Economists Are Puzzled
There has always been a difference in how Republicans and Democrats view the economy, with people typically rating the economy lower when their party doesn't hold the White House.
However, since Donald Trump's election in 2016, this perception gap has continued to widen significantly, according to a monthly consumer survey by the University of Michigan.
For example, Republicans polled this month gave the current economy much lower marks than they did in April 2020, despite the pandemic having shut down much of the country and the unemployment rate soaring to nearly 15 percent—because Trump was in office then.
Economists and policymakers have been debating the puzzling disconnect between a strong U.S. economy and the fact that many Americans aren't feeling its benefits.
A Wall Street Journal poll in March found that 74 percent of Americans in seven key swing states believed inflation had worsened over the past year. In reality, inflation dropped from 6 percent in February 2023 to 3.2 percent in February 2024.
Americans have been notably pessimistic about the country's financial outlook in the post-pandemic years, with only one-third describing the economy as good in a CBS News poll earlier this year.
Increasingly, there's a gap between how many Americans perceive the economy and what key indicators show — a dissonance some describe as a "vibecession."
This disconnect partly reflects the limitations of economic measurement, which often fails to capture the financial realities of millions of Americans.
Additionally, a new Harris/The Guardian poll reveals that more than half of Americans are misinformed about some basic economic trends and data. Among the over 2,000 survey participants:
Media coverage likely plays a role. Recent studies show that news coverage is becoming increasingly negative, especially regarding gas prices, often seen as a sign of economic trouble.
This poses a challenge for Joe Biden, as 58 percent of the poll's participants blame the current administration for what they perceive as a worsening economy.
Convincing the public otherwise will be difficult, particularly since more than 60 percent of those surveyed expressed skepticism toward economic news.
Inflations Political Divide
Republicans currently perceive inflation as a much bigger problem than Democrats, and this sentiment is influenced significantly by politics.
In new research, economists Carola Binder, Rupal Kamdar, and Jane Ryngaert analyzed Labor Department inflation figures for U.S. metropolitan areas and compared them with voting data. Their findings revealed that metro areas with more Republicans and independent voters had higher inflation in 2022 compared to those where Democrats live.
A similar pattern emerged at the state level in a Wall Street Journal analysis. Inflation estimates provided by Moody’s Analytics, combined with voting data, show that states where Donald Trump received the most votes in 2020 have, on balance, experienced higher inflation.
For example, South Carolina saw the highest inflation of any state since the pandemic began, with consumer prices rising at a 4.88 percent annual rate between December 2019 and last month. Trump received 56 percent of the votes cast between him and President Biden in South Carolina in 2020.
In contrast, New Hampshire had the lowest inflation, with prices rising at a 3.75 percent rate. It elected Biden with 54 percent of the Trump/Biden vote.
Importantly, Binder and her co-authors found that people in Republican-leaning states were more likely to expect higher future inflation. While these expectations might seem unimportant, economists and policymakers widely believe they matter. If people anticipate more inflation, it can contribute to actual higher inflation.
Financially Feeling
Although the U.S. economy is generally in good shape, many Americans aren't experiencing its benefits, setting the tone for 2024. Financial wellness has improved by 5 points from last year, likely due to a better stock market, rising real wages, and workers adjusting their lifestyles to higher prices, says Lorna Sabbia, head of workplace benefits at Bank of America.
The report found that 53 percent of men and 36 percent of women feel financially well. Additionally, while half of white workers reported doing well, only 39 percent of Black workers and 35 percent of Hispanic workers felt the same.
In 2023, about 64 percent of parents living with children under 18 reported being financially stable, down from 69 percent in 2022, according to a survey released Tuesday by the Federal Reserve.
Overall, about 72 percent of all respondents indicated they were financially stable in 2023, a slight decrease from 73 percent the previous year.
More than one-third of survey respondents, both parents and non-parents, cited inflation as their most significant financial challenge.
Many households with young children reported spending nearly as much on child care as on housing.
There were some positive notes: a smaller percentage of Americans—31 percent—felt they were worse off financially than a year earlier, down from 35 percent in 2022.
The Fed’s annual survey underscores how Americans’ perceptions of the economy can differ from headline economic data.
An Increasingly Favorable View of Trump
Voters' belief that the economy performed better under former President Donald Trump poses a significant challenge to President Biden's re-election efforts.
By many measures, the U.S. economy is currently performing exceptionally well. Unemployment has remained below 4 percent for 27 months, the longest stretch in over half a century.
Consumer spending increased by 5.8 percent in March from a year earlier and is up roughly 30 percent from pre-pandemic levels. The S&P 500 stock index is near record highs.
Despite these indicators, Biden trails Trump in national polls and key battleground states. A mid-April CNN poll showed that voters have an increasingly favorable view of Trump’s presidency.
Fifty-five percent now regard Trump’s four-year term as a success, up from 41 percent when he left office in 2021, and well above the 39 percent who rate Biden’s presidency as a success.
The Public Has A Long Memory
The Fed survey provides further evidence pointing to Americans' main concern: significantly higher prices compared to a few years ago.
The share of survey respondents citing price increases as their primary financial challenge rose to 35 percent last year, up from 33 percent in 2022 and 8 percent in 2016.
This increase occurred despite inflation peaking in 2022 and slowing over the last year.
领英推荐
This suggests that while economists focus on year-to-year price changes, individuals have a longer memory. As measured by the University of Michigan, consumer sentiment has risen about 60 percent from its June 2022 low when inflation reached a four-decade high.
A Tale of Two Americas
Economic activity in the U.S. remains relatively strong, but signs of cooling are emerging. Unemployment rose to 3.9 percent last month, lower-income consumers are spending less, and businesses are cutting employee hours and pay.
Consumer growth is moderating gently, but this masks more pronounced financial difficulties for the bottom three income quintiles, who face higher prices, larger interest burdens, and softening job prospects, according to EY chief economist Gregory Daco.
While overall consumer balance sheets remain strong—with the US adding $40 trillion in wealth since 2020—not all balance sheets look the same. The economy is divided into haves and have-nots, with middle-class Americans struggling with rising prices and lagging wage growth, noted Skyler Weinand, chief investment officer at Regan Capital.
A recent Santander Bank survey found that while inflation fears have eased, middle-income Americans are pessimistic about the economy. About 60 percent believe the US will enter a recession in the next 12 months, and 62 percent are making significant cuts to household spending.
“It’s well known that the lowest-income consumers are really struggling with inflation, but from a purely economic standpoint, it is the higher quintiles of earners that do the most spending,” Nanette Abuhoff Jacobson, global investment strategist at Hartford Funds, told CNN.
####
If you liked what you read, there's much more waiting for you by subscribing to our weekly newsletter, The Rising Tide, here -- https://barberd.substack.com/ This is business news you can use. Become a "Tide Insider" for full access.
Other stories in this edition (Subscribe on Substack to read. First month is free.):
Prices Slashed Amid Consumer Discontent
In recent weeks, major retailers, including Target, Walmart, Aldi, and Amazon Fresh, have lowered their prices to attract consumers both in-store and online.
Cyberattack Forces Return to Manual Health Records
In more than a dozen states, doctors and nurses have resorted to paper and handwritten treatment orders to chart and track patient illnesses, unable to access detailed medical histories previously available through computerized records.
Seismic Shift: College Athletes To Be Paid
I now understand why former Alabama coach Nick Saban retired from college football when he did. the National Collegiate Athletics Association and the five most prominent athletic conferences agreed to a $2.77 billion settlement of a class-action lawsuit. This historic settlement ushers in a new era of college sports where schools can directly pay athletes.
More People Question Whether College Is Worth It
Between the six-figure price tag and hefty student loan burdens, more students are questioning whether a four-year degree is worth it. Now, only 22 percent of adults believe the cost of college is worth it if it means taking on education debt.
Nippon Steel Goes on a Charm Offensive
Nippon Steel has embarked on a campaign to garner support for its proposed acquisition of U.S. Steel, aiming to address and counteract the deal's most fervent critics.
Some States See Brain Drain, Others Seeing the Opposite
A recent study has identified a mixed migration pattern of college-educated people. While some states suffer significantly from "brain drain," others are experiencing a "brain gain."
Amazon Revamps Logistics Network
Amazon's post-pandemic pullback in logistics expansion is over. The company is buying up industrial property and restructuring its extensive distribution network to speed up package delivery and reduce shipping costs.
The Funniest Man in Town
Etienne Constable of Seaside, Calif., was?ordered?by the town to build a six-foot fence in front of his boat because sometimes people are haters. Not one to break the law, Constable built the fence and enlisted an artist neighbor to paint a realistic version of the boat on it.
Mexico City Tops Business Competitiveness
Mexico City is the most competitive state for business in Mexico, while Oaxaca ranks as the least competitive, per the Mexican Institute for Competitiveness (IMCO).
Why subscribe?
Owner and Vice President of Operations at-IMAE
6 个月After reading all of the opinions that inflation should be a 2% annual rate, I wonder if this is a realistic metric to achieve and maintain. I would think something like 3 to 4 percent is more realistic. If we really want to see how a high inflation affected one’s financial stability, let’s go back to the 1980s where inflation was between 12 to 14 percent. We also had stagflation then and when I was looking to buy a house mortgage rates were around 12 %. OUCH!! So we fast forward 40 plus years, and we have an inflation rate at less than 4%, the market is at 40,000 and there are still many job openings that remain unfilled. So we need to take a step back and rethink how bad things are. And reflecting on legalized gambling, in the first quarter, over one billion dollars have put on wagers-bets. So where is this money comng from. The disconnect here is looking back from where we were, and then plan better going forward. This should be national strategy, where everyone asks what is realistic and how we can obtain these realities. Oh, one more thing, our economy is affect externally affected outside of our boarders. To help reduce inflation and improve our economy, we will need to become more competitive reducing costs.