NerdWallet's Smart Money Podcast - Jobs Up, Vibes Down: Why Economic Data Doesn’t Match How We Feel

Episode Date: September 11, 2024

Learn why the economy feels worse than the data suggests, and what the latest jobs report means for interest rates. Why do people feel negative about the economy even when the data says it’s doing well? How could upcoming changes to interest rates affect your personal finances? Hosts Sean Pyles and Anna Helhoski dive into the latest job market data and discuss why it’s so hard to tell whether the economy is doing well or not. Joined by NerdWallet Senior Economist Elizabeth Renter, they unpack the mixed messaging in headlines, explain why consumer sentiment doesn’t always align with economic data, and give an inside look into what the latest numbers mean for the future of interest rates. If you’ve ever wondered why good numbers sometimes still feel bad, then this episode is for you.  After their deep dive into the economy, Sean and Anna break down the latest money headlines, including Apple's newest product unveilings, why you may want to think twice before upgrading your gadgets, and how more people are joining the ranks of 401k millionaires. Are you on track for your golden years? NerdWallet’s retirement calculator can help you make a plan to reach your savings goals: https://www.nerdwallet.com/calculator/retirement-calculator  In their conversation, the Nerds discuss: economic data, consumer sentiment, jobs report, interest rates, Federal Reserve, inflation, economic news, job market, 401k savings, Apple product launch, unemployment rate, stock market, economic growth, recession, financial planning, personal finance, retirement savings, labor market, wage growth, inflation rates, money management, federal interest rates, Apple iPhone, economic forecast, economic trends, money headlines, and job growth. To send the Nerds your money questions, call or text the Nerd hotline at 901-730-6373 or email [e-mail]. Like what you hear? Please leave us a review and tell a friend.

Welcome to NerdWallet's Smart Money Podcast. I'm Sean Piles. And I'm Anna Hilhoski. And this is our weekly money news roundup, where we break down the latest in the world of finance to help you be smarter with your money. We'll go deep into a single topic and then leave you with the latest money headlines. Today, we're taking a look at the economy writ large. How's it going out there? It's going well. Your mileage may vary.

Even the headlines differ on how we're doing. So we're joined by NerdWild senior economist Elizabeth Renter to help us sort through the data and why it doesn't seem to jibe with how folks are feeling across the country. Elizabeth's work has been cited by the New York Times, CNBC, the Washington Post, and elsewhere. Elizabeth, welcome back to the show. Thanks, Anna. I'm super excited to be here and chat about this topic.

So Elizabeth, you wrote a story recently that asked why people feel bad when the economy is good. This is a question economists have been asking for a couple of years now. And I'd like to submit that part of it is the mixed messaging on the part of headlines, like the ones I saw last week when the monthly jobs figures came out. The Wall Street Journal's headline was hiring improved a bit in August with 142,000 jobs added. And over at the New York Times, the headline read, US jobs report shows hiring has shifted into lower gear. Same information, different spin. So let me ask you, does this sort of mirror how people see the economy's

performance these days? And what's your take on the latest jobs figures? Those are great examples, Sean. And just to back up a little bit, this is a question that economists have been asking since economists have been asking questions. I feel like the disparity is always present, but it's particularly noteworthy right now. The disconnect between economic data and consumer sentiment is a really interesting puzzle. Media headlines are definitely part of how we shape opinions on current events, including economic health. And the economy is really complex and nuanced. You can say things like, quote, hiring has improved, which refers to the month over month increase. And you can also

say hiring has shifted into lower gear, which refers to the slowing growth rate over the past several months. And both of those can be true. Another part of this is that everyone is so hyper attuned to the economic data releases right now. And when we're just getting the hot takes and the headlines, we're always going to miss some of the context. To give you my hot take or my headline, my short version of the labor market is that it is actively cooling. It's slowing down, but it's still strong. Job growth and hiring have definitely slowed over the past few months, but we're still adding jobs each month at a solid rate. That said, the labor market can't continue to slow as it is indefinitely.

And the Fed is all but certain to cut rates in a couple weeks. The idea there is to ease their foot off the brake so that the labor market and the economy don't continue to slow to a point where we tumble into recession. And the monthly jobs report is one of those big statistics that are used to evaluate how the economy is doing. And it's something that the Federal Reserve pays a lot of attention to. As you mentioned, the Fed's Open Market Committee is meeting next week to talk interest rates. What are you looking for out of that meeting? The consensus seems to be at least a quarter percentage point rate cut. That's right, Ana. Right now, I would put my money on a modest cut of 25 basis points or that quarter percent, as you said. You know, the primary rate that the Fed influences has been at this high

point for over a year now. And they raised rates in this way to slow the economy down, sort of restricting the flow of money around the economy to get that price growth to slow. Beginning to cut interest rates signals that we're at a point where the Fed can claim victory on their fight against inflation. And now they can let up on those breaks a little bit. So then how might a rate cut affect that perception? And how long might it take for perception to change? What does that even look like? Barring some emergent data or economic shocks, meaning as long as things continue to look strong and go the direction they're going, the Fed is likely to take these cuts slowly.

So the actual impact in rates we see throughout the economy will come over the next several months and certainly well into next year. But I think this slow unwinding of high rates will feel like a little bit like loosening the squeeze on a vice grip. If you're familiar with hand tools, borrowing costs are going to remain somewhat high, but the squeeze won't be as tight. And we'll also know that lower interest rates are coming, which is as likely to have an impact on our expectations. If for instance, I've been putting off a home purchase or a car purchase until rates came down, but I was unsure of when that might happen, I'll now at least have some idea that they'll reach a lower

level in the months ahead. And that will likely inject some optimism that wasn't previously there. Elizabeth, talk to us a bit more about why the lived economy, the personal experience, can be so at odds with statistics. How does that happen and why? I know some of it comes from income inequality, the wealth gap. How does that reflect in public opinion surveys about the economy? You're right, Ana. So there are many reasons why this happens. And I think the biggest one is that we talk about the economy in these big aggregates like averages and medians, and then we further complicate it by talking about how these big numbers move from month to month or year to year. As an example, the inflation rate is a rate of change on an average basket of goods and

services. And wage growth, for example, is a percentage change in wages across all jobs in the economy. It's really unlikely that my personal experience is going to line up directly with these averages, right? If wages grew at 5% year over year, but I didn't get a 5% raise, I might scoff at that number. Or if I was recently laid off, but I'm hearing that unemployment is low and layoffs aren't climbing, I might question that data. So an inequality, as you mentioned, certainly plays a role too here, particularly when we're talking about recent wealth growth. People with assets like stocks or real estate have really seen remarkable growth in the value of those assets over the past four years. So the really incredible growth in home prices,

for instance, has benefited homeowners greatly. And people without those assets, without that existing wealth, aren't experiencing those same increases. Elizabeth, in your report, you talk about the economy as an issue that has high emotions around it, that people say it's a hot button issue. Maybe this is an obvious question. I mean, we're talking about people's money and financial situations. But why is the economy such an emotional topic? We found 81% of Americans characterize the economy as a hot button issue, or one that is controversial and high emotion. And that sentiment was roughly equal across the political spectrum, which I found interesting. And I think part of it,

to your point, is the personal nature of the economy and how ubiquitous it is. It's in how we provide for our families, the food we eat, the roof over our heads, how we manage our healthcare, how we manage our day-to-day well-being. It's everywhere, and it affects us all. I also think some of the controversial aspect is how it's politicized, especially this year, especially in an election year. 70% of Americans say the economy is the most important issue when electing a president. And you see the impact of that in election speeches and campaign ads. Many of them, if not most, mention the economy, and they often use highly emotional language in part to trigger a response.

One of the aspects you also highlight is where people get their information about the economy. Can we boil this down to say TikTok or Instagram versus the network nightly news programs or say your local newspaper? Right, where we get our information matters. And the most common place for people to get their information about the health of the economy is still the television news, if you can believe it. 55% of Americans say this is one of their sources of this type of information. But one third of Americans say social media is too. This is a source that wasn't around two or three decades ago. Same with the one third of Americans that get economic information from news websites. So it's both a quality and a

quantity issue. Yes, there is some good information from all of these sources, including social media. But when we're inundated with that information all day long, it becomes more difficult to sort the good from the misleading or the plain inaccurate. Further, we found that 34% of people cite personal experience and 31% cite friends and family for where they get their economic information. And this goes back to the individual experiences, not always reflecting the economy as the whole. You can get in sort of this feedback loop where all of the anecdotes and stories around you tell you one thing, whereas the big picture economy across the country is really quite different. I was really interested in your take on how nostalgia for the past factors into how we

feel about our economic well-being today. Talk to us a bit about that. I love this topic, Sean. We do have a tendency to romanticize the past, to remember it as better than it really was. And one place we see this is when people cherry pick home prices in the 1950s and 60s. And homes were very cheap then, for sure. But we don't pay attention so much to the very low incomes or the very small home sizes, and certainly the social and racial inequities, the lack of women's rights back then. So for this report, I tried to kind of get at that selective memory by asking people how they remember the economy at certain times in fairly recent history. I first asked about the summer of 2010, and found that 38% of Americans said the

economy was strong. In reality, we were climbing out of the depths of the Great Recession. Foreclosures were at a record high and unemployment was well over 9% that summer. 2010 was a while ago, so I also asked about the summer of 2020, and I think we can all remember that summer. It was just four years ago, but that seems like a lifetime ago too. We were coming out of COVID lockdowns and unemployment was also incredibly high. It was on its way down from a peak in April, but it was still around 10%. Still 31% said the economy was strong during the summer of 2020. We just have this strange selective memory, not only about the economy of decades ago, but just of a few years back.

So Elizabeth, we've established that statistics and reality don't always mesh with feelings. Why does it matter if our perceptions are different from that reality? Well, first, for economic reasons, how people feel or their sentiment can have some predictive value, and economists can use this to help project future spending behaviors. If you feel good about where the economy is headed, you're more likely to spend freely, for example. Also, in a field of study that's known as happiness economics, which doesn't that sound like a fun thing to study? We know there's this sort of loop where economic prosperity can lead to greater well-being and happiness, which can lead to greater economic prosperity, and so on. If you think of the times you're most productive and

creative, it's generally when you're feeling good. And that productivity and creativity spurs economic growth for you individually, but also for your employer and for the economy as a whole. And then there's also this sort of altruistic reason, right? Being around people who feel good just feels good. No, I'm not saying if you're struggling financially or economically, you should just put on a happy face to make us all feel better. But really, like, let's get at what's driving those feelings. If we can identify them and then collectively strive to address those drivers, we'd likely all be better off. Well, Elizabeth Renter, thank you as always for being here today.

Thanks for having me. It's always a fun discussion. Up next, a few money headlines from the last few days. Anna, are you ready for the new Apple Watch with AI that will do your workouts for you and have dinner on the stove by six? If they're selling that, I'm buying. I kid, of course, but this week was the big annual Apple product unveiling, and it does feature some new AI functionalities. It's a software update called Apple Intelligence. Get it?

AI. Apple Intelligence. That will be part of a new family of iPhones. But will it write podcast scripts for us? Not yet, but I'm sure that's coming from somewhere out there. Anyway, it's an upgrade, along with new Apple Watches and AirPods. The highest end iPhone 16 Pro starts at $999. But you know what, folks? You probably don't need them.

Yeah, you probably don't need them. Yeah, you probably don't need them. This is a time of year when Apple fans go a little nuts. I mean, who doesn't enjoy a new toy? Seriously, folks, take a good long hard look at your gadgets and ask yourself, will having AI on my phone change my life enough to fork out hundreds of dollars? Or maybe, you know, last year's model is just fine. Or the year before that. Or even, I don't know, iPhone 12. I still have that.

Yeah. And same, of course, for Android users and everyone else. I guess what we're saying is take a beat before you buy. Ask yourself, is it really worth it? Or can I wait for the next upgrade? The one where your phone chooses your outfits and dresses you. Yeah, that one. Actually, there's probably an app for that already. And finally, Sean, a pat on the back to any listeners who find themselves in this group. Fidelity Investments says the number of

401k millionaires hit a new high in the second quarter of this year. This is good news that owes largely to the stock market. Fidelity reports that 497,000 people have balances of $1 million or more in their 401k accounts. That's up 31% from Q2 of last year. And for those of us who haven't gotten to the millionaire mark, there's still some progress. According to the survey, the average 401k balance for that time period was $127,000, up 13% from a year earlier. And for those who've been saving at least 15 years, the average grew to $531,200. They're on their way. For those of you who hear those numbers and say, uh-oh, I am not in that cohort, just

keep doing the best you can. Look for ways to increase your income so you can save more or cut back on expenses. It's not easy, we know, but every dollar makes a difference, so put those to work for yourself. If you aren't sure if your 401k is behind or ahead of schedule, then I'll remind you that NerdWallet has a free retirement calculator that you can use. We'll link to it in today's episode description or just search online for a NerdWallet retirement calculator. That's it for this week's money news.

We always welcome your money questions and comments. Turn to the nerds and call or text us your questions at 901-730-6373. That's 901-730-NERD. Or send us a voice memo at podcast at nerdwallet.com. And remember, you can follow the show on your favorite podcast app, including Spotify, Apple Podcasts, and iHeart Radio to automatically download new episodes. Today's episode was produced by Tess Biglin and edited by Rick Vanderknecht.

And here's our brief disclaimer. We are not financial or investment advisors. And with that said, until next time, turn to the nerds.