Inflation has reached its lowest point in 2 1/2 years. The unemployment rate has stayed below 4% for the longest stretch since the 1960s. And the U.S. economy has repeatedly defied predictions of a coming recession. Yet according to a raft of polls and surveys, most Americans hold a glum view of the economy.
The disparity has led to befuddlement, exasperation and curiosity on social media and in opinion columns.
Last week, the government reported that consumer prices didn't rise at all from September to October, the latest sign that inflation is steadily cooling from the heights of last year. A separate report showed that while Americans slowed their retail purchases in October from the previous month’s brisk pace, they’re still spending enough to drive economic growth.
Even so, according to a poll last month by The Associated Press-NORC Center for Public Affairs Research, about three-quarters of respondents described the economy as poor.
The disparity between the data and individual perceptions poses a political challenge for President Joe Biden as he gears up for his re-election campaign. Polls consistently show that most Americans disapprove of Biden's handling of the economy.
Many factors lie behind the disconnect, but economists increasingly point to one in particular: The lingering financial and psychological effects of the worst bout of inflation in four decades. Inflation may be slowing, but many goods and services are still far pricier than they were just three years ago
Lisa Cook, a member of the Federal Reserve's Board of Governors, captured this dynamic in recent remarks at Duke University.
“Most Americans," Cook said, "are not just looking for disinflation” — a slowdown in price increases. “They’re looking for deflation. They want these prices to be back where they were before the pandemic. ... I hear that from my family.”
That's particularly true for some of the goods and services that Americans pay for most frequently: Bread, beef and other groceries, apartment rents and utilities. Every week or month, consumers are reminded of how far those prices have risen.
Deflation — a widespread drop in prices — typically makes people and companies reluctant to spend and therefore isn't desirable. Instead, economists say, the goal is for wages to rise faster than prices so that consumers still come out ahead.
How inflation-adjusted incomes have fared since the pandemic is a complicated question, because it is difficult for just one metric to capture the experiences of roughly 160 million Americans.
Adjusted for inflation, median weekly earnings — those in the middle of the income distribution — have risen at just a 0.2% annual rate from the final three months of 2019 through the second quarter of this year, according to calculations by Wendy Edelberg, a senior fellow at the Brookings Institution. That meager gain has likely left many Americans feeling that they have made little financial progress.
For Katherine Charles, a 40-year old single mother in Tampa, Florida, inflation's slowdown hasn't made it easier to make ends meet. Her rent jumped 15% in May. Over the summer, to keep her electricity bill down, Charles kept the air conditioning off during the day despite Tampa's blistering hot weather .
She has felt the need to cut back on groceries, even though, she said, her 16-year old son and 10-year old daughter “are at the age they are eating everything in front of them."
Charles, a call center representative with a company that handles customer service for the Medicare and Affordable Care Act health plans, received a raise to $18.21 an hour two years ago. But it wasn't much of an increase. She doesn't even remember how large it was.
Other factors also play a role in why many people are still unhappy with the economy. Political partisanship is one of them. With Biden occupying the White House, Republicans are far more likely than Democrats to characterize the economy as poor, according to the University of Michigan's monthly survey of consumer sentiment.
Karen Dynan, a Harvard economist who served in both the George W. Bush and Obama administrations, noted that distinct swings in economic sentiment occur after a new president is inaugurated, with voters from the party opposed to the president quickly switching to a more negative view.
“The partisan divide is stronger than it was before,” she said. “Partly because the country is more polarized.”
At the same time, broad national data doesn't capture the experiences of millions of everyday Americans, many of whom haven't seen their wages keep up with prices.
“In real terms, most people are probably pretty close to where they were pre-pandemic," said Brad Hershbein, a senior economist at the Upjohn Institute. "But there are a lot of exceptions.”
Lower-income Americans, for example, have generally received the largest percentage wage gains since the pandemic. Fierce competition for front-line workers at restaurants, hotels, retailers and entertainment venues forced companies to provide significant pay hikes.
But poorer people typically face a higher inflation rate, according to economic research, because they spend a greater proportion of their income on such volatile expenses as food, gas and rent — items that have absorbed some of the biggest price spikes.
Even for people whose incomes have kept pace with prices, research has long found that people hate inflation more intently than its economic impact would suggest. Most people do not expect their pay to keep up with rising prices. Even if it does, the higher pay may come with a time lag.
© Copyright 2023 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission.
14 Comments
Login to comment
dagon
With good reason.
New tech workers living in their cars. School lunch debt and medical bankruptcies. The contradictions of American capitalism are rife and they are not being addressed by the neo-lib admin.
Giving an opening for conservative fascists.
marc laden
Why Americans feel gloomy.........
The best solution is they should carry a photo of Biden and Harris in their pockets all the time. Whenever they feel gloomy take out the pictures and say loud that go for second term ... then I am sure all the worries will fly away...
TaiwanIsNotChina
This but unironically. The orange fascist will surrender everything abroad so there is no one left to trade with.
MarkX
Listened to a great podcast exactly about this topic, and the host said that with the unprecedented inflation of sometimes 9% in the past few years, sure it has now come down to about 2.5%, (I don't believe there was 0% in the last reporting months), but that still means that prices are up almost 11% since 2019! That is a huge increase and that is why people are feeling terrible about this economy.
As for Japan, we can expect the same thing to happen here as well, now that inflation is increasing, with no signs of it going away, but we are hit doubly as there is little or no salary increases!
Eastman
its simple.
US economy have survived from taking of benefits from other countries.
control of world trade by manipulating of US currency rates.
in last decade no one war of conflict ignited by USA have ended with US victory.
no big war-no big business for US industry.
get it right.american century is well over now as world is not static one but undergoing dynamic changes-not in favour of USA and their own national interests.BRICS.lost wars.lost influence in many parts of world.and dont forget rising antiamericanism especially in Africa.
TaiwanIsNotChina
Ah, I see. All mysterious siphoning from countries that can't be pinned down.
The only excess "money printing" was via quantitative easing which is ending demonstrably.
The US government has to pay for those weapons. Not exactly a growth industry or Russia would be on top of the world in gdp per capita.
I guess someone forgot to tell us that, as our money and military are as strong as ever.
Yes, BRICS has lost influence in many parts of the world due to the corrupt BRI initiative of BRICS leader China. Propaganda in war torn Muslim countries in Africa is not really a concern as US popularity globally is much greater than Russia and China.
Alan Ochoa
Will never get over the fact that we have literal school lunch debt, like how is that even a thing?!
Attilathehungry
TBH people are looking back with fondness at the years of the Orange Cheetah:
$2.00 a gallon gas for your car
3% mortgages
2% inflation
Five dollar foot long sandwiches at Subway
No wars
Record low illegal immigration
I mean yeah, the guy was an ogre in his personal life and probably hasn't read a book since he was in university, but he somehow got the job done.
TaiwanIsNotChina
Still no wars and it is being done by projecting strength rather than engaging in treasonous appeasement.
Attilathehungry
No wars? How about Biden wasting more than $1,000 per American family on the fiasco in Ukraine?
Now, about those economic numbers.....
TaiwanIsNotChina
Yes, sending weapons is not the same thing as sending soldiers. You're going to have to admit you are calling for surrender over the precious dollars and nothing else. Well maybe you are just parroting what the orange traitor tells you to.
What about them?
kibousha
Macro people: Inflation is low, unemployment is low, y'all should be happy and go spending spree
Micro people: with what money !? Wages are low, pay rents, bills, and foods, 1000yen left in the bank.
Macro people: Inflation is low, unemployment is low, I've done a good job, you micro people should buy less avocado toasts!
fxgai
The inflation rate coming down doesn’t mean prices have come back down.
It will take a long while before people can readjust to the higher prices wrought upon them by political incompetence.
TaiwanIsNotChina
There is no proof the inflation was due to excess spending: we had a pandemic where a lot of people reassessed whether they want to continue in crappy jobs for low pay.