Gene J. Puskar/AP Photo
A woman shops in a Target store in Upper Saint Clair, Pennsylvania, July 7, 2023.
Unemployment is at historic lows. The economy is growing more than expected. Inflation is coming down, which is pushing real wages up. Consumer spending is rolling along. Some sectors of manufacturing construction are skyrocketing. And several measures, like economic growth and prime-age employment, have actually rebounded to their trends from before the 2008 financial crisis, an almost unthinkable scenario just a few years ago. Yet The Wall Street Journal, Politico, The New York Times, Politico again, and The Wall Street Journal again all agree: None of this is catching on with the public.
The evidence for this ranges from random interviews at convenience stores to public polling. In a July CBS News survey, nearly three times as many people say they are falling behind economically as those who say they’re getting ahead, and 65 percent view the economy as bad, even as a plurality view the job market as good. A CNN poll from the same time period has negative opinions on the economy outweighing the positive ones by nearly 3 to 1. Consumer confidence is both at its highest level in two years and also around the same level of the Great Recession.
Viewed from 10,000 feet, with a run of good economic statistics and a run of bad economic impressions, it seems that perceptions have come unmoored from reality. But it’s a pretty logical outcome if you think it through. When people are mad about the economy, they tend to stay mad for a while, and they’re even justified in doing so. The Biden re-election team needs to hope that the mood will shift in time for fall 2024—which may depend on whether anything else gets in the way.
The dominant economic story in the country during the Biden presidency is the spike in inflation. While the jobs numbers are prodigious, changes in employment by definition affect a smaller number of people than the price of everything, which affects everyone.
When inflation “goes away,” that doesn’t mean that every price reverts back to its previous level. For the most part, the rate of price increases just levels off. Anyone pissed off about prices at the grocery store is still going to be pissed off, because they’re still high relative to where they were in 2021. In fact, companies continued to raise prices on food in the second quarter of this year, even as supply disruptions eased. An opportunistic trend of volume dropping and profits rising, which means that companies are taking more margin per unit, has taken hold. We may finally be seeing the limits of this profit-skimming, however; Wall Street investors are starting to punish companies that aren’t increasing sales. If companies chase volume with discounts, consumers will see some relief.
The main prices that have fallen already are on gas and energy, but that has ended, in part because of the ongoing heat wave, which prevents refineries from running at full capacity and increases demand for air-conditioning. The positive trends on consumer sentiment are if anything going to go down in the near term, as the most publicly visible posted prices in the country rise.
It seems that the pandemic has created a psychological mass-FOMO (fear of missing out) event in America.
Meanwhile, interest rates have remained at levels mostly unseen in the past couple of decades. They almost certainly will either stay there or go higher for the remainder of the year. If you are in the market for a car, you’re going to pay much more to finance it. If you’re buying a house, there isn’t much inventory for sale, because those selling don’t want to get a new mortgage at these rates. If you do find something to buy, the interest costs are eye-watering. The same is true for ordinary consumer loans. Anyone trying to get a home equity loan or refinance their mortgage, to pull money out of their real estate, will pay a stiff penalty. One amateur model of consumer sentiment sees high interest rates as the biggest single factor in public pessimism.
The whole of Biden’s Build Back Better Act could have eased some of these strains, by reducing costs of child care (now one-fifth of household budgets for the majority of parents according to a new report), housing, and family formation through the expanded Child Tax Credit. But none of that passed, and most of the temporary safety-net benefits from the pandemic have gone away. What’s left of Bidenomics has long time lags: Manufacturing plants aren’t built overnight, bridges aren’t repaired instantly. Of course it won’t trigger an immediate reaction among the public.
So if all of this is true, why is consumer spending still robust? It seems that the pandemic has created a psychological mass-FOMO (fear of missing out) event in America. For a couple of years, a lot of the country was determined to avoid COVID and stay in their homes, or was at least more cautious. That created pent-up demand for leisure activities. In 2023, with the pandemic out of the public consciousness, travel spending is up, restaurant spending is significantly up, and the country is experiencing twin record-breaking entertainment phenomena with Barbenheimer and the Taylor Swift tour. After two years cooped up inside, the desire for humans to have communal experiences is roaring back.
How is all of this being financed? Nearly half of all credit card holders are carrying balances from month to month, and 54 million cardholders have been in debt for at least a year. If you’re spending more on fun, you have less for everything else, so you’re borrowing at high rates and you’re financially stressed. (It should be said that delinquency rates for credit cards are down, which is a good sign.) And other goods are being sacrificed for the good times; while manufacturing construction is up, manufacturing output has actually been down for nine months.
There are other issues, including the fact that half of the country has their own media ecosystem, which has been drumming into their heads since January 20, 2021, that the economy is on the verge of total collapse. And I haven’t highlighted some positive indicators, like higher wages for low-earners (from both minimum-wage increases and a reshuffling of jobs into higher-paid positions). But on balance, we have an economy with higher prices, higher interest rates for borrowing, and frustration from people who want to do more and don’t have the money to do it. There’s a lot of talk of a “soft landing” that avoids recession, but that’s still a landing, at a lower spot than if you’re in midair. People would rather be flying high.
It takes time for these sentiments to fade, even when the economy really has turned around. Ronald Reagan didn’t see the benefits of a stronger economy until a year or so after unemployment began to fall; Bill Clinton and Barack Obama saw the same dynamic. Those rebounds were slow, about a point a month between the summer before their re-elections and Election Day. (Obama’s was even slower, as his economy rebounded more slowly.) You could see this kind of imperceptible change for Biden, if consumer confidence continues on its upward path.
But a lot could disrupt the upward swing. The Fed’s high rates have taken a toll on bank lending, which can depress investment. They could react to rising energy prices by spiking them even more, creating a vicious cycle. House Republicans are almost certainly going to shut down the government at the end of September, and the combination of that and whatever the resolution is, potentially through large spending cuts, could damage the economy. And 45 million borrowers are going to get student loan bills to pay in October for the first time in over three years (though in the details they have removed the consequences for nonpayment for a year, which should mitigate this impact).
The administration is not backing down from touting economic progress, as a recent slide deck sent to reporters shows. They are so far unafraid of seeming out of touch by focusing on the gains and ignoring the losses. It’s natural to get nervous wondering whether this bet will pay off, and to second-guess the strategy; Democrats have turned that into a sport over the years. But past presidencies have shown that this path can lead back to the White House for a second term. It just takes time to work.
