Americans doom and despair about the economy is growing.
In fact, by one measure, the public is sadder than they are forever has been in the post-war era. The University of Michigan has been researching the opinions of American consumers since as early as 1952 – and their results from last month was the lowest they have ever been.
A A CNN study this week found deep doubts about the essence of the American dream. When asked if most people can get ahead if they are willing to work hard, 47 percent of respondents agreed. A decade ago, in 2016, 67 percent agreed. And the trend toward despair was relatively similar regardless of age, race, or gender.
President Donald Trump’s approval rating on the economy has also fallen sharply in recent weeks, in polls from both parties. CNBC (which showed him at 39 percent) and CNN (which showed him down to 30 percent).
All this happens when several important economic statistics – such as GDP growth and job numbers – continue to look good or very good, and when the stock market it stays close all time highs.
Yet the American people are angry, for the same basic reason they have been angry for most of this decade: high prices and the cost of living. In the open question in A CNN study76 percent of the respondents gave some difference regarding affordability as the biggest economic problem facing their families.
For that problem, there is no end – in fact, the latest economic news shows that it is getting worse:
- New data released on Tuesday showed inflation at its highest level in three years – and only partly because of higher energy prices due to the Iran war.
- The new figures also showed inflation outstripping wage growth for the first time in three years, Heather Longchief economist for Navy Federal Credit Union, noted on X.
- And Wednesday, released recently data displayed producer prices – general inflation – to increase the most since 2022. That could be an early sign of future price increases for consumers.
Even though the inflation of the 2020s has been painful, there is still a puzzle as to why it seems to be overriding all other economic indicators in the minds of Americans at this time – making people feel worse than they did even during the longest and strongest inflation rates.
New article from two economists suggests one explanation to what they call the “vibe gap”: that the past few decades have fundamentally changed Americans’ expectations for the economy in ways that have left them angrier than ever. If they’re right, it may be a long time before consumers start feeling like the happy days are here again.
When did Americans get negative, exactly?
In explaining America’s poor economic performance, some point to decades-old economic trends such as rising inequality or the country’s failure to adequately recover from the Great Recession. Others focus on large-scale societal explanations that have little to do with economics at all – for example, negative comments on social media, or the promotion of political fandom.
This information does not match the data based on time. That’s because, in the mid-to-late 2010s, Americans thought the economy was doing well. And, as you may remember if you’re old enough, social media sloppiness and political bigotry existed back then.
The University of Michigan monthly survey is widely considered the gold standard for measuring US consumer sentiment about the economy. The number they report is an index based on how respondents answer various questions. (Its peak was 110, in the early 2000s, at the height of the dot bubble.)
During the second term of President Barack Obama and the first term of Trump, the index was constantly in the nineties, and even the high nineties for Trump. But the crisis — and then, even more, the post-crisis inflation of the Biden years — sent it down, to a nadir of 53 in the summer of 2022.
Things slowly got better as President Joe Biden went on, though it fell well short of the peak of the 2010s. Then Trump’s second term sent it plummeting again — and the decline was fueled first by his taxes, and more recently by the Iran war and rising gas prices.
Prices do not go down
It’s not exactly news that Americans are upset about high prices — it’s been the biggest political story of the 2020s.
Still, the depth of the anger and despair has been a puzzle to economists, who tend to believe that the current economy is nowhere near what the public seems to think.
They point to current best indicators like GDP and job growth, and say things have been worse in many places in the past. Inflation in the 1970s, for example, was sharper and lasted longer than that of the 2020s – but now the index of consumer sentiment has fallen sharply. And the consumer sentiment index typically matched “hard” economic data measures of well-being — until, in the 2020s, it stopped doing so.
What accounts for the difference? One new and interesting theory, presented by economists Jared Bernstein and Daniel Posthumus this month, it is that there is a gap between the economy that Americans expected to have and the one they are getting that seems very difficult to resolve.
Inflation was a big problem between the 1960s and early 1980s. But once the Federal Reserve got it under control, it stayed down regardless of what else was going on in the economy.
So, Americans are now comparing how much things “should” cost not just a few years ago, but four decades of smooth price increases. And for many workers, it’s the only economy they’ll ever know: “No one under the age of 43 in 2022 would be alive when the last inflation rate exceeded 7.5 percent, less than fully participating in the economy,” the authors noted.
To test their theory, Bernstein and Posthumus added a new variable that accounted for consumers’ expectations for price levels over time, and found that their model predicted consumers’ recent negative sentiment better.
In that context, the inflation of the 2020s is no longer seen as a normal economic windfall – it comes out as a direct betrayal, a sign that something was fundamentally broken in the economy.
And if recent inflation data is any indication, it’s not quite back together yet.
