America’s economic mood remains glum. This is despite great news: Growth is strong; the stock market just hit record levels; unemployment is low; and inflation has significantly cooled in the past year. Dig a little deeper into public sentiment and there’s a striking dichotomy — the vast majority of Americans (72 percent) say their personal finances are all right, but only 22 percent think the national economy is in decent shape, according to a chart the Federal Reserve recently released.
Negativity about the national economy nosedived during the pandemic and has barely rebounded since. The Fed surveys more than 11,000 adults a year, with its most recent assessment of financial well-being occurring in late 2023. Recent polling shows a similar divide, with Americans saying that they are doing “okay” (or their state is doing pretty well) but that the national economy is in trouble. A new poll by the Guardian found the majority of adults wrongly think the country is in a recession. Why?
The main answer is inflation. Prices spiked across the board in 2022, largely driven by supply shortages of everything from gas to meat to kitchen cabinets to workers. Inflation is typically reported as the change in prices in the past year. But looking at the cumulative increase since the start of the pandemic, inflation is up 21 percent. Wagesare up 22 percent, but higher prices tend to have more of a psychological impact. Many people feel that they have earned their pay increases but that price increases are unfair.
The cumulative increase since President Biden took office in January 2021 shows prices up 19 percent. That’s unusual. No president in recent memory has presided over a higher cumulative price increase since Jimmy Carter (cumulative inflation was nearly 38 percent at this point in his term).
It’s possible that Americans are experiencing the economic equivalent of a hangover. It’s taking a long time for the economy to get back to normal after the severe shock of the pandemic and then the inflation surge. Prices are no longer rising rapidly for most items. Wages have actually been rising, on average, faster than inflation for the past year. Consumption has remained robust despite people’s expressed gloominess. There’s some hope that if this trend continues, people will really start to notice and the “vibes” will also return to more normal levels. The latest University of Michigan consumers survey shows a big rebound from this time last year, but there has been another noticeable drop this year as people worry they won’t see much additional relief from high prices and high interest rates anytime soon. It’s notable in the Fed data that the group reporting the biggest decline in their personal financial situations in 2023 were parents with children under 18 living at home.
The media’s negative economic coverage might also help explain the glum mood. A study of economic news from Brookings Institution economists Ben Harris and Aaron Sojourner found a more negative tone since 2018 and, especially, since 2021. But they also found a more positive tone at the end of 2023, which did not impact the Fed data but did coincide with an increase in the Michigan survey. Republicans have also been extremely pessimistic about the economy since Mr. Biden took office. The partisan divide explains some of the negative sentiment, though not all since independents are also gloomy.
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Many Americans feel deep anxiety about the future. Most doubt their children will be better off than they are. Nearly half aren’t confident they will have enough money for retirement. Young people are especially pessimistic. A new poll from Democratic firm Blueprint of 18-to-30-year-olds found 54 percent believe the country is going downhill and 64 percent agree that “America is in decline.” These poll results help explain why people can see their personal finances as acceptable now but still have deep concerns about the economy’s direction.
Telling Americans the economy is better than they realize doesn’t make much impact in an era when many are still in shock about the rise in prices. Good news about employment and growth isn’t registering. Politicians who try to win support by citing those numbers — we’re looking at you, Mr. Biden — have to find a new language for a new post-inflation psychology, acknowledging the price shock while projecting confidence that it’s being overcome. Wages are now rising quickly, and major companies, such as Target and Aldi, are cutting prices. Recovery takes time.
This is not an easy message to convey. But it is a realistic one.
