The U.S. economy has been a mystery for the past few years. The job market is booming and consumers are still spending, which is usually a sign of optimism. But if you ask Americans, many will say they feel bad about the economy and are unhappy with President Biden's economic record.
Call it sentiment. Call it a mystery. Blame TikTok, media headlines or the long shadow of the pandemic. Gloom prevails. The University of Michigan's consumer confidence index, which had looked a little more optimistic this year after a significant slowdown in inflation in 2023, has deteriorated again. And although a sentiment index compiled by the Conference Board improved in May, the survey showed expectations remain shaky.
This negativity could prove decisive in the 2024 presidential election. More than half of registered voters in six swing states rated the economy as “bad” in a recent poll conducted by the New York Times, Philadelphia Inquirer and Siena College. And 14 percent said the political and economic system needs to be completely destroyed.
What's going on here? We asked government officials and prominent analysts from the Federal Reserve, the White House, academia, and Internet commentators what they think is going on. Here's a summary of their answers.
Kyla Scanlon, creator of the term “Vibecession”
Price levels play a role, and people also misrepresent some facts.
The most common explanation for why people feel bad about the economy—one that every person interviewed for this article cited—is simple. Prices rose sharply when inflation was very high in 2021 and 2022. Now they're not rising as fast, but people are having to come to terms with the reality that rent, cheeseburgers, running shoes, and daycare all cost more.
“Inflation is a pressure cooker,” said Kyla Scanlon, who this week is releasing a book called “In This Economy?” that explains common economic concepts. “In the long run, it hurts. There have been a couple of years of pretty high inflation, and people are really struggling with the consequences.”
But Ms. Scanlon also pointed out that knowledge gaps may be part of the problem: A Harris poll for The Guardian this month found that a majority of Americans believed (incorrectly) that the United States was in a recession. About half said they believed the stock market was down from a year ago, even though it was up significantly.
“Yes, there is economic frustration, but these are objectively verifiable facts,” she said.
Raphael Bostic, President of the Federal Reserve Bank of Atlanta
In part it is about memory.
A big question is why things feel so bleak when the economy is growing, unemployment is at historic lows and stock prices are rising.
“When I talk to people, they all tell me they want lower interest rates and they also tell me that prices are too high,” Raphael Bostic told reporters last week. “People remember what prices used to be like and they remember that they didn't have to talk about inflation and that was a very comfortable situation.”
Bostic and his colleagues at the Fed have raised interest rates to a more than 20-year high in an effort to slow the rapid rise in prices. The key is to quickly bring inflation back to normal levels, he said.
Jared Bernstein, Chairman of the White House Economic Advisory Council
It takes time to catch up with inflation.
With inflation cooling, there is hope that negative sentiment will fade. Jared Bernstein noted that middle-class wage growth outpaced inflation over the past 14 months and predicted that people would feel better when wages caught up with the higher price level.
“If that were wrong, everyone would be walking around forever angry because gasoline isn't $1 a gallon,” Bernstein said. “The two components of that adjustment are time and rising real wages.”
Loretta Mester, President of the Cleveland Fed
Wages have lagged behind.
But not everyone is breaking even at this point, and that may be part of the explanation for the ongoing pessimism. On average, wage gains have not fully caught up with price increases since the pandemic began, when comparing increases in the consumer price index, a wage and salary measure that Fed officials closely monitor.
“They still haven't made up the ground they lost,” Loretta Mester said. “They're still in a bit of a hole.”
Ms. Mester pointed out that it is also difficult for people to afford home ownership because prices have skyrocketed in many places and high interest rates have made it difficult to buy a home for the first time, making this part of the American dream unattainable for many.
Lawrence H. Summers, Harvard economist and commentator
Interest rates are part of the problem.
This touches on a theme that Lawrence H. Summers raised in a recent economics paper: For most people, the higher interest rates that the Fed is using to try to curb demand and slow price increases feel like another form of inflation. In fact, adding high interest rates to inflation explains most of the gap between current consumer confidence and what one might expect.
“The real cost of living is much higher than the inflation reflected in the consumer price index,” Summers said in an interview, noting that consumer confidence increased when market-based interest rates, which factor into mortgage and lease costs, eased earlier this year and then fell again when they began to rise again.
Charlamagne Tha God, radio presenter
People remember more pleasant times.
Whatever the cause of the discontent, it appears to be translating into negativity toward Mr. Biden. In the latest Times poll, many said they believed the economic and political system needed to be changed, and fewer believed that Mr. Biden — unlike former President Donald J. Trump — would usher in major changes.
Charlamagne Tha God recently suggested on “The Interview,” a Times podcast, that black voters in particular may be turning away from Biden and toward Trump because they associate the former president with the last time they felt financially secure. Trump's administration sent out two rounds of stimulus checks, which Trump signed. Biden sent out one that he did not sign. And inflation began rising in 2021 after Trump left office.
“People are living paycheck to paycheck,” Charlamagne said in a follow-up interview specifically about the economy. “You don't know what it means to be tough until you have to choose between paying your car or paying your rent.”
In his view, rents have risen dramatically since before the pandemic and delinquencies on car loans are increasing sharply. Although inflation and higher interest rates are a global phenomenon, people tend to blame the current economic challenges on the incumbent.
“People can't see beyond their bills,” Charlamagne said. “All we want is opportunity and security, and anyone who can give us that, even for a fleeting moment, is something you never forget.”
Susan Collins, President of the Boston Fed
People are anxious after the pandemic.
In fact, the current economic situation has presented something of a dichotomy: Some people are doing really well, watching their retirement portfolios improve and their home prices rise, but these people were often already wealthy. At the same time, people with credit card debt are facing much higher interest rates, and many Americans have used up all the savings they built up during the pandemic.
“There are groups that are doing really well and there are groups that are struggling,” said Susan Collins. “We're talking to individuals who are having a lot of trouble making ends meet.”
However, she also noted that the period since the pandemic has been marked by uncertainty. Changes in interest rate policy, years of inflation, and headlines about war and geopolitical upheaval may have shaken people's view of their economic situation.
“I think there is a different level of fear coming out of the pandemic that is hard to rule out,” Ms Collins said.
Aaron SOJOURNER, the WE Upjohn Institute
Part of this could be due to media negativity.
Yet there is a puzzle about this sentiment that still remains: people tend to be more optimistic about their personal economic situation than about the economy as a whole.
That may be because Americans rely on the media for their perceptions of the national economic situation, and the mood in the news has become more pessimistic in recent years, says Aaron Sojourner, who recently authored a study suggesting that economic coverage has become more negative since 2018 and much more negative since 2021.
“Over the past six years, the tone of economic news has been considerably worse and more negative than one would expect based on macroeconomic variables,” he said.
However, he acknowledged that journalists take real-world experiences and consumer sentiment data into account in their reporting, so it is difficult to say to what extent bad sentiment leads to negative news and to what extent negative news leads to bad sentiment.
“Does the mood determine the news or does the tone of the news determine the mood? I don't know,” Sojourner said.