A combination of all these things. Covid came after a decade of low interest rates, relatively easy credit and low prices, steady stock market increases (the halo effect of which probably reached non-investors) and ample supply of everything. And then suddenly with Covid that changed -- not only lingering effect of that shock, but an idealization of the "before-times," plus everyone had extra cash. Expectations that everything would be great once Covid ended were not only not realized but all these new complicated problems emerged. The sudden severe interest rate increases were a shock -- a sense that the "good times are over." Prices, especially food prices, starting rising during Covid. May have been blamed on supply chain but in many cases Covid gave companies that had not had pricing power for years an opportunity to take price -- major price increases that just continued. Add in the end of student debt relief, medicaid expansion, etc etc. Just feels to many that the good times, the easy times, are over. Tend to think the strikes are a symptom, not a cause, from the folks who didn't really benefit from the "good times." Were the "good times" really any more than a big asset bubble driven by easy money for too long?
Great post. My take is that people anchor what a price was and even if it hasn’t changed in past 9 months they are still thinking what is was 2 - 3 years ago. Also with rates up if you borrow you are paying more even if the price is the same.
Thanks and I agree with you, but it does not appear that the 4-year look back is not common, in general. Though we did that with the Great Recession on wealth. It makes sense that the start of the pandemic would be a salient reference point.
The employer/employee relationship is being reset culturally, employers after the great recession were used to being able to do almost whatever they want, now that is changing and I think both sides feel it and that creates this economic tension that is hard to measure, because people aren't asking the right questions
And a ton of employees realized fully that employers don't have their interests at heart, this realization happened either during covid or with the return to office initiatives
These feeling are hard for many to articulate since so many people wrap up their personality and self worth into work, it's an ego death across an entire population of working professionals
After laying off millions of workers per week at the start of the pandemic, employers had to scramble and raise wages to re-staff, tables turned quickly.
I agree that some aspects of the labor market will change. WTH is one that gives some workers more flexibility and shifts some control to them. Nick Bloom at Stanford and others have done a lot of work on WTH, including surveys of people. But you are correct, it's not in this particular survey. Though it is correct to say that WFH en masse was a response to Covid.
WFH also reduced workers sense of connection to the workplace. Your job and workplace is no longer your community. It became very easy to move on. Then massive layoffs in tech. Retailers and restaurants closing, including familiar neighborhood places. Plus this sudden, post-Covid, surge in small property crime and gun violence. Macro data may be positive but the real day to day world seems precarious...Uncertainty breeds anxiety. Real income for many people has declined, after a brief period of improvement. Auto workers paid a huge price to save their companies but they haven't gotten any of it back while their companies and execs prosper. That's also what the writers and actors strike is about. They, individually, don't feel better off and probably aren't. GDP growth is an abstraction.
Thanks for the very useful analysis Claudia. We tend to want instant gratification so waiting for all the amazing legislation to show benefits leaves Americans wanting. Additionally all the political dysfunction on the right doesn’t present much optimism for much of anything to include the economy. I subscribe to your conclusions as we cannot minimize the horrifying impacts of a once in a lifetime pandemic. I remain optimistic as the US economy should post a 5% growth and our fiat currency maintains global stability. Patience...
This is a fascinating analysis, thank you! And the range of additional suggestions in the comments really illustrate just how much non-economic factors shape our personal and cultural relationships with money in ways that economics and personal finance generally ignore.
Great article. The disconnect between the macro data and the consumer sentiment seems to be widening. Economists sound out of touch when we say that the economy is doing well.
it’s simply a situation of buyers remorse .. this buyers remorse is specifically regarding Covid 19 and all the iterations that this overlaid on our lives..
I am thinking that You won’t be able to see it in a bureau of labor statistics chart or any of the 6 other government entities that try to discern human behavior, or the human condition ..
The working class has suffered under neo-liberal economic policies for 40 years. They carried the largest burden during COVID. The fed has opted for monetary policy that scape goats them. The role of union representation is at an all time low. And right leaning, or self serving politicians consistently diminish their value in our society/economy. As always, I appreciate your analysis, but I’m sorry to say.....I’m not surprised the level of expectation is in the cellar.
I have said before Covid 'preyed' on our pre-existing weaknesses. Giving low-wage workers a raise should not break us. People have enough money. Many of our business practices were built on the assumption that we would have an endless supply of cheap workers. We don't. But it's not all the companies, consumers benefited from low prices then. We can see where the fragilities are. Upside is that should be clear we can't go back to the status quo.
I think, respectfully, blaming COVID is missing the forest for the trees. I think the data economist are relying on is either collected inaccurately or these measures simply do not reflect the modern economy in 2023. It’s is very clear from the numerous strikes that many workers--and not just low income workers--feel and perhaps rightly so that they can no longer obtain a comfortable standard of living at their current wages. We see report after report of people unable to scrounge even $500 for a unexpected event, or millions who feel they will not be able to restart student loan payments. Americans are having less children, even less children then they want to have, why? Time and money. Furthermore, clearly the sentiment when I talk to many people and it seems from reports too, that people believe we are in a recession even though the economy is doing (perhaps exceptionally) well compared to recent history when looking at GDP and jobless claims. So why do many people feel economically insecure despite strong data? And why has no one been able to mathematically prove why sentiment is so negative? Seems like we need to go back and evaluate the methods.
I am trying to understand why persistent unusually low sentiment (even accounting for economic conditions, suddenly arose in 2020. And is still with us. Clearly and rightly, many people are upset now. There are hardships for many. But we have had hardships in the past. The 1970s were high inflation and low growth. We have a solid labor market and growth.
I am not saying the economy is great. Something is causing people to be more gloomy about the same economic conditions.
Also, by Covid, I do not mean the virus alone, but also our responses to it. As one example, shutting down the economy in March 2020 to protect us had massive consequences for the economy. And people, too.
Thank you for the response. I do agree with you that the supply chain shocks and other economic factors related to COVID are partially to blame--they are trees in the forest. But as you have agreed, something in this data is not communicating what most people are feeling and I think the economic community as a whole (and the Biden Administration) needs to acknowledge that something important is not being captured by the data. I hope that the economics discipline can find a way to address these discrepancies leading to policy recommendations that make this country a better place to live for Americans at all economic levels.
Possible gov shutdown due to foolishness on the far right
Higher oil prices
Student loan repayments starting in October
Slowdown in China economy
At least one more fed rate hike
Unfortunately, the potential for the uneasy feeling in the economy could continue despite the fact the numbers in the economy regarding the labor market, real wages positive, inflation well off its peak and unemployment near record lows. Bottom line, I think the disconnect to me comes from the media who isn't helping matters constantly mentioning inflation despite it being well off its peak as I've said.
These are all reasons that people could be more gloomy about the economy. But the wedge I am trying to understand showed up in 2020. Now, we could be passing one bad thing on to the next. So it looks like a stable root cause but is many instead.
Matt Stoller argued yesterday (https://www.thebignewsletter.com/p/strikes-and-bidenomics) that a possible source of gloom is sharply rising monthly payments for auto loans and mortgages. Those payments reflect the higher interest rates imposed by the Fed, but the CPI focuses more on auto and home prices. That deflects attention from the pessimistic impact of monthly payments on average people.
I read that. But any model I've used with consumer spending has interest rates in it, so I did not get why he thought this was a blind spot. CPI does not measure everything. Ok. More importantly, it does not answer my question of where the extra gloom came from starting in 2020,
That fits very well with the notion that there is a social element to the oddly low average level of reported sentiment. Culture wars are poisoning consumer sentiment during Democratic presidencies, but less so during Republican presidencies. We have too many sociopathic opinion leaders on the right.
Note also that there is a sizable divergence between reported personal economic circumstances and consumer moods, especially among Republicans.
This came to mind for me, too. It makes sense that COVID would knock the norms out of whack, but on the ground, it feels like political discourse from the right has taken advantage of that shift and worked hard to keep sentiment negative while conditions have improved drastically.
OK, there is a bigger picture here. Over the last four decades, people in the U.S. have felt that they have less and less control of their lives. I wrote about this in my piece, "I Want To Talk to a Person." We feel nickeled and dimed, and we can't get easy redress for our complaints. We can't even get the thing we think we're ordering online, or book hotel rooms in a straightforward way. Add on to that longterm simmering (that I argue had a lot to do with the rise of Tea Party/MAGA) that after the recession - which was about housing - the rate of corporate or trust ownership of rental properties tripled. And even individual landlords don't manage their properties, but hire out property managers. Rents have risen way more than incomes, and renters often feel the property company is not responsive - especially as time goes on and the landlord wants to turn over the unit to charge more money.
During the pandemic, we felt a reprieve from all of this when we started getting checks from the government. It became crystal clear how little we were making even pre-pandemic vis a vis the cost of living, and the extra money helped. Increasing the child tax credit - and making it a monthly payment - also helped families feel more secure. That was taken away, as Joe Manchin and Larry Summers told the people getting the tax credit that they were users who would just spend it on drugs. It's like being in an abusive family. It may take a while to realize you're being abused, but once you do, and you've begun to see other families who aren't like yours, then you end up going back to your abusive parents, then you are even more acutely aware of what you had briefly, and what you are being forced to live with now. It's why all of the "Biden got through these watershed laws" doesn't get through to people. Biden didn't get the main thing that would help people in the moment - money coming in, or forgiveness of their loans going out. So when we ask if people feel better economically than they did a year ago, of course the answer is no. Because a year ago, we were excited about student loan forgiveness, and the tax credit only ended in December.
A combination of all these things. Covid came after a decade of low interest rates, relatively easy credit and low prices, steady stock market increases (the halo effect of which probably reached non-investors) and ample supply of everything. And then suddenly with Covid that changed -- not only lingering effect of that shock, but an idealization of the "before-times," plus everyone had extra cash. Expectations that everything would be great once Covid ended were not only not realized but all these new complicated problems emerged. The sudden severe interest rate increases were a shock -- a sense that the "good times are over." Prices, especially food prices, starting rising during Covid. May have been blamed on supply chain but in many cases Covid gave companies that had not had pricing power for years an opportunity to take price -- major price increases that just continued. Add in the end of student debt relief, medicaid expansion, etc etc. Just feels to many that the good times, the easy times, are over. Tend to think the strikes are a symptom, not a cause, from the folks who didn't really benefit from the "good times." Were the "good times" really any more than a big asset bubble driven by easy money for too long?
Great post. My take is that people anchor what a price was and even if it hasn’t changed in past 9 months they are still thinking what is was 2 - 3 years ago. Also with rates up if you borrow you are paying more even if the price is the same.
Thanks and I agree with you, but it does not appear that the 4-year look back is not common, in general. Though we did that with the Great Recession on wealth. It makes sense that the start of the pandemic would be a salient reference point.
The employer/employee relationship is being reset culturally, employers after the great recession were used to being able to do almost whatever they want, now that is changing and I think both sides feel it and that creates this economic tension that is hard to measure, because people aren't asking the right questions
so true. Employers are having a hard time processing the shift in market power.
And a ton of employees realized fully that employers don't have their interests at heart, this realization happened either during covid or with the return to office initiatives
These feeling are hard for many to articulate since so many people wrap up their personality and self worth into work, it's an ego death across an entire population of working professionals
After laying off millions of workers per week at the start of the pandemic, employers had to scramble and raise wages to re-staff, tables turned quickly.
I agree that some aspects of the labor market will change. WTH is one that gives some workers more flexibility and shifts some control to them. Nick Bloom at Stanford and others have done a lot of work on WTH, including surveys of people. But you are correct, it's not in this particular survey. Though it is correct to say that WFH en masse was a response to Covid.
WFH also reduced workers sense of connection to the workplace. Your job and workplace is no longer your community. It became very easy to move on. Then massive layoffs in tech. Retailers and restaurants closing, including familiar neighborhood places. Plus this sudden, post-Covid, surge in small property crime and gun violence. Macro data may be positive but the real day to day world seems precarious...Uncertainty breeds anxiety. Real income for many people has declined, after a brief period of improvement. Auto workers paid a huge price to save their companies but they haven't gotten any of it back while their companies and execs prosper. That's also what the writers and actors strike is about. They, individually, don't feel better off and probably aren't. GDP growth is an abstraction.
All very good points, sadly.
Thanks for the very useful analysis Claudia. We tend to want instant gratification so waiting for all the amazing legislation to show benefits leaves Americans wanting. Additionally all the political dysfunction on the right doesn’t present much optimism for much of anything to include the economy. I subscribe to your conclusions as we cannot minimize the horrifying impacts of a once in a lifetime pandemic. I remain optimistic as the US economy should post a 5% growth and our fiat currency maintains global stability. Patience...
This is a fascinating analysis, thank you! And the range of additional suggestions in the comments really illustrate just how much non-economic factors shape our personal and cultural relationships with money in ways that economics and personal finance generally ignore.
Mismatch! Now that's an illustrative line graph.
Great article. The disconnect between the macro data and the consumer sentiment seems to be widening. Economists sound out of touch when we say that the economy is doing well.
Thank you so much Claudia for such a great posting that opened 💡.
it’s simply a situation of buyers remorse .. this buyers remorse is specifically regarding Covid 19 and all the iterations that this overlaid on our lives..
I am thinking that You won’t be able to see it in a bureau of labor statistics chart or any of the 6 other government entities that try to discern human behavior, or the human condition ..
thank You Claudia for sharing Your insight ..
Glenn A. Melcher
People generally have been more depressed and anxious since COVID
The working class has suffered under neo-liberal economic policies for 40 years. They carried the largest burden during COVID. The fed has opted for monetary policy that scape goats them. The role of union representation is at an all time low. And right leaning, or self serving politicians consistently diminish their value in our society/economy. As always, I appreciate your analysis, but I’m sorry to say.....I’m not surprised the level of expectation is in the cellar.
I have said before Covid 'preyed' on our pre-existing weaknesses. Giving low-wage workers a raise should not break us. People have enough money. Many of our business practices were built on the assumption that we would have an endless supply of cheap workers. We don't. But it's not all the companies, consumers benefited from low prices then. We can see where the fragilities are. Upside is that should be clear we can't go back to the status quo.
I think, respectfully, blaming COVID is missing the forest for the trees. I think the data economist are relying on is either collected inaccurately or these measures simply do not reflect the modern economy in 2023. It’s is very clear from the numerous strikes that many workers--and not just low income workers--feel and perhaps rightly so that they can no longer obtain a comfortable standard of living at their current wages. We see report after report of people unable to scrounge even $500 for a unexpected event, or millions who feel they will not be able to restart student loan payments. Americans are having less children, even less children then they want to have, why? Time and money. Furthermore, clearly the sentiment when I talk to many people and it seems from reports too, that people believe we are in a recession even though the economy is doing (perhaps exceptionally) well compared to recent history when looking at GDP and jobless claims. So why do many people feel economically insecure despite strong data? And why has no one been able to mathematically prove why sentiment is so negative? Seems like we need to go back and evaluate the methods.
I am trying to understand why persistent unusually low sentiment (even accounting for economic conditions, suddenly arose in 2020. And is still with us. Clearly and rightly, many people are upset now. There are hardships for many. But we have had hardships in the past. The 1970s were high inflation and low growth. We have a solid labor market and growth.
I am not saying the economy is great. Something is causing people to be more gloomy about the same economic conditions.
Also, by Covid, I do not mean the virus alone, but also our responses to it. As one example, shutting down the economy in March 2020 to protect us had massive consequences for the economy. And people, too.
Thank you for the response. I do agree with you that the supply chain shocks and other economic factors related to COVID are partially to blame--they are trees in the forest. But as you have agreed, something in this data is not communicating what most people are feeling and I think the economic community as a whole (and the Biden Administration) needs to acknowledge that something important is not being captured by the data. I hope that the economics discipline can find a way to address these discrepancies leading to policy recommendations that make this country a better place to live for Americans at all economic levels.
100% agree.
UAW strike
Possible gov shutdown due to foolishness on the far right
Higher oil prices
Student loan repayments starting in October
Slowdown in China economy
At least one more fed rate hike
Unfortunately, the potential for the uneasy feeling in the economy could continue despite the fact the numbers in the economy regarding the labor market, real wages positive, inflation well off its peak and unemployment near record lows. Bottom line, I think the disconnect to me comes from the media who isn't helping matters constantly mentioning inflation despite it being well off its peak as I've said.
These are all reasons that people could be more gloomy about the economy. But the wedge I am trying to understand showed up in 2020. Now, we could be passing one bad thing on to the next. So it looks like a stable root cause but is many instead.
Matt Stoller argued yesterday (https://www.thebignewsletter.com/p/strikes-and-bidenomics) that a possible source of gloom is sharply rising monthly payments for auto loans and mortgages. Those payments reflect the higher interest rates imposed by the Fed, but the CPI focuses more on auto and home prices. That deflects attention from the pessimistic impact of monthly payments on average people.
I read that. But any model I've used with consumer spending has interest rates in it, so I did not get why he thought this was a blind spot. CPI does not measure everything. Ok. More importantly, it does not answer my question of where the extra gloom came from starting in 2020,
There is a strong divergence in reported sentiment by political affiliation. See 5b:
https://data.sca.isr.umich.edu/charts.php
That fits very well with the notion that there is a social element to the oddly low average level of reported sentiment. Culture wars are poisoning consumer sentiment during Democratic presidencies, but less so during Republican presidencies. We have too many sociopathic opinion leaders on the right.
Note also that there is a sizable divergence between reported personal economic circumstances and consumer moods, especially among Republicans.
This came to mind for me, too. It makes sense that COVID would knock the norms out of whack, but on the ground, it feels like political discourse from the right has taken advantage of that shift and worked hard to keep sentiment negative while conditions have improved drastically.
OK, there is a bigger picture here. Over the last four decades, people in the U.S. have felt that they have less and less control of their lives. I wrote about this in my piece, "I Want To Talk to a Person." We feel nickeled and dimed, and we can't get easy redress for our complaints. We can't even get the thing we think we're ordering online, or book hotel rooms in a straightforward way. Add on to that longterm simmering (that I argue had a lot to do with the rise of Tea Party/MAGA) that after the recession - which was about housing - the rate of corporate or trust ownership of rental properties tripled. And even individual landlords don't manage their properties, but hire out property managers. Rents have risen way more than incomes, and renters often feel the property company is not responsive - especially as time goes on and the landlord wants to turn over the unit to charge more money.
During the pandemic, we felt a reprieve from all of this when we started getting checks from the government. It became crystal clear how little we were making even pre-pandemic vis a vis the cost of living, and the extra money helped. Increasing the child tax credit - and making it a monthly payment - also helped families feel more secure. That was taken away, as Joe Manchin and Larry Summers told the people getting the tax credit that they were users who would just spend it on drugs. It's like being in an abusive family. It may take a while to realize you're being abused, but once you do, and you've begun to see other families who aren't like yours, then you end up going back to your abusive parents, then you are even more acutely aware of what you had briefly, and what you are being forced to live with now. It's why all of the "Biden got through these watershed laws" doesn't get through to people. Biden didn't get the main thing that would help people in the moment - money coming in, or forgiveness of their loans going out. So when we ask if people feel better economically than they did a year ago, of course the answer is no. Because a year ago, we were excited about student loan forgiveness, and the tax credit only ended in December.