The U.S. economy has been an enigma over the past few years. The job market is booming, and consumers are still spending, which is usually a sign of optimism. But if you ask Americans, many will tell you that they feel bad about the economy and are unhappy about President Biden’s economic record.
Call it the vibecession. Call it a mystery. Blame TikTok, media headlines or the long shadow of the pandemic. The gloom prevails. The University of Michigan consumer confidence index, which looked a little bit sunnier this year after a substantial slowdown in inflation over 2023, has again soured. And while a measure of sentiment produced by the Conference Board improved in May, the survey showed that expectations remained shaky.
The negativity could end up mattering in the 2024 presidential election. More than half of registered voters in six battleground states rated the economy as “poor” in a recent poll by The New York Times, The Philadelphia Inquirer and Siena College. And 14 percent said the political and economic system needed to be torn down entirely.
What’s going on here? We asked government officials and prominent analysts from the Federal Reserve, the White House, academia and the internet commentariat about what they think is happening. Here’s a summary of what they said.
Kyla Scanlon, coiner of the term ‘Vibecession’
Price levels matter, and people are also getting some facts wrong.
The most common explanation for why people feel bad about the economy — one that every person interviewed for this article brought up — is simple. Prices jumped a lot when inflation was really rapid in 2021 and 2022. Now they aren’t climbing as quickly, but people are left contending with the reality that rent, cheeseburgers, running shoes and day care all cost more.
“Inflation is a pressure cooker,” said Kyla Scanlon, who this week is releasing a book titled “In This Economy?” that explains common economic concepts. “It hurts over time. You had a couple of years of pretty high inflation, and people are really dealing with the aftermath of that.”
But Ms. Scanlon also pointed out that knowledge gaps could be part of the problem: A Harris poll for The Guardian this month found that a majority of Americans (incorrectly) believed that the United States was in a recession. About half said they believed the stock market was down from last year, though it is up considerably.
“Yes, there is economic frustration, but these are objectively verifiable facts,” she said.
Raphael Bostic, president of the Federal Reserve Bank of Atlanta
Part of this is about memory.
A big question is why — when the economy is growing, unemployment is historically low and stock prices are climbing — things feel so dim.
“When I talk to folks, they all tell me that they want interest rates to be lower, and they also tell me that prices are too high,” Raphael Bostic told reporters last week. “People remember where prices used to be, and they remember that they didn’t have to talk about inflation, and that was a very comfortable place.”
Mr. Bostic and his colleagues at the Fed have raised interest rates to a more-than-two-decade high in an effort to bring down the rapid price increases, and he said the key was wrestling inflation back to normal quickly.
Jared Bernstein, CHAIRMAN OF THE White House Council of Economic Advisers
Catching up with inflation takes time.
As inflation cools, there is some hope that the negativity could fade. Jared Bernstein noted that for the past 14 months, middle-class wage growth has been beating inflation, and predicted that people would feel better as wages caught up to higher price levels.
“If that were wrong, everyone would be walking around eternally upset that gas doesn’t cost $1 a gallon,” Mr. Bernstein said. “The two components of that adjustment are time plus rising real pay.”
Loretta Mester, President of the Cleveland Fed
Wages have lagged.
But not everyone has broken even at this point, and that could be part of the explanation behind the continued pessimism. On average, pay gains have not fully caught up with the jump in prices since the start of the pandemic, if you compare Consumer Price Index increases with a wages and salary measure that Fed officials watch closely.
“They still haven’t made up for all of the lost ground,” Loretta Mester said. “They’re still in a hole, a little bit.”
Ms. Mester noted that people were also struggling to afford houses, because prices have shot up in many places and high interest rates are making first-time homeownership difficult, putting that part of the American dream out of reach for many.
Lawrence H. Summers, Harvard economist and commentator
Interest rates are part of the issue.
That touches on an issue that Lawrence H. Summers recently raised in an economic paper: For most people, the higher interest rates that the Fed is using to try to slow demand and squash price increases feel like just another form of inflation. In fact, if high interest rates are added into inflation, that explains most of the gap between where consumer confidence is and where one might expect it to be.
“The experienced cost of living is much greater than inflation as reflected by the Consumer Price Index,” Mr. Summers said in an interview. He noted that consumer confidence improved when market-based rates, which feed into mortgage and leasing costs, eased early this year, then sank again as they rose.
Charlamagne Tha God, radio host
People remember more comfortable times.
Whatever is causing the unhappiness, it seems to be translating into negativity toward Mr. Biden. In the recent Times poll, many said they thought the economic and political system needed to be changed, and fewer said they thought that Mr. Biden, as opposed to former President Donald J. Trump, would usher in big alterations.
Charlamagne Tha God recently suggested on “The Interview,” a Times podcast, that Black voters in particular might be turning from Mr. Biden and toward Mr. Trump because they associated the former president with the last time they felt financially secure. Mr. Trump’s administration sent out two rounds of stimulus relief checks, which Mr. Trump signed. Mr. Biden sent out one, which he did not. And inflation began to pop in 2021, after Mr. Trump left office.
“People are living paycheck to paycheck,” Charlamagne said during a follow-up interview specifically about the economy. “You don’t know struggle until you’ve had to decide whether you’re going to pay for your car or pay for your rent.”
To his point, rents are up drastically since before the pandemic, and auto loan delinquencies are rising sharply. While inflation and higher interest rates have been a global phenomenon, people tend to blame the current economic challenges on whoever is in office.
“People can’t see past their bills,” Charlamagne said. “All we want is upward mobility and security, and whoever can provide that, even for a fleeting moment, you never forget it.”
Susan Collins, president of the Boston Fed
People are anxious postpandemic.
In fact, the recent economy has offered something of a split screen: Some people are doing really well, watching their retirement portfolios improve and their home prices appreciate. But those people were often already well off. Meanwhile, people carrying credit card balances are facing much higher rates, and many Americans have exhausted whatever savings they managed to amass during the pandemic.
“There are groups that are doing really, really, well, and there also are groups that are struggling,” Susan Collins said. “We talk to individuals who are having a lot of trouble making ends meet.”
But she also noted that the period since the pandemic had been wrought with uncertainty. Changes to interest rate policies, years of inflation, and headlines about war and geopolitical upheaval may have shaken how people view their economic situations.
“I think that there is a different level of anxiety postpandemic that is hard to rule out,” Ms. Collins said.
Aaron SOJOURNER, the W.E. Upjohn Institute
Some of this may be about media negativity.
Still, there’s one enduring mystery about the vibecession. People tend to be more optimistic about their personal economic situations than they are about the economy as a whole.
That could be because Americans rely on the media for their perception of national economic conditions, and news sentiment has grown more downbeat in recent years, said Aaron Sojourner, who recently wrote a study suggesting that economic news coverage has become more negative since 2018, and much more negative since 2021.
“For the last six years, the tone of economic news has been considerably more sour and negative than would be predicted based on macroeconomic variables,” he said.
But he acknowledged that journalists factored in real experiences and consumer sentiment data into their reporting, so it is difficult to know to what degree bad vibes are driving negative news and how much negative news is driving bad vibes.
“Does the sentiment cause the news, or does the news tone cause the sentiment? I don’t know,” Mr. Sojourner said.
