In an October Gallup poll, 68 percent of respondents said they believed economic conditions were getting worse. This makes no sense.
Americans have stockpiled $2.3 trillion more in savings over the past 19 months than they would have accumulated in the absence of the pandemic, based on prepandemic savings rates. This July, the median American household had 50 percent more in its checking account than it had in 2019. Although for a couple months early in the pandemic the unemployment rate spiked into the double digits, the unemployment rate now sits at a historically modest 4.6 percent, and it continues to fall. Economically speaking, America is doing well.
You sure wouldn’t know it by asking Americans though. According to the University of Michigan’s consumer sentiment survey, Americans rated current economic conditions about as low as they did early in the 2010s when Americans’ personal finance and unemployment numbers were demonstrably much worse than they are now (unemployment hit 10.6 percent in January 2010).
The pessimism uncovered by the University of Michigan was somewhat partisan. Surprising no one, with Joe Biden in the White House, Republicans were more likely to rate current economic conditions poorly compared to Democrats. Democrats were not immune to the irrationality, however, and rated economic conditions similarly to how they did in the early 2010s when things were demonstrably worse, when Barack Obama was in office trying to dig the U.S. out of the Great Recession that started during the term of his predecessor.
So, what’s going on? Some economists point to the psychological effects of higher inflation, which can have a profound impact on people’s perceptions of the economy even though wage gains have largely kept pace with or even exceeded inflation in recent years.
I don’t claim to be an economist, but I’ll throw my two cents in as well: People are continually told that everything is awful much more frequently than they were 15 years ago before everyone had a smartphone. Anything people are told repeatedly eventually soaks into their brains. Unfortunately, “Everything is fine economically, for the most part we’re all going to be all right,” is neither a particularly compelling headline nor a good message for scaring base voters to the polls.
There is one area of the economy that doesn’t seem to care all that much about professed consumer pessimism though: the stock market. The Nasdaq, Dow, and S&P 500 Index all hit record highs this week. The S&P 500 has notched 64 record closes so far this year, and is up more than 25 percent for 2021.
And, no matter what consumers say about how they feel about the economy, their sentiments don’t seem to be reflected in their spending. We have a whole supply-chain crisis caused by everyone buying too much crap online, and although U.S. consumer spending has seesawed a bit in recent months, the trend has been in the direction of increasing rather than decreasing.
Of course, any economy creates winners and losers, and there are certainly some Americans who are still struggling. Yet, their tribulations, however meaningful in any number of individual situations, are not indicative of the current status of the American economy as a whole.
It’s hard to say if there’s a lesson in all of this. Maybe it’s the same one that I try to apply in just about every area of life lately: Ignore what people say, and instead pay attention to what they do. However Americans say they feel about the economy, broadly, their actual economic activity seems to fall more in line with the currently available economic data.
Jonathan Wolf is a civil litigator and author of Your Debt-Free JD (affiliate link). He has taught legal writing, written for a wide variety of publications, and made it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the credit anyway. He can be reached at email@example.com.