Name: Why Many Americans Still Feel Bad About The Economy Despite Strong Data
Uploaded: 2024-05-04T01:02:58.000Z
Duration: 11 min 45 s
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Take a moment to consider your financial situation.

Adverbs of manner

Are you better or worse off financially than you were a

Where do you see the country headed in the next

five years? These are just some of the questions used

by the University of Michigan to calculate the

Consumer Sentiment Index, an economic indicator

measuring how people feel about the economy.

It's a measure that we can compare over time and get a

pulse on the attitudes of consumers, which is

important given that consumer spending is over

But there's a pervading sense of disconnect between

the overall economic picture and how people feel

Despite declining inflation, a healthy labor

market with record low unemployment, as well as

stocks that remain in a bull market, consumer

sentiment remains below pre-pandemic levels.

When people are sort of asked almost anything about

the economy, they react in a very sort of visceral way

that everything is lousy, even though there's a fair

bit of evidence that bit by bit, things are getting

And it's not just consumer sentiment levels that have

In a New York Times/Siena College poll conducted in

February, 40% of respondents said the economy

was worse than it was a year earlier, versus only

23% who said it was better for consumers.

When they tell us that they're feeling like the

economy is average, that is their experience because

their experience is not necessarily being driven by

So why hasn't consumer sentiment matched up with

And what are some of the factors behind the

disconnect, and why the issue could play an outsized

role in this year's US presidential election?

The surveys of consumers at the University of Michigan

have been measuring consumer sentiment since

It's based on a number of questions about personal

finances, business conditions, as well as

buying conditions for durables both right now and

And taken together, what research has shown is that

it captures very well how people feel about the

economy, which feeds into how they make economic

Current sentiment levels, released in April of 2024,

show that sentiment has remained steady since the

start of the year, hovering at around the half way point

between all time low levels from June of 2022, during

the height of inflation and pre-pandemic levels.

I think what we we can definitely say about how

consumers feel about the economy is that their

impressions of the economy aren't being driven

necessarily by the official GDP release, by the official

unemployment rate or the official inflation rate.

And so one reason that you see this disconnect is

because it's not affecting the average consumer the

But beyond consumers not reaping the rewards from the

strong economic data, in some cases their views of

the economy stand in direct contrast with the data

itself. In fact, in a Wall Street Journal poll

conducted in February of 2024, 68% of Americans

surveyed said inflation had moved in the wrong direction

People don't tend to think in terms of inflation.

Economists do. But economists are not normal.

Normal people think in terms of price levels.

Consumers are, I would say, well connected with what's

going on in the macro economy, but they don't

necessarily internalize every piece of good news as

For them, inflation is top of mind and is really

underpinning, um, a lot of their overall views.

So one of the problems that we've got is consumers are

just useless at forecasting inflation, I'm afraid.

And that's because of something called frequency

In an op-ed for The New York Times, economist Paul

Donovan argues that while consumers tend to forget the

price of less frequently bought, more expensive

items, they are much more likely to remember the price

of lower priced, frequently bought goods.

And that's a real problem at the moment, because when we

look at the composition of inflation, particularly in

So televisions, furniture, consumer electronics,

they're falling. But nobody remembers that fact.

However, every time you go to a vending machine to buy

a Snickers bar, you remember the fact that that

price has gone up because it used to be this price,

And so that sort of sticks in your mind, and that

creates this illusion that inflation is higher than it

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Why Many Americans Still Feel Bad About The Economy Despite Strong Data

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