The mood thing: Why are Americans so gloomy about their great economy?

Have you ever wondered why Americans seem so gloomy about their economy, despite the positive numbers and indicators suggesting otherwise? It’s a mystery that has puzzled economists and researchers alike. Despite inflation slowing down, job availability increasing, and incomes rising, surveys consistently show that Americans view the economy as being in bad shape and that President Joe Biden is mishandling it. So, what’s the reason behind this disconnect between perception and reality? One potential explanation is the erosion of wages caused by inflation. Another factor could be the negative bias in news coverage and partisan hostility. Lastly, there might be a lag in people’s perception of the post-pandemic recovery. As we navigate through these possible explanations, it’s essential to consider the data and examine whether Americans are truly as gloomy as they seem.

The perception of gloom

Consumer sentiment index from the University of Michigan

The University of Michigan’s consumer sentiment index is a key indicator that economists use to gauge how people are feeling about the economy. Despite a strong economy with low inflation, plentiful jobs, rising incomes, and a robust stock market, the index has remained low and even decreased in recent years. This suggests that Americans are not as optimistic about the economy as they should be.

Other downcast surveys

In addition to the consumer sentiment index, there are other surveys that reflect the negative outlook of Americans. The Economist/YouGov poll, conducted since 2009, has shown a significant increase in the number of people who believe the economy is getting worse. Furthermore, a Gallup poll revealed that a majority of respondents disapproved of President Joe Biden’s handling of the economy. These surveys paint a consistent picture of a population that is dissatisfied with the state of the economy.

Disapproval of Biden’s handling of the economy

The negative sentiment towards the economy is not only reflected in the surveys but also in the disapproval of President Biden’s economic policies. Many Americans believe that Biden is mismanaging the economy, despite the positive economic indicators. This disapproval can be attributed to the perception that Biden’s policies are not effectively addressing key economic issues that are affecting the average American.

Exploring the reasons for gloom

Negative impact of inflation on wages

One of the reasons for the gloomy outlook on the economy is the negative impact of inflation on wages. Although the overall economy is performing well, inflation has eroded the purchasing power of wages. When adjusted for inflation, average earnings for private-sector workers have remained stagnant since before the COVID-19 pandemic.

Comparison to the past

Another factor contributing to the gloom is the comparison to the past. While the current economy may be strong, many Americans experienced a significant boost in income due to government spending during the COVID-19 pandemic. As a result, the current income levels may not feel as satisfactory or comparable to the recent past.

Pricing out of the American Dream

The affordability of housing has also contributed to the gloomy outlook on the economy. Housing prices have increased significantly, making homeownership less attainable for many Americans. This has led to a sense that the American Dream of homeownership is becoming unattainable for a large segment of the population.

Positive aspects of the current economy

Statistical illusion regarding wages

Contrary to the perception of stagnant wages, there is evidence to suggest that real wages have not actually declined. The Consumer Price Index, which is often used to measure inflation, may lead to an upward bias in wage calculations. Using an alternative measure, the personal consumption expenditures index, real wages are found to be on par with pre-pandemic levels.

Low unemployment rate

The unemployment rate is another positive aspect of the current economy. At 3.7%, it is near a historic low. This indicates that job opportunities are plentiful and that individuals have a higher chance of finding employment.

Strong wage growth for low-income Americans

Wage growth has been particularly strong for low-income Americans. This means that those at the bottom of the income distribution are experiencing significant improvements in their standard of living. This positive trend contributes to the overall strength of the economy.

Record highs in the stock market

The stock market’s record highs also indicate a positive aspect of the economy. Strong stock market performance reflects investor confidence and suggests that companies are thriving, which contributes to economic growth.

The discrepancy between data and sentiment

Unduly pessimistic outlook

Despite the positive economic indicators, Americans appear to have an unduly pessimistic outlook on the economy. This suggests a disconnection between the objective data and the subjective perception of the economy. It is important to understand the factors that contribute to this disparity in order to gain a more accurate understanding of public sentiment.

Role of partisan hostility

Partisan hostility plays a significant role in shaping public sentiment toward the economy. Republicans, in particular, may have a negative bias towards a Democrat-controlled White House, which leads to a more pessimistic outlook on the economy. This partisan bias can significantly influence public opinion and contribute to the overall gloomy perception.

Negative bias in news coverage

The tone and coverage of the news may also contribute to the negative sentiment towards the economy. Studies have shown that economic news sentiment has been worse than what would be expected based on actual economic data. This negative bias in news coverage can further reinforce the perception of a struggling economy.

Delayed impact of the post-pandemic recovery

The toll of the uncertain COVID years

The uncertain years of the COVID-19 pandemic have taken a toll on people’s perception of the economy. Job losses, school closures, bankruptcies, and illness have created a sense of instability and economic insecurity. This lingering uncertainty may contribute to the negative sentiment towards the economy, even as it begins to recover.

Long-lasting effects of inflation

Inflation, while moderating, has had long-lasting effects on people’s finances. Prices remain significantly higher than before President Biden took office, leading to a sense of sticker shock and decreased purchasing power. It takes time for individuals to adjust to higher prices and recover from the impact of inflation.

Recovery of lost purchasing power

As the economy continues to recover, individuals are gradually regaining lost purchasing power. Real-income growth has accelerated over the past year, allowing people to recover some of the financial stability they may have lost during the pandemic. This recovery in purchasing power can contribute to an improved sentiment towards the economy.

Toward improved sentiment

Maintaining a tight labor market

One way to improve public sentiment towards the economy is to maintain a tight labor market. This means ensuring that job opportunities remain plentiful and that individuals have a high chance of finding employment. A strong labor market instills confidence in the economy and can positively impact public sentiment.

Easing inflation and delivering real wage gains

Addressing the issue of inflation and delivering real wage gains is crucial for improving public sentiment. By implementing effective policies to tackle inflation and ensure that wages keep up with rising living costs, individuals can experience tangible improvements in their standard of living. This can have a positive impact on public perception of the economy.

Conclusion

The perception of gloom among Americans, despite a strong economy, can be attributed to various factors. Negative impacts of inflation on wages, comparisons to the recent past, and the affordability of the American Dream contribute to the negative outlook. However, there are positive aspects of the economy, such as strong wage growth for low-income Americans and record highs in the stock market. The discrepancy between data and sentiment can be attributed to factors such as unduly pessimistic outlooks, partisan hostility, and negative bias in news coverage. The delayed impact of the post-pandemic recovery, including the toll of the COVID-19 years and the long-lasting effects of inflation, also play a role in shaping public sentiment. To improve sentiment, maintaining a tight labor market and addressing inflation while delivering real wage gains are important steps. By addressing these factors, it is possible to improve public perception of the economy and foster a more optimistic outlook.