Why Americans Are So Down on a Strong Economy

  The sentiment of many Americans regarding the state of the economy is predominantly pessimistic, despite evidence of its strength. Individuals such as truck driver Clayton Wiles, nurse Kristine Funck, and restaurant owner Alfredo Arguello have experienced personal financial successes, yet harbor concerns about the future. This disconnect between economic indicators and public perception has baffled experts and businesses alike. Although consumer spending remains robust and key economic metrics like inflation and unemployment are favorable, the prevailing national mood reflects existential insecurity and apprehension.

Long-term financial security feels precarious to many Americans and is susceptible to social and political upheaval. Former reliable pathways to upward mobility, such as higher education, are now viewed as uncertain investments. Geopolitical tensions and domestic political dysfunction have contributed to a pervasive sense of danger and hopelessness. This broader assessment of the nation's outlook suggests that further economic improvement alone may not be sufficient to uplift the collective mood.

These sentiments pose a significant challenge for President Biden's re-election campaign, as the positive economic performance has yet to garner widespread recognition. Despite defying recession predictions and achieving a 3.1% growth rate over the past year, the current state of the economy seems insufficient to counter the prevailing national despondency.  

 Though some economic measures show improvement, the overall sentiment remains subdued. Consumer confidence, measured by the University of Michigan, has recently experienced the most substantial two-month increase since 1991. However, it still lingers around 20% lower than in early 2020, resembling levels typical of a post-recession economy rather than one boasting robust growth. This apprehension is pervasive across various demographics, including affluent individuals, those struggling to make ends meet, educated professionals, and blue-collar workers, representing both political parties.

Worries about an unpredictable world and a perceived lack of competent leadership in government and business weigh heavily on people's minds. Despite a relatively low unemployment rate of 3.7%, the prevailing feeling is one of uncertainty rather than optimism. The nation seems divided and fractured, resulting in a lack of hope and unity among Americans.  

 Theresa Foster, residing in suburban Albany, N.Y., has observed a significant increase in her family's net worth due to a 20% rise in their home's value since the onset of the pandemic. However, her perception of the economy is overshadowed by the shock of increasing prices when she goes shopping. Despite her family's combined income exceeding $200,000, she feels a pervasive sense of vulnerability and fragility, with little faith in the economic platforms of either political party.

At 57 years old, with a master's degree earned through GI Bill benefits, and a part-time position at a nonprofit organization, Theresa remains wary of the supposed relief from cooling inflation, likening it to telling a bleeding person that the flow of blood has slowed. Her dissatisfaction stems from ongoing government spending, coupled with high-profile blunders such as the troubled withdrawal of U.S. forces from Afghanistan, eroding her confidence in leaders' ability to manage complex issues effectively. She laments the absence of a coherent plan in the face of these challenges, leading her to question the reliability of information provided about the economy.

  The upcoming election has left Theresa Foster disheartened about the likely nominees, President Biden and Donald Trump, whom she refers to as "Loser 1 and Loser 2." In protest, she voted libertarian in the previous two presidential elections and recently switched from being an independent to registering as a Republican to vote against Trump in New York's presidential primary in April. Meanwhile, nurse Kristine Funck in Milford, Ohio, observes the country's decline through the high number of uninsured and unhoused patients she cares for at a large Cincinnati medical center. She perceives that while politicians seem to be thriving, everyone else is struggling. Funck, an independent voter who supported Biden in 2020, earns approximately $90,000 per year, had her student loans forgiven after two decades, and has no children to support. Despite her financial stability, she lives in constant fear of being financially derailed by an unforeseen expense. She also worries that the conflicts in Gaza and Ukraine could drive up the prices of oil and grain.  

After her mortgage and car payments, groceries, and utility bills, there’s very little left over, she said. She’s prioritized saving for retirement “because I’m not expecting Social Security to be around, and I have to be able to support myself.” 

 During the pandemic recovery, while certain segments of the American population have experienced economic gains, disparities have become apparent. Employees in lower-paying industries initially saw significant wage increases, but overall wage growth is now decelerating, particularly for these workers. Research conducted by the Federal Reserve Bank of Dallas indicates that low-income households are disproportionately affected by inflation, partly due to the substantial portion of their income spent on essentials such as food, gas, and rent. Even though inflation has markedly decreased from its peak in 2022, it wasn't until mid-2023 that wage growth began to exceed the rate of price increases. Consequently, many Americans continue to feel the lingering effects of a prolonged period where their earnings fail to keep up with rising living costs.  

Despite the unemployment rate remaining at near-record lows, certain sectors of the economy, including technology and some white-collar fields such as accounting and media, have experienced significant layoffs. James Welch, a married father of two, relocated his family from Atlanta to Plano, Texas after being laid off early in the pandemic from a hotel company, to take a job as a manager at an online fitness company. However, he faced another layoff last July. At 49 years old, Welch has had to utilize approximately $450,000 from his retirement and emergency savings in recent years to cover relocation expenses, medical costs, and college expenses for his two children. His wife's annual salary of about $72,000 as an operations manager is currently the family's primary source of financial stability.  

Welch said he thinks he was the victim of cost-cutting moves at the company. He said that shortly after he was laid off, he saw his job reposted for lower pay. 

 Many economists view the prevalent negative outlook on the economy as disproportionate to the actual economic experiences of most Americans. According to Jason Furman, a key economic adviser to President Barack Obama, while there is some justification for concerns about the economy, the level of negativity reflected in certain survey data far exceeds what is warranted. Furman noted that historically, consumer sentiment has been influenced by inflation and unemployment levels, and the recent surge in prices has undoubtedly unsettled consumers. However, he believes that such economic factors are not sufficient grounds for the seemingly pervasive pessimism about the economy expressed by many Americans.  

 Many Americans express apprehension about the future due to structural shifts in the economy. The reduction of company pensions has transferred more of the responsibility for funding retirement from employers to employees. Additionally, the perceived value of a college degree as a pathway to the middle class has come into question. Amy Bos, a 44-year-old married mother of three in Jackson, Mich., has second thoughts about recommending college for her 18-year-old daughter. Despite achieving higher-paid work in human resources, which doubled her salary to $30 an hour, Bos incurred significant sacrifices to repay $41,000 in student loans. She's observed that many individuals either end up in jobs unrelated to their degree or accumulate substantial debt for employment that doesn't offer substantial earnings.

A Journal-NORC survey from last year revealed that 78% of Americans lack confidence that their children's lives will surpass their own, marking a record in surveys dating back to 1990. Additionally, only 36% believe in the American dream, down from 53% a decade earlier, as per another Journal-NORC poll. In Wilmington, N.C., the Wiles family, despite receiving pay raises and adopting frugal habits, feels a financial regression. Clayton, 44, now earns $10,000 more annually in his role as a tow truck driver, elevating the family's income to $58,000 per year. Nevertheless, they face challenges in affording crucial expenses such as fixing their vehicle and covering health insurance for their children as they lose Medicaid eligibility, prompting them to dip into modest retirement savings.  

 Haleigh, aged 30, is pursuing a career in teaching but expresses concern that even with an added salary, it may be challenging to save for a house down payment. The combination of elevated borrowing costs and increased home prices has significantly reduced housing affordability. Although current 30-year fixed-rate mortgages have dropped about a percentage point from last fall, they remain close to 7%, in stark contrast to the less than 3% rate three years ago. This surge in rates implies that a homebuyer typically needs to pay hundreds of dollars more each month for a house that costs the same.

Haleigh comments, "I don't believe the American dream still exists. I don't think it's achievable anymore. Because you need money to make money, and I think you either start out ahead or constantly play catch-up now."

One contributing factor to this pessimistic outlook is the political lens through which many Americans view the economy. Their perception tends to be more positive when their preferred political party holds the White House. In the weeks leading up to the 2016 election, only 11% of Republicans rated the economy as excellent or good, as per CNBC polling. This figure surged to 26% immediately after the election, even before Donald Trump's inauguration, and further rose to 73% within a year. Conversely, Democratic views of the economy turned notably more negative during the same period.

Analysts highlight that the partisan influence on views of the economy is particularly significant at present, with Biden in the White House. This is because Republicans are more inclined than Democrats to adopt a negative perspective when their party is not in power. Neale Mahoney, a Stanford University economics professor, and Ryan Cummings, a Ph.D. student, observed that around 30% of the deviation between consumer sentiment and actual economic data could be attributed to what they termed "asymmetric amplification" according to a person's political party. Additionally, a study by analysts at the Brookings Institution found that news about the economy featured in legacy news media has been more negative than expected based on actual economic metrics.  

The San Francisco Fed's daily news sentiment index, which gauges the positive or negative outlook of economic news stories, has historically aligned with measures of unemployment, gross domestic product, inflation, and stock prices. However, research by Ben Harris and Aaron Sojourner revealed a shift in 2018 when news sentiment turned notably more negative than the economic fundamentals. This negativity gap has widened during the Biden administration. The study did not encompass broadcast media like Fox News or MSNBC, known for their partisan leanings, and did not establish a causal link between negative news and lower consumer sentiment.

Michael Strain, from the American Enterprise Institute, acknowledges a mismatch between sentiment and economic fundamentals but emphasizes that people's everyday economic experiences largely explain this discord. He believes that inflation has played a significant role, given its widespread impact and the adjustment from minimal price increases in recent years. Strain emphasizes the importance of acknowledging people's negative sentiments about the economy. 

Arguello, a Nashville-area restaurant owner, transitioned to the food service industry in May 2020 after a 30-year career at General Electric. Together with his son, they successfully opened a Mooyah burger franchise, leading to the launch of a second location. Notably, fourth-quarter revenues in 2023 were 15% higher than the prior year.  

 Arguello, a successful restaurant owner, remains pessimistic about the nation's recovery from the pandemic and its high inflation challenges, despite his personal achievements. He has observed numerous local restaurant closures and expresses broader concerns about the nation's suffering due to political leaders prioritizing their party's interests over the country's. Arguello, originally from Nicaragua and politically right-of-center, feels that the current landscape is marred by political instability, global uncertainty, and economic unpredictability. He reluctantly admits that if Trump is the GOP nominee, he would vote for him this year, emphasizing that the prevailing sentiment is not merely about the moderation of inflation but rather the lingering presence of daunting circumstances.  

 Bartender Catey Regis had a pricey misadventure buying a used car recently — an experience that speaks to why voters are worrying about the U.S. economy going into this year’s presidential election.

Over three years at Founders Brewing, the 25-year-old saved enough money pouring IPAs, stouts, and porters to pay cash for a 2009 Toyota Corolla. But then the car’s transmission went kaput and she had to take out a costly loan to fix it, and keep her toehold in the middle class.

“To me, it’s a telltale sign about the economy,” Regis explained from a bar stool after her shift. She plans to vote for President Joe Biden over Republican front-runner Donald Trump but, frankly, wishes there was someone else on the ballot.

By the numbers, the U.S. economy looks impressively strong. Growth surged 2.5% last year. Inflation has eased. Unemployment is a healthy 3.7%. Biden is telling voters that the numbers point to a brighter future, while Trump says the gains are merely the fumes of his time in office.

But conversations with dozens of voters around Grand Rapids — a city of 200,000 in one of Michigan’s swing counties — show they’re thinking about the economy through their own experiences. They tell a story about an economy, a country, and a world that seems to many to have spun out of control.

Most are sure the U.S. is in a recession. (It’s not.) High grocery prices have them down. For renters, high home prices are putting the American dream out of reach. There is a sense of generational decline and more barriers to genuine financial security.

“The price of everything is going up and even though they are trying to raise the minimum wage, most people are getting paid the same,” said 28-year-old Cameron Brown, who offered a rushed assessment as he hurried past outside Westwood Mall in suburban Kentwood. He said he’ll vote for Trump because he “runs the country like a business.”

There are multiple signs in economic reports that people’s feelings about the economy have improved as inflation has eased after hitting a four-decade peak in the middle of 2022. People are finding ways to get by, even if few say they’re getting ahead.

However, conversations with voters uncovered doubts about Biden’s ability to fix the nation’s challenges and concerns among some that Trump could make those challenges worse.

There’s a persistent concern about a recession. Some voters worried about the fighting in the Middle East and Ukraine starting a third world war. Others saw the influx of migrants at the U.S. southern border as a threat to national security and a strain on government finances.

“I feel like there’s a recession and I’m living it,” says Scott Thompson, a 44-year-old Caledonia small business owner who drives for Uber on the side. “The cost of living, groceries, cereal, car insurance, and the equipment for my business is more expensive.”

Thompson, who owns a telecom reseller, plans to vote for Trump in 2024. “I think Trump did a good job — no, he wasn’t very presidential — but he did what he said he was going to do,” Thompson said as he drove a fare to the mall.

Trump cut taxes for corporations and most households at the end of 2017, as well as imposing tariffs on Chinese imports and borrowing trillions of dollars for pandemic aid. The Biden administration kept the tariffs and launched another round of pandemic aid, as well as making substantial investments in infrastructure, manufacturing, and renewable energy.

But Teresa Johnson worries about paying her $1,500 rent. Housing costs have been rising faster than overall inflation, a problem — compounded by higher mortgage rates — that has led more people to rent as prices have risen in the most desirable neighborhoods.

“The president needs to fix that,” said Johnson, 62, a Black single parent in Kentwood who is a Democrat but open to backing Nikki Haley, the former South Carolina governor who is running against Trump for the Republican nomination.

The Biden administration has also sent conflicting messages in some cases to voters. Domestic oil production is at record highs, helping to keep down gasoline prices. But as part of the effort to combat climate change, Biden is also providing incentives to support the development of renewable energy and phase out fossil fuels.

Charles Kroll, CFO of a Grand Rapids fuel distribution company, stopped to chat after a recent local “state of business” event and said he’s worried about the impact of Biden’s climate policies — he calls it the president’s “war on oil and gas.” Kroll voted for Trump in 2016, and Biden in 2020 and is undecided this time.

Grand Rapids is the seat of Kent County, which backed Trump in 2016 and then flipped to Biden in 2020. About 10% of the county’s population is Black and more than 7% is multiracial, according to the Census Bureau. Nearly 40% of its population has a college degree. And of its college graduates, more than half are younger than 45 — a population that has become an essential Democratic constituency.

But those voters’ support of Biden is generally rooted in an opposition to Trump, who was impeached twice as president and since leaving office has been criminally indicted on an array of activities including the possession of classified material and efforts to overturn the 2020 election results.

“I will not vote for someone who could cause so much instability,” said Arick Davis, a 32-year-old part-owner of Last Mile Café in South East Grand Rapids.

But Davis is well aware that consumers are feeling pressure on how much they can spend and the challenge that Black-owned businesses like his have with accessing lines of credit to expand. To the extent that the economy is doing well, there is little confidence that it is necessarily sustainable.

“I can tell people are more aware of how much they are spending — and I feel like people are having a hard time budgeting,” Davis said as he waited for a Grand Rapids Chamber of Commerce “State of Business” event to start. He’ll vote for Biden, he says, but unenthusiastically.

Post a Comment

Previous Post Next Post