Americans are not feeling good about the state of the economy and it is a big problem for President Biden.
While numerous indicators suggest that the U.S. economy is doing remarkably well in the post-pandemic era, poll after poll shows that consumers are not viewing the economy in the same light.
Nearly three in five Americans said in a recent Harris Poll that the U.S. is in a recession, despite record job creation under Biden and the longest stretch of unemployment below 4 percent since the 1960s.
While two popular measures of consumer opinion – the University of Michigan Consumer Confidence Index and the Conference Board Consumer Confidence Index – have risen since mid-2022, they remain well below expected levels based on recent economic data.
This gloomy economic mood could spell trouble for Biden as he fights for re-election against former President Trump in November. As inflation and the economy remain top priorities for voters, a recent ABC News/Ipsos poll found that more Americans trust Trump on both issues than Biden.
Experts say everything from the lingering effects of four decades of high inflation to a changing media landscape are behind this persistent gap between how Americans think about the economy and what the data shows.
“Prices are something people feel every day,” said Shernette McLeod, an economist at TD Economics. “They go to the grocery store, they go to the gas station and prices go up.”
After reaching a four-decade high of 9.1 percent in June 2022, inflation has eased significantly, falling to 3.4 percent in April. But even as inflation improves, Americans are still grappling with rapid price increases.
“While we say inflation is coming down, they are still seeing higher price levels,” McLeod told The Hill. “They remember when prices were so high in 2019, and now they're 20 percent higher or, for some things, 30 or 40 percent higher.”
While consumer prices have risen only 3.4 percent since April last year, they have risen about 24 percent since January 2019 and 19 percent since the start of Biden's presidency in January 2021.
Many Americans have not experienced inflation of this magnitude in their lifetimes, McLeod noted.
“We haven't seen inflation like this in over 40 years,” she said. “Many people under 40 have never really experienced an episode of really high inflation in a short period of time. So it is a shock for many of them.”
Biden and his economic team have tried to strike a balance between touting progress on inflation while being sensitive to the toll it is taking on Americans.
National Economic Council Director Lael Brainard acknowledged Friday that “the cost of living is still too high for too many working families,” following the release of new inflation data.
Prices rose 0.3 percent in April and 2.7 percent over the past 12 months, according to the personal consumption expenditures (PCE) index, a measure of inflation monitored by the Federal Reserve.
However, Brainard also noted that “today's PCE report shows continued progress in reducing inflation.”
“Annual core inflation is at its lowest level since March 2021, and headline inflation is down 60 percent from its peak,” she said. “President Biden will continue to fight to cut costs, while Republicans in Congress fight to cut taxes for the ultra-wealthy and big corporations.”
When inflation soared in early 2022, the Fed began raising rates in an effort to cool the economy. The central bank has kept interest rates at a range of 5.25 to 5.5 percent since July 2023 – the highest level in two decades – while inflation remains stubbornly above target.
These higher interest rates have weighed on consumers but may not be fully reflected in current inflation readings, according to some experts.
A recent one working document by former Treasury Secretary Larry Summers argues that the Consumer Price Index (CPI), a popular inflation gauge, underestimates the impact of borrowing costs, such as those associated with home and car ownership.
“[What] people locally are feeling it in terms of rising house prices and rising interest rates, the official data doesn't reflect that,” McLeod added. “Even though the official data says one thing: what people experience in their daily lives is a different reality for them.”
Higher mortgage rates, driven by higher interest rates, have also created a “congested” housing market that may be contributing to Americans' gloomy mood, said Brett House, professor of professional practice in the Economics Division of Columbia Business School.
According to Freddie Mac, the average 30-year mortgage rate is currently about 7 percent, up from historic lows during the pandemic.
For those who bought a home during the pandemic, it makes sense to hold on to their mortgages at those incredibly low rates. However, this has resulted in less inventory in the housing market, making it more difficult for those hoping to buy, House told The Hill.
While the labor market has remained surprisingly strong despite Fed rate hikes, labor market turnover could also create uncertainty for U.S. workers, House said.
“We have seen a very strong labor market for workers in recent years, with strong hiring and wage growth that has been ahead of inflation for some time,” he said.
“But that's happening in the middle of some pretty big industries, like finance and technology, that are laying off some people even as they hire as they focus on more AI-related investments,” he added.
According to figures, technology companies will have laid off more than 165,000 employees in 2022 and 263,000 employees in 2023. Fired.fyi. The technology sector continues to be plagued by budget cuts this year, with almost 90,000 layoffs so far.
Other experts have pointed to a shift in the media landscape and the way Americans get their news.
Americans now increasingly get their news from social media platforms, which tend to emphasize negativity, says Beth Akers, a senior fellow at the American Enterprise Institute (AEI).
More than half of American adults said they sometimes or often got their news from social media last year, according to a questionnaire by the Pew Research Center.
Three in ten Americans said they regularly use Facebook for news, followed closely by YouTube, at 26 percent. Other social media sites commonly used for news include Instagram, TikTok and X, formerly known as Twitter.
Any misunderstandings people have about inflation may be more relevant in this context, Akers told The Hill.
“As people receive this information about inflation, this negative information about the economy, in perhaps a new and more noticeable way, it may matter more today than ever whether or not they have a truly accurate understanding of how inflation works ,” she says. said.
Akers pointed out the common misconception that falling inflation will translate into falling prices. Because inflation follows price change over time, a dip simply reflects slower price growth.
“Maybe people didn't understand inflation very well before, but they didn't need to because they weren't bombarded with these negative ideas about how inflation affects them on a daily basis,” Akers said. .
“Fast forward, and these misunderstandings can worsen the emotional response because of the way people learn what inflation means for their lives,” she added.
