The End of Economic Pessimism? | Yorkonlinemedia.com.au

By many measures, the U.S. economy is strong right now. Unemployment is near its lowest point in decades. Inflation has slowed down. Wages have grown faster than prices since last year. Stock prices have surged.

But many Americans are not feeling it, and say the economy is in bad shape. The persistent pessimism has baffled many economists.

The situation may be changing. American confidence in the economy has picked up in recent months, surveys show. And President Biden’s campaign hopes the turnaround will boost his re-election prospects.

Still, measures of consumer confidence remain lower than normal. Why have Americans resisted the good economic news? Experts have tried to answer that question for months. Today’s newsletter will cover seven of their leading explanations.

1) Inflation

The first, and most obvious, explanation is rising prices. Historically, Americans hate high inflation. For one, it is universal; high prices affect everyone. In comparison, high unemployment directly affects only a minority, even during recessions.

“When prices rise, it feels like something is taken away from you,” my colleague Jeanna Smialek, who covers the economy, told me.

Inflation has cooled recently. But that does not mean that prices have necessarily decreased; they are merely rising much more slowly than they were when the inflation rate was at its highest. Consider: The average price for one pound of chocolate chip cookies peaked in March. But it still costs about $5.10 today, up from $3.50 four years ago.

2) Housing costs

Among higher prices, one category stands out for many Americans: housing. It is typically the most expensive thing that Americans own or pay for. As housing costs increase, they can squeeze people’s ability to pay for anything else.

And costs have increased. Rents have climbed by about 22 percent since late 2019, and a key measure of home prices is up by about 45 percent.

3) No normalcy

During the pandemic, many people looked forward to the day when things would return to normal. So far, they haven’t.

Murder rates have fallen in the last two years, but they are still higher than they were before the pandemic. Dangerous driving is more common. Downtown foot traffic remains down in many cities. The upcoming presidential election will likely duplicate the contest from the middle of the pandemic.

These factors do not always appear in economic statistics, but they color people’s perceptions of their lives and the economy.

4) Asymmetric polarization

Economic confidence surveys capture the political mood. When a Republican is in the White House, Democrats tend to take a more negative view of the economy. And vice versa.

But the trend is not symmetrical. Consider this data from the pollster Civiqs: When Donald Trump won the 2016 election, Democrats’ views of the economy soured but remained mostly positive until the pandemic. After Biden defeated Trump, Republicans went from describing the economy in overwhelmingly positive terms to using overwhelmingly negative ones.

In other words, Republicans react much more strongly to a president from the opposite party than Democrats do. That disproportionately affects the national mood during this Democratic administration.

5) Bad-news bias

The news media often presents a negative view of events, possibly making people feel worse about the state of the world.

Rising inflation got a lot of regular, and widely viewed, news coverage. Better economic news, including drops in inflation and low unemployment, has received less attention. Many Americans have heard the bad news but not the good.

6) Social media’s role

One does not have to wander deep into social media to find negative commentary on the economy. Memes about the woes of capitalism and anger over high prices are common. Younger Americans tend to get most of their news from social media, and they also have worse views about the economy by some metrics.

(The Times looked at the grim view of the economy that is common on TikTok.)

7) Delayed response

Maybe the rift between the state of the economy and Americans’ perceptions is less of a mystery than it seems, and the paradox will soon end. People just need more time. After years of uncertainty driven by a pandemic and then inflation, many Americans might want to make sure that things are truly turning around before they buy into any potentially false hopes.

One fact supporting this conclusion is that consumer sentiment has started to improve after more than a year of cooling inflation, as Jeanna wrote yesterday. As the challenges that made Americans pessimistic ease, attitudes about the economy could relax as well. Their views could even change in time for the presidential election.

For more

Alphabet, Amazon, Apple and… seven tech stocks are driving the market.
Stocks don’t represent the overall economy, but their surge is probably improving Americans’ economic mood, Paul Krugman writes about the “vibecession” in Times Opinion.

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