a “Bidenomics” agenda designed to bolster the group he calls “the backbone” of this country.

“I don’t think anyone in office on a state or federal level has any concept of how stressful it is to manage a budget these days,” said Tiffany Bond, a 47-year-old family law attorney in Rangeley, Maine. “I think what’s happening with interest rates, it can cool the economy, but it really hurts people in the bottom half financially.”

Purchasing Power

The poll of 4,166 Americans, including 1,478 middle-class adults, found that three-quarters of the latter group said they were “paying more and more for goods and services,” while more than two-thirds said higher prices for household essentials like groceries, insurance, and rent or mortgage payments were hurting them.

Indeed, while inflation has moderated from a year ago, prices remain high across many categories, meaning households aren’t feeling much relief. Since February 2020, the cost of food at home is up more than 24%. Overall, the purchasing power of a US dollar is just one-third of what it was about 40 years ago.

“Economists aren’t sitting at kitchen tables with middle class America. For most, their paychecks are still chasing their bills and they feel they’re falling further and further behind,” said John Gerzema, chief executive officer of the Harris Poll.

A slim majority of middle-class Americans surveyed by Harris Poll for Bloomberg News said their wages have been keeping up with or exceeding rising household bills. But 63% also said that stagnant wages were hurting their finances and 42% said their costs were rising faster than their wages. 

‘Shaky at Best’

Bond said she is constantly stressed about her finances, prompting her to resort to frugal tactics like buying groceries in bulk and purchasing furniture on clearance.

“If the economy was better, I would put more things on credit, but I’m going back to my more economical choices,” Bond said. “My kids are like, ‘Soup for a fourth day, mom? Really?’”

When asked what emotions they felt when thinking about the US economy, stress was easily the most-selected choice among middle-class respondents. Yet there was a jump from a year ago in the share that said they were optimistic, suggesting not everyone in this group shares in the gloom.  

Some of the pessimism appeared to break on partisan and generational lines. About half of middle-class Republicans and independents said they were stressed about the economy, while only about a third of Democrats said the same.  

Roughly 60% of millennials and Democrats said the US economy is working for them, compared to around 30% of baby boomers and Republicans.

Tom Maley, a retired optometrist living in Ohio, is one GOP voter who says he’s spending more freely than a year ago. He saw the crosscurrents of the current economic moment when one of his sons recently moved from Maryland to Ohio for a better-paying job. 

“The good news is he got promoted. The bad news is he got relocated with a higher mortgage rate,” said Maley, 73. 

Maley says his two main concerns for the US economy right now are the geopolitics playing out in wars in Ukraine and the Middle East and the higher interest rates that mean “cars and housing are basically unaffordable for the middle class.”

“My outlook for the economy is shaky at best,” Maley said.

Methodology: The Harris Poll was conducted over two waves between September 29th to October 8th, 2023, among 4,166 Americans, with 1,478 respondents identified as being middle-class. Middle-class respondents are defined as having a total household income between $45,000 and $180,000 before taxes and financial assets between $100,000 and $1 million. The data for the broader population is accurate to within +/- 2.0 percentage points using a 95% confidence level, and +/- 3.2 percentage points for respondents within the middle-class sample.