Why Americans feel gloomy about the economy despite falling inflation and low unemployment

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Despite reaching its lowest point in 2 1/2 years and maintaining an unemployment rate below 4% for an extended period, the U.S. economy’s current state remains a source of concern for many Americans. Various polls and surveys consistently reveal a pessimistic outlook on the economy, leading to bewilderment and curiosity in both social media and opinion columns.

Recent government reports indicate that consumer prices remained unchanged from September to October, signaling a continued decline in inflation from its peak last year. Another report highlights that while Americans reduced their retail spending in October compared to the previous month, their overall spending still contributes to economic growth. Nevertheless, a poll conducted by The Big Big News-NORC Center for Public Affairs Research last month showed that approximately three-quarters of respondents characterized the economy as poor, with two-thirds experiencing rising expenses and only one-quarter reporting increased income.

This disconnect poses a significant political challenge for President Joe Biden, as most polls consistently show disapproval of his economic management by the majority of Americans. Economists attribute this phenomenon to several factors, with a primary one being the lingering financial and psychological impact of the severe inflation experienced over the past year. Despite inflation rates slowing down, many essential goods and services remain significantly more expensive than they were just three years ago.

Lisa Cook, a member of the Federal Reserve’s Board of Governors, emphasized that most Americans are not merely looking for a slowdown in price increases but rather a return to pre-pandemic price levels. This desire is particularly pronounced for everyday essentials like groceries, apartment rents, and utilities, as consumers are continuously reminded of their rising costs.

While deflation, a widespread drop in prices, is not the desired outcome as it can discourage spending, economists advocate for wages to outpace price increases to ensure that consumers can maintain their purchasing power.

Assessing the impact of inflation-adjusted incomes since the pandemic is a complex task due to the diverse experiences of approximately 160 million Americans. Median weekly earnings, when adjusted for inflation, have only increased at a meager annual rate of 0.2% from late 2019 through the second quarter of this year, leaving many feeling financially stagnant.

For individuals like Katherine Charles, a single mother in Tampa, Florida, the slowdown in inflation hasn’t made it easier to make ends meet. Rising rent and utility costs have forced her to cut back on groceries, impacting her family’s budget significantly.

The rise in prices for essential items such as milk, beef, and gasoline has outpaced the overall increase in prices, contributing to the dissatisfaction with the economy. This disparity in price increases for everyday goods compared to overall inflation rates has left many Americans feeling financially strained, even though they continue to spend at a healthy pace.

In conclusion, despite improvements in certain economic indicators, many Americans remain dissatisfied with the state of the economy. Factors such as the lingering effects of inflation, stagnant wage growth, and the disproportionate impact of rising prices on lower-income individuals contribute to this discontent. This sentiment is further exacerbated by the salience of essential items in everyday life, which continue to be perceived as expensive, despite a slowdown in their price increases.

Frequently Asked Questions (FAQs) about Economic Pessimism

More about Economic Pessimism

• Consumer Sentiment in the U.S.
• Federal Reserve’s Board of Governors
• The Big Big News-NORC Center for Public Affairs Research
• Brookings Institution
• University of Michigan’s Monthly Survey of Consumer Sentiment
• Maximus
• U.S. Census Bureau
• Federal Reserve Bank of Dallas
• The Upjohn Institute