Americans are unusually suffering from a solid economy. So far they are neither spending money nor voting accordingly.
By all accounts, the powerful American economy is doing well. The much-predicted recession of 2023 simply never happened. Instead, the unemployment rate has been below 4% for two years, wages are finally rising faster than inflation, and the economy bounced back in the third quarter, posting growth of nearly 5%. Bipartisan investments in infrastructure and computer chip manufacturing are just beginning to bear fruit, providing further economic tailwinds in the coming months.
Indeed, Goldman Sachs said in a note to clients on Wednesday that “the hard part of efforts to support the global economy is over” and forecast that inflation will continue to ease in 2024. The bank’s researchers now expect the risk to be just 15%. The United States will slip into recession next year after a flurry of forecasters, including those at the Federal Reserve, expressed increasing economic optimism.
But many Americans don’t share that view, and the Republican presidential candidates who take the stage at Wednesday night’s NBC News-hosted debate in Miami will be looking for ways to reiterate their stance.
In a new Bankrate survey, half of Americans said their overall financial situation is worse now compared to Election Day 2020. And a New York Times/Siena College poll released this week found that 81% of voters rate the economy as either “fair” or “fair.” poor”, only 19% call it “good” or “excellent”.
But despite the widespread pessimism, consumers – who account for two-thirds of economic activity – are still spending money.
“People may be doing poorly, but they’re not spending poorly,” said Nela Richardson, chief economist at contract processing firm ADP. “They report being optimistic when they report being pessimistic.”
What gives? The likely explanation is a grim mix of two major wars, ongoing domestic political divisions, a fledgling pandemic and price pressures that have eased dramatically but rarely reversed.
“It’s one word: inflation,” said Mark Hamrick, senior economic analyst at Bankrate. In his view, the continued toll of inflation over the past year and a half more than offsets the historic strength of the labor market and other benefits to Americans’ wallets.
“Inflation is falling, but prices are not falling, which is the source of anger for many,” Hamrick said. And of course, the country’s severe economic inequality means that robust overall consumer spending figures must mask large inequalities in household finances. (“There is no such thing as a monolithic ‘consumer,'” Hamrick noted.)
Inflation has fallen from a painful 9.1% in the middle of last year to 3.7% in September. But while economists and Fed officials applaud the trend, ordinary Americans vividly remember a not-so-distant past when many things were cheaper.
For example, the average price of a gallon of milk was $3.19 in November 2019. It rose to $4.20 in May 2022 before settling back down to $3.97 in the fall.
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“We’re in an economy where price levels have taken a big, gigantic step up,” Richardson said. Add in the highest interest rates in decades, and borrowing money is also more expensive – which translates into higher mortgage and credit card interest rates.
A year after the vote in 2024, it is an open question how or whether Americans’ economic misery will impact either the economy itself or at the ballot box. But both parties have bet heavily that it will matter.
President Joe Biden is drumming up a loud voice for $5 billion in new investments to boost the rural economy, hoping voters will reward him and his fellow Democrats for the infrastructure projects underway across the country. Meanwhile, Republicans are trying to blame voters’ frustration over high prices on “Bidenomics,” the term with which the White House is trying – with uncertain success – to brand the administration’s economic policies.
Of course, presidents often get too much credit and too much blame for the state of the economy on their watch, and pollsters find that voters tend to blame a leader more for a declining economy than they do for a good one.
But if Tuesday’s election results are any indication, there is no guarantee that next year’s election campaign will depend on the economy. In a number of races – albeit off-year races that tend to attract a different mix of voters than presidential elections – other issues came to the fore.
Abortion access, in particular, has continued to propel Democrats to victories at the state and local levels after the Supreme Court’s Roe v. Wade had fallen. In many cases, conservative voters who strongly disapprove of Biden, including over his handling of the economy, have crossed party lines and spoken out in favor of broader reproductive rights.
If the false economic forecasts of the last twelve months have shown anything, it is that a lot can change in a year, both in Americans’ financial lives and in the way they feel about them.
As Richardson reflected on the disconnect between many of the economy’s fundamentals and the poor outlook for consumers, he was cautious.
“If that feeling translates into behavior,” she said, “then I think we need to pay attention.”
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