The economy continues to grow, unemployment is near historic lows and the stock market has shown surprising strength. So why are Americans still so grumpy?
The unhappiness on the part of most Americans with the state of the economy and the country has reached shocking proportions, a development that has unfolded over several decades. One of the fundamental polling questions – is the country on the right track or the wrong track – has been in deeply negative territory for more than two decades; at present, only 16% of Americans think the country is on the right track. Optimism about the future of the economy and consumer sentiment are also at low levels. Not surprisingly, in part as a result, President Biden’s approval ratings have been upside down since the botched pullout from Afghanistan in September 2021.
Interestingly, these polling results are worse than history would suggest. One measure of economic wellbeing is the “misery index,” which was coined in the 1970s by economist Arthur Okun, when inflation and unemployment were both raging. Historically, the level of consumer sentiment has corresponded to some degree to the level of the misery index. This relationship held even during the Donald Trump administration. But since Biden took office, the consumer sentiment index has almost always been well below what would be suggested by the level of the misery index. In June 2022 it was at a record low, below even where it was in May 1980, when unemployment was 6.3% and inflation was 13.9%.
Interestingly, Americans feel better their own situation than they do about the state of their communities and the country. More than 70% say their personal financial status is either excellent or good. But only 39% feel that way about their communities and just 18% say that about the country. Inflation may well play a role in this feeling. Interestingly, even with rising prices, the average American’s inflation-adjusted income remains slightly above its level when Mr. Biden took office. But some sensitive sectors have shown faster price rises. Relative to the average 19.2% increase in income since 2021, food is up by 19.4% and car prices are 23.4% higher. Meanwhile, the median home price is up nearly 18% and median mortgage payments have risen by 81%.
These eye-watering price increases are likely to remain at the forefront of consumers’ minds, even as their purchasing power has increased in many other sectors, like medical care, apparel, electronics, and recreational goods.
All told, just under 50% of Americans say their optimistic about their personal household finances for the next year, below the 60% average since 1980 – and nowhere near the peak of 74% in 1998.
The media may well be playing a role in the sentiments of many Americans. Not surprisingly, as inflation has risen, the perception that the news about inflation is negative has risen sharply and remains deeply in negative territory. (Interestingly, even in the years after the financial crisis, when inflation was benign, Americans were more negative than positive about prices.) More surprising is the perception that the news about jobs has also been negative. Why is that? Perhaps because much of the press around jobs has focused on labor shortages, and perhaps because more recent news has centered on layoffs, particularly at large tech companies.
