Incomes are falling in 17 states. Here's where Americans are falling furthest behind.

Americans are feeling gloomy about the economy and their financial prospects, with more than half of the respondents to a recent CBS News poll say they're struggling to pay the bills. The reasons for that pessimism are clear: Not only has inflation chewed into their paycheck, but many people are also earning less, with Census data showing that median household incomes dropped in one-third of U.S. states last year.

Many of those 17 states where households lost economic ground are clustered in the Midwest and Northeast, including electoral swing states such as Michigan, Ohio and Pennsylvania, according to recent data from the U.S. Census Bureau. Across 29 states, incomes didn't change enough to be statistically significant, while residents in only five states saw their incomes improve enough to be measurable, the data shows. 

The state-level data may help shed light on why many Americans have soured on the economy, which by many measures appears strong, with a low jobless rate. 

Yet while the labor market has rebounded strongly from the pandemic, the most direct way people experience the economy — how much they earn — hasn't. U.S. median household income slipped 2.3% last year to $74,580 — the third consecutive year that incomes have waned.

Households are coping with high inflation as well as the end of pandemic-era benefits that had put extra money in their pockets through federal stimulus checks and the expanded Child Tax Credit. That money is now gone. But inflation, while receding, remains elevated, experts note.

"Consumer sentiment still remains pretty low, close to where it was in lockdowns at the onset of the pandemic," said Jesse Wheeler, senior economist at Morning Consult. "It's safe to say the U.S. economy is in better shape than it was then, so it begs the question: Why are Americans feeling so down about the economy?"

Wheeler thinks the answer can be found in years of inflation, on top of concerns about a potential recession and stock market volatility. "It takes a long time for consumers to feel good about the economy," he noted.

More seniors in poverty

Slumping household incomes in the Midwest and Northeast could be due to a combination of the impact from inflation, which can erode purchasing power if earnings don't match or exceed the rate of price increases, the mix of jobs held by workers within those states as well as demographics. 

For example, many senior citizens are especially vulnerable to the impact of inflation because they live on a fixed income. While the Social Security Administration adjusts benefits each year for inflation, some critics say the cost-of-living adjustment isn't keeping up with price increases. 

Last year, the poverty rate for people over 65 surged to 14.1% in 2022, an increase of more than three percentage points. 

Many of the states where incomes fell last year have older populations than in the U.S. as a whole. For instance, about 20% of residents in New Hampshire, which had the steepest drop in median household income, are over 65, compared with about 17% for the U.S. overall.

Consumer sentiment overall remains dour, according to Morning Consult's daily Index of Consumer Sentiment from 2021 to 2022. But there are some similarities between state-level sentiment and the median household income data, although they don't directly correspond, Wheeler noted.

"Generally speaking, the decline in consumer confidence from 2021 to 2022 was particularly strong in the Midwest," he noted. "Also, a few of the states that saw increases in real median incomes saw relatively small declines in consumer confidence: Delaware, Alabama, Alaska and Utah."

Meanwhile, the only state to record an increase in consumer sentiment in Morning Consult's index was Alaska, which recorded the second-highest gain in household income last year.

Household incomes might improve in 2023 now that wage gains that are finally outstripping inflation But Wheeler noted that the impact of higher interest rates, which has pushed up the cost of debt, and the resumption of student debt repayments could crimp budgets for many.

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