The Daily - The Bad Vibes Around a Good Economy

Episode Date: November 30, 2023

The American economy, by many measures, is doing better than it has done in years. But for many Americans, that is not how it feels. Their feelings point to an enduring mystery: Why do Americans feel so bad when the economy is so good?Jeanna Smialek, who covers the Federal Reserve and the U.S. economy for The Times, discusses a new way to understand the disconnect. Guest: Jeanna Smialek, a reporter covering the Federal Reserve and the U.S. economy for The New York Times.Background reading: Video: What’s causing the “bad vibes” in the economy?Consumer spending has been strong in 2023 despite higher prices and waning savings. But some retailers have jitters heading into Black Friday.For more information on today’s episode, visit nytimes.com/thedaily. Transcripts of each episode will be made available by the next workday.

From The New York Times, I'm Sabrina Tavernisi, and this is The Daily. The American economy, by many measures, is doing better than it's done in years. But for many Americans, that's not how it feels. I mean, I get comments from people all the time that I could stretch a dollar like no one else, and even now I'm struggling to do it. Yeah, when I'm talking about inflation, I'm mostly talking about the cost of groceries. Milk used to be like $1.89 a gallon. It's now $2.89. I'm like, thank God I'm lactose intolerant. Their feeling is pointing to an enduring economic mystery. Why do Americans feel so bad when the economy is so good? We're kind of just struggling in what's left of the middle class.

Today, my colleague Gina Smilick on a new way to understand the disconnect. It's Thursday, November 30th. It's Thursday, November 30th. So, Gina, we're going to talk today about the economy and how, despite the fact that it's doing quite well, Americans are feeling pretty badly about it. So, you know, this is a puzzle we spent some time on the show already thinking about. Two years ago, we did a show with our colleague Ben Castleman. At the time, the economy was still really emerging from the pandemic. Inflation was really high. And the thinking at the time was, you know, this is a temporary thing. Americans feel badly about the economy, but it will pass. Two years later,

here we are. The economy is actually doing better, but people feel bad still. So help us understand what's going on here. Right. So like you said, this is a pretty confusing situation. Overall, we're actually seeing some pretty decent looking economic indicators, at least by the economic indicators we'd sort of traditionally look at. You know, we're in a situation where inflation has come down quite a bit. You know, we saw a peak at above 9% in the sort of summer of 2022. But now we're down at like 3%, a little bit above 3%. We've seen unemployment come down pretty sharply to historically pretty low level. Wage growth has been pretty solid recently. It's actually beating inflation a little bit in recent months. And yet, despite all of this, people still

seem to be feeling really bad. So how bad exactly are people feeling? Like, what's the damage in terms of the sentiment here? So one good way to get a sense of that is to look at the University of Michigan consumer confidence numbers. These are sort of a baseline of how people are feeling about the economy. And they give that number as an index. In February 2020, so headed into the pandemic, we had a pretty good economy. And the index level was at 101. During the worst part of the pandemic, that level dropped to the low 70s. It's now actually at 63.8. So down even from the sort of worst part of the pandemic. That is pretty remarkable and also very perplexing. So let's start to unpack this, Gina. What is going on here?

So I think that what is pretty clear is that the traditional measures we look at to try and gauge the economy and how we think people to try and gauge the economy and how we think people should be feeling about the economy are not really telling us the full story here. And so it's sort of incumbent upon us as reporters to sort of look for other explanations and try to understand why people feel so bad at a time when the data look good and consumers are still spending. So we did a couple of things. We talked to a lot of people. We looked at a lot of polls. And we basically came up with three numbers that we think explain what might be going on here. So what are they? Give me the first one.

So I think one number that helps to explain this disconnect is 20%. And that's how much consumer prices overall are up since late 2019. So this is inflation. Exactly, inflation, but sort of a four-year aggregate inflation, which is not traditionally the way we think about that number, but I think is useful for thinking about this moment in inflation. And can you translate that for me, Gina, the four-year aggregate number? Yeah. So it means that over the last four years, the total consumer shopping basket, everything we buy, is up by about 20%. The reason that matters is because it's a much quicker pace of acceleration than we're used to. It means that people still remember a time when prices were about a fifth lower, and yet they are facing these considerably higher prices today.

And so I think of it as sticker shock inflation. Even though day-to-day price increases have really slowed down recently, even though inflation numbers are looking a lot better, people are still experiencing these much higher price levels because we've had so much inflation since the pandemic. And so I think that is explaining part of our disconnect here. So Gina, let's just take an example of something where people are having that sticker shock. So I think a good one to use because it's something that's really salient for consumers is gas. If you were buying a 15-gallon tank of gas at the start of 2020, it would have run you something in the range of $38. Now, if you're buying the same 15-gallon tank of gas, it would run you about $49.

And so that's a pretty dramatic increase, and people really feel that. Gas doesn't have a lot to do with any government policy. It's because of a bunch of global forces that those prices move. But that doesn't mean people don't respond to it. It's something that people see in their everyday lives. Right. Another thing that people pay a lot of attention to is the price of food. And if you look at food at home, which is basically groceries,

those prices are up nearly 26% compared to late 2019. 26%? Yeah, 26%. So if you're driving, if you're paying for food, if you're trying to buy these sort of very basics of life, they're a lot more expensive. So bottom line, prices are still too damn high, right? And it's a shock when you go into the gas station

or the grocery store. So what is your next measure? How else should we understand this? So my next number is 47%. That's how much home prices have risen nationally since late 2019, based on data from this company called S&P Case-Shiller. 47%? It's a lot, right? Oh my god, Gina. I mean, it kind of is something you know from just being in the world that housing prices are high, but the actual number is breathtaking. Yeah, so I think what this means for people on the ground and particularly young people is that it's just a lot bigger of a lift to purchase that first home than it previously was.

That's especially true because mortgage rates are a lot higher than they used to be. They're hovering around 7.3% right now because of the Fed's interest rate increases. And then I think it's also true because if you're not already owning a house, you are likely renting. And if you're renting in America right now, that too has gotten a lot more expensive since the pandemic. And so I think between mortgage rates and the rent situation and housing prices, some people that we talk to feel like they're on this sort of hamster wheel where it's just harder and harder to sort of achieve the trappings of the American dream. So this is just this huge economic problem precisely at the moment when people expect to be crossing the threshold into adulthood.

Makes sense why people would feel disaffected with the economy right now if you're in that situation. And I think that it's being exacerbated by a couple of other really big ticket items that are also sort of what you can think of as sort of American dream items. You know, we've seen the cost of cars go up a lot and it costs a lot more to finance a car purchase. And we've also seen that student loan payments have resumed. You know, those were temporarily paused because of the pandemic, but I think people got pretty used to not paying those back. And so we've now got this trifecta of really big expenses, housing, cars, and college, and they're all kind of eating into the household budget at around the same time. Right. And this is particularly salient for

young people. They see all of these big ticket items completely out of reach and are feeling pretty despondent. Right. And we're definitely picking up on that negativity, whether for this reason or for other reasons, in the polls. And so a recent New York Times College poll found that 59 percent of voters under 30 in key swing states rated the economy as poor, which is substantially higher than you see in basically any other age group. And you can definitely see that playing out in some of the forums where young people are really active,

like social media. Which leads us to the third thing I want to talk to you about. We'll be right back. So Jeannie, you just told me that the next number to really explain why people feel so bad about the economy, despite it being so good, has something to do with social media. So tell me about that. Yes. So the number here is 43%, which is the share of TikTok users who say that they are getting their news on that platform. say that they are getting their news on that platform.

Okay, so TikTok, big social media platform, 43% of people who use that actually get all of their news on that. Yeah, and that's about twice what that number was just a couple of years ago. And I think it fits into this broader ecosystem because based on research from Pew, we're seeing that something like 50% of adults are getting their news or some news from

social media in general. The reason that that's so interesting is that a lot of what we see perform really well on social media when it comes to economy and finance news is really, really negative. Do not tell me the economy is booming. The economy is not booming when people are struggling the way they are. So for the sake of journalism, I spent a few days recently just sort of flipping through social media channels. I spent a day just kind of watching TikTok videos on the economy. And I saw a couple of consistent themes or consistent tropes coming up over and over again. I genuinely hope within my lifetime I witness the collapse of capitalism. You get a lot of videos sort of questioning the whole system.

Can someone explain to me how this just cost me over $70 at the grocery store? I got like 15 things. What used to be a maybe $50, $60 trip, $109. You get a lot of videos kind of... The prices are outrageous and I don't even know how people afford homes. It literally keeps me up at night. Fatalistically talking about how people are never going to be able to afford a house. Ever in my life, not with the economy

the way it is. When I was your age, I already owned a house. Yeah, because it costs six dollars. Your down payment couldn't buy a Frosty at an airport Wendy's today. The last time houses were I think that's interesting because it clearly reflects how people are feeling about the economy. You know, those are the things people are choosing to like and to reshare and to sort of spread around. But it also means that that negative content is what's getting disseminated and potentially sort of influencing how people think about the world around them. Right. And the negativity really amplifies those bad feelings, right? It's like the lighter fluid on the embers. It just makes everybody feel worse and it makes it bigger.

Yeah. So one trend that I saw a lot of was the set of videos that really kind of took off a couple of months ago. We are absolutely living in a silent depression. A silent depression. Which play on the term, quote unquote, silent depression. You know how I know it's a silent depression right now? Because our government doesn't even act like there's anything wrong with the economy. So the sort of conceit behind these videos is people film themselves talking about the economy and making comparisons

about the affordability of things like houses or gas now versus in 1930s during the Great Depression era, hence the silent depression title. Very difficult time in the American economy. Exactly. We are living in the silent depression, and I'm going to explain what I mean. New cars are unaffordable. New houses are unaffordable. To move to a new place and rent somewhere else is unaffordable.

And so the point of these videos is to look at the cost of things and basically to say, how many years would you have to work and save every cent that you are making to buy a house or a car? And the upshot is that you'd have to work longer in 2023 to buy those things than you would have in 1930. Is that right? So it is definitely the case that affordability for really big purchases like housing has gotten worse over the decades. That said, there are two really big problems with these videos. Problem number one is that the data they're using is not very good. We tend to rely on government data for numbers like this, and those figures start around 1940. I did try and

fact check one of the more popular videos in this vein, and when I asked for the sources, a lot of them were kind of random numbers just strewn across the Internet. And so I don't think that these are pulling from particularly reliable statistics. Okay, so it sounds like this idea of silent depression is real for people, but the numbers people are sharing in these posts to explain it are off. Yes. So beyond the data problem, we've got this second problem, which is that these posts miss an incredibly important caveat in the sense that the economy is so much stronger now than it was in the 1930s. Right. And so it's not a reasonable time period to compare 2023 to.

These videos, they may be powerful, they may strike people as compelling, but they are not accurate. I think that's an important point to make here. But I think what is really relevant here is that these videos are resonating with people, right? Like there's a reason they're going viral. And I think what we can take away from this is that people find this argument that it's become harder to afford the trappings of everyday life to be something that sort of resonates with their economic experience. Okay, so this might be a pretty misleading comparison, like the context is wrong, but it's tapping into something that's emotional and therefore powerful. Yeah, so this is the interesting thing about social media in the context of sort of economic information. I talked to some media experts, and they basically say that we can't tell for sure at this stage, we just don't have the data.

But it's possible that sort of the environment and the conversation that's happening on social media not only reflects how people feel, but could actually potentially help to drive it. And so I think that's why this is such an interesting thing to keep an eye on the sort of tone of the conversation here, both to understand why people are saying what they're saying or thinking what they're thinking, but also to think about how those perceptions are being shaped. So social media itself is actually forming this negativity and the negative view of the economy, right? So it's not just like a mirror reflecting it back. It's actually convincing people that things are bad. We can't say that for sure, but it could be.

Hence, your third indicator. Exactly. So Gina, stepping back here, your new measures are pretty persuasive. You know, this isn't a case of economists being right and Americans being wrong. Americans are taking cues from their own lives. And what they're seeing are financial obstacles that feel pretty insurmountable. And that translates into feeling down about the economy, right? But I guess the question in my mind now is, what will it take for people to feel good about the economy?

take for people to feel good about the economy? Right. So I think that we are seeing some attempts at policy responses that could help around the edges here. You know, student loans are a good example. We know that people feel bad about the fact that they have to pay back those student loans. But the Biden administration has taken efforts to either make fewer people have to pay back their student loans or make sure that those payback plans and schedules are less onerous than they previously were. So there are some things around the edges that you can do like that. I think there are some things that you can't do that you hear from people they would like to see but that don't actually work in economic terms. A big one is what economists call deflation, which is a fancy way to say actually bringing price levels down. And how would that work?

Yeah. So when you talk to households, they will often say, well, I really wish that the prices of the things I buy every day would just fall, you know, and that's what I'm waiting for. And the reason that can't happen, the reason you don't want deflation in an economy as counterintuitive as that feels, is if prices fall across the economy, then you and I are going to stop spending our money. We're going to wait. We're not going to buy that, you know, t-shirt that we want or that latte that we want. We're going to wait till next week when it's cheaper. And if everybody across the whole economy is doing that simultaneously, it's going to grind the economy to standstill. We're all going to get fired because nobody's

going to be buying the things that we produce at our jobs. And then everything's a disaster. So you don't want deflation. Deflation is terrible for the economy. So then is this sourness about the economy permanent? Is this the new normal? Because your numbers seem to be, you know, these big ticket items that are really at the center of people's lives. They seem more like really enduring features of the economy than temporary blips. You know, I really think it's an open question. So these are three trends that we decided to look at because they seem like part of the conversation. But it could be that these aren't even the right ones, that something else is the thing that is pulling confidence down. And whatever it is could worsen or dissipate.

You know, it's just a very uncertain moment. I think that part of what is going to be important here is waiting to see if this sort of resolves over time. One thing that we can definitively say is that we've already got some glimmers of hope. You know, since the sort of peak of the inflation in summer 2022, consumer confidence has picked up a little bit. It has gotten better than it was at its very worst. And so it could be the case that people just need time to get used to higher price levels, to realize that inflation is fading,

to sort of get used to sort of a new normal with slightly higher prices, and that consumer confidence will sort of readjust as that happens. So basically to wait for people to adjust to this new normal. Exactly. It could just take a while. Gina, thank you. Thank you. of the Indian government, an allegation that could complicate the delicate relations between the United States and India. The charges in New York came after Canada accused the Indian government of being involved in the killing of a Canadian citizen on Canadian soil in June.

And Henry Kissinger, one of the most consequential statesmen in American history, who advised 12 presidents, died on Wednesday at the age of 100. Kissinger, who was from a German Jewish refugee family, was the most powerful U.S. Secretary of State in the post-war era. neared America's opening to China, negotiated its exit from the Vietnam War, and remade America's relationship with the Soviet Union at the height of the Cold War. He was hailed as an ultra-realist who reshaped diplomacy to better serve American interests. But he was also reviled at having abandoned American values, particularly in the area of human rights, if he thought it served the nation's purposes.

Today's episode was produced by Shannon Lin, Mary Wilson, Aastha Chaturvedi, and Eric Krupke, with help from Luke Vanderplug. It was edited by M.J. Davis Lin, with help from Lisa Chow and Lexi Diao. Contains original music by Marian Lozano and Dan Powell. And was engineered by Alyssa Moxley. Our theme music is by Jim Brunberg and Ben Landsberg of Wonderly.

Special thanks to Lydia DePillis. That's it for The Daily. I'm Sabrina Tavernisi. See you tomorrow.