Americans are not feeling good about the state of the economy, and it’s a big problem for President Biden.
Even as numerous indicators suggest the U.S. economy is doing remarkably well in the postpandemic era, poll after poll has shown consumers don’t view the economy in the same light.
Nearly 3 in 5 Americans in a recent Harris poll said the U.S. is in a recession, despite a record number of new jobs added 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’s index of consumer sentiment and the Conference Board’s consumer confidence index — have ticked up since mid-2022, they remain well below the level expected based on recent economic data.
This dour economic mood could spell trouble for Biden as he vies for reelection against former President Trump this November — as inflation and the economy remain top of mind 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 impacts of 40-year high inflation to a shifting media landscape are behind this persistent divide between how Americans feel about the economy and what the data shows.
“Prices are something that people feel every day,” said Shernette McLeod, an economist with TD Economics. “They go to the grocery store, they go to the gas station, and prices are rising.”
After reaching a four-decade high of 9.1 percent in June 2022, inflation has eased significantly, falling to 3.4 percent as of April. However, even as inflation improves, Americans are still grappling with a rapid increase in prices.
“Even though we say inflation is coming down, they’re still seeing higher price levels,” McLeod told The Hill. “They remember back in 2019, when prices were this much, and now they’re 20 percent higher or, for some things, 30 or 40 percent higher.”
While consumer prices are up just 3.4 percent since last April, they are up 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 scale previously in their lifetimes, McLeod noted.
“We haven’t seen inflation like this in over 40 years,” she said. “For many people under 40, they’ve never really gone through an episode of really high inflation in a short period of time. So, for a lot of them, it’s a shock.”
Biden and his economic team have sought to strike a balance between touting progress on inflation while being sensitive of its toll 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 increase in April and 2.7 percent over the prior 12 months, according to the personal consumption expenditures (PCE) index, a measure of inflation closed watched by the Federal Reserve.
However, Brainard also noted that “today’s PCE report shows continued progress bringing down inflation.”
“Annual core inflation is at its lowest level since March 2021, and overall inflation is down 60 percent from its peak,” she said. “President Biden is going to keep fighting to lower costs, while congressional Republicans fight to cut taxes for the ultra-wealthy and big corporations.”
As inflation soared in early 2022, the Fed began raising interest rates in an effort to cool the economy. The central bank has maintained rates at a range of 5.25 percent to 5.5 percent — a two-decade high — since July 2023, while inflation remains stubbornly above target.
These higher interest rates have weighed on consumers, but may not be fully accounted for in current measures of inflation, according to some experts.
A recent working paper from former Treasury Secretary Larry Summers argues that the consumer price index (CPI), a popular inflation gauge, understates the impact of borrowing costs, such as those associated with home and car ownership.
“[Where] people on the ground are feeling it in terms of rising house prices and rising interest rates, the official data doesn’t capture that,” McLeod added. “Even though the official data might be saying one thing, what people are experiencing in their everyday lives, it’s a different reality for them.”
Higher mortgage rates, driven by higher interest rates, have also created a “constipated” housing market that may be contributing to Americans’ dour mood, said Brett House, a professor of professional practice in the Economics Division at Columbia Business School.
The average 30-year fixed-rate mortgage currently sits at about 7 percent, up from historic lows during the pandemic, according to Freddie Mac.
For those who purchased homes during the pandemic, it makes sense to keep their mortgages locked in 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 job market has remained surprisingly strong in the face of the Fed’s rate hikes, turnover in the labor market could also be creating uncertainty for American workers, House added.
“We have seen a very strong labor market for employees over the last couple of years, with strong hiring and wage increases that have been running for some time ahead of inflation,” he said.
“But that is in the midst of some pretty big sectors, like finance and tech, laying off a number of people, even as they’re hiring as they pivot toward more AI-related investments,” he added.
Tech companies laid off more than 165,000 workers in 2022 and 263,000 workers in 2023, according to Layoffs.fyi. Cuts have continued to plague the tech sector this year, with nearly 90,000 layoffs so far.
Other experts have pointed to a shift in the media landscape and the way that Americans get their news.
Americans now increasingly get their news from social media platforms, which tend to emphasize negativity, said Beth Akers, a senior fellow at the American Enterprise Institute.
More than half of U.S. adults said they sometimes or often get their news from social media last year, according to a survey by the Pew Research Center.
Three in 10 Americans said they regularly used Facebook for news, closely followed by YouTube, at 26 percent. Other social media sites frequently used for news included Instagram, TikTok and X.
Any potential misunderstandings that people have about inflation may be more relevant in this context, Akers told The Hill.
“As people are receiving this information about inflation, this negative information about the economy, in maybe a new and more salient way, it may matter more today than ever before whether or not they have a really accurate understanding of how inflation works,” she said.
Akers pointed to the common misconception that falling inflation will translate into falling prices. Rather, since inflation tracks the change in prices over time, a dip simply reflects a slower increase in prices.
“Maybe previously people didn’t understand inflation perfectly, but they didn’t really need to so much because they weren’t being inundated with these negative ideas about how inflation is affecting them on a day-to-day basis,” Akers said.
“Now, fast-forward, and those misunderstandings may be exacerbating the emotional response, because of the way that people are learning about what inflation means for their lives,” she added.