Last week’s jobs report was confusing. The Bureau of Labor Statistics conducts two separate surveys, one among employers and the other among households; we normally expect the two to paint a similar picture. This time, not so much.
The employer survey was, to use the technical term, meh – 210,000 jobs added, a respectable number but not what many had hoped for. The household survey, however, was great; in particular, the employment rate among prime-age adults, a key measure of the health of the labor market, is beginning to approach pre-pandemic levels.
Well, we shouldn’t overemphasize the apparent inconsistencies in the report. Loud data is happening and overall the economic picture looks pretty good – indeed, in many ways, it looks like the best economic recovery in many decades.
Still, consumers seem to be feeling very dejected – or at least that’s what they tell polls like the famous Michigan Survey of Consumers. And this perception of a bad economy clearly weighs on President Biden’s approval rating. Which begs the question: are consumers right? Is it a bad economy despite the data showing it to be very good? And if it’s really not a bad economy, why is the public saying it?
Just to be clear, I really want to know the answer to these questions. I don’t think this is a crass case of ‘people get lied to by the corporate media’, although if you ask me, it’s silly when people in the media get annoyed at any suggestion that the way they report on the economy has an impact influences public perceptions. (If not, why do they care?)
So what’s up? Let’s start with the obvious culprit, inflation, which is indeed higher than it has been in decades.
Rising prices have certainly eroded the wage gains of many workers, although real personal income per capita is still above its pre-pandemic level, even though the government is no longer distributing much money. And I get the impression that inflation has a corrosive effect on confidence even when incomes are holding up, because it creates the impression that things are out of control.
That said, inflation surveys also illustrate that when you talk to consumers, the questions they answer may not be the ones you thought they were asking. It’s a long-held observation – almost a running joke – that the “expected inflation” number from Michigan surveys is, in practice, essentially the price of gasoline.
So what question do people really answer when asked about the state of the economy? One clue is that there is an incredible amount of partisan bias in the responses. Republicans say, bizarrely, that current economic conditions are much worse than they were in March 2009, when the economy was losing 800,000 jobs per month.
Another clue is that you get very different answers when you ask people “How are you?” Rather than “How’s the economy going?” ” the Langer Consumer Confidence Index asks people separately about the national economy – where their assessment is bleak – and their personal financial situation, where they score high by historical standards. The Michigan polls don’t ask quite the same questions, but they ask people about their current financial situation compared to five years ago; 63% say they are better off, the same number as in September 1984, just before Ronald Reagan won an electoral landslide claiming it was “morning in America.”
Besides looking at what people are saying, it certainly makes sense to look at what they are doing. If consumers really are as depressed as the sentiment numbers say, why are retail sales so high?
And if we turn our attention from consumers to businesses, we see a huge increase in capital spending. That is, companies invest as if they see a booming economy and expect the boom to continue.
In short, the very negative public assessment of the economy is at odds with every other indicator I can think of. Once again, what is going on?
Like I said, part of the answer is probably that inflation pisses people off even when their incomes are holding up. This can be especially true when there are sharp increases in the cost of filling a gas tank, a cost that has psychological significance far beyond its 4% weight in the consumer price index.
Partisanship is also certainly a factor. Two-thirds of Republicans believe the 2020 election was stolen; How much of a stretch for them too to believe that Biden’s economy is terrible, regardless of their personal experience?
Finally, as I also said, it is implausible to say that the tone of the media coverage is irrelevant. It’s not even necessarily a partisan thing. My world is full of economic commentators who have spent years eager to moralize on the evils of inflation and who were bitterly disappointed when the hoped-for disaster did not materialize ten years ago. Now they have their chance and they are definitely having an effect on public perceptions.
It is therefore important to keep a step back. This is actually a very good economy, but with a few issues. Don’t let the doomsday prophets tell you otherwise.
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