Listen, I'm not saying that all the good sentiment Americans are suddenly feeling about the economy is due to stocks, gas prices, and eggs. But I'm not saying that either.
In the last few days there has been a veritable victory party to celebrate the end of the “Vibecession”. Since November, the University of Michigan Consumer Sentiment Index has risen 29% – the biggest two-month gain in more than 30 years. People are more confident that inflation will continue to fall, and their personal finance outlook has also improved. In other words: consumers are finally less afraid of everything.
There's been a lot of controversy over the past year about why Americans kept saying the economy was a disaster when things were actually going pretty well on paper. Was it partisanship? Did TikTok do it? Is America simply broken in a way that other countries are not?
In terms of data, the economic landscape today is not much different than, say, six months ago. The job market remains strong, inflation is falling, consumer spending is solid, GDP growth continues, etc. But when it comes to sentiment, something has changed in the last few weeks. Americans are suddenly confident about the economic future again. So what is there?
The answer is pretty simple in my opinion. What improved America's economic sentiment were essentially three things: the rising stock market, falling gasoline prices, and eggs.
Let's start with stocks. Both the Dow and S&P 500 hit record highs this month. Even for people who aren't investors – although contrary to popular belief, most Americans own stocks – good market news is usually a mood booster across the board. Thanks to the wealth effect and the many positive headlines generated by the rise in stocks, a cheer on Wall Street is somewhat contagious. Basically, everyone is a little buoyed by a bull market.
As Semafor's Jordan Weissmann notes, the Federal Reserve Bank of San Francisco's index of economic news sentiment—that is, the sentiment created by media coverage of the economy—began rising around the same time as the stock market rose last fall. It's not a perfect correlation, but market peaks give you a sense of, “Well, it shouldn't be that bad.”
What improved America's economic sentiment were essentially three things: the rising stock market, falling gasoline prices, and eggs.
Then there are gas prices – the only price clearly visible on giant signs across the country. The current national average for a gallon is $3,096 per AAA, down from $3,446 a year ago and down from a record high of over $5 in 2022. Gasoline prices are an economic reality that the hits consumers particularly hard. You can't choose to skip work or refuse to take your kids to school just because the prices at the pump are killing you. On top of that, the public transportation system in America is, er, poor. Research shows consumers are more pessimistic when gas prices rise – James Surowiecki points out in The Atlantic that high gas prices also make people less happy and make them more likely to hate the president. If oil prices stay relatively low, thereby keeping gasoline prices low, fewer disgruntled drivers could help Joe Biden keep his job in November.
That brings us to the eggs. I know it seems a little strange to attribute consumer confidence to something so mundane and seemingly inconsequential, but hear me out: high egg prices are something that really, really annoys people. Although consumers are price sensitive, they are generally not particularly price conscious. As anyone who watches The Price Is Right can tell you, consumers can't accurately determine the price of more than a handful of items they buy on a regular basis. Eggs are one of these items.
Want to guess when people googled egg prices the most? Right around the time they peaked in late 2022 and early 2023. According to the Bureau of Labor Statistics, a dozen large Grade A eggs cost about $2.51 last December; a year earlier they were $4.25. I would argue that economic sentiment is directly linked to the egg section in the supermarket.
So here’s the big BUT of it all. Yes, economic sentiment is better, but it's still not great. Ask anyone in America how they feel about the cost of living right now and I can guarantee you the answer will be something like “not great.” Eggs and gas are still more expensive than they were in 2019, as are most other things. While the Consumer Sentiment Index has seen a historic rise, the latest reading of 78.8 doesn't compare particularly well to “Before.”
Beyond our handy little trio of indicators, things could still go downhill both data-wise and sentiment-wise. Sure, economists and forecasters have been cautious about calling for a recession, but almost all of them are careful to remind everyone that there are no guarantees. The Fed's rate hikes are still ripple through the system. The labor market could weaken. There are all sorts of geopolitical threats and unknowns that could throw global trade and oil prices (and therefore gas prices) into chaos. Anything and everything could scare away investors.
And then there is bird flu. Chickens are getting sick again in droves, which means egg prices are rising again. And as things go with the eggs, so goes the nation.
Emily Stewart is a senior correspondent at Business Insider, writing about business and economics.
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