About the author: Aaron Terrazas is chief economist at Glassdoor.
Economic confidence is starting to change, but Americans' mood is still much bleaker than it should be. Friday's jobs report showed a surprisingly large increase of 275,000 in the number of employed people in February, and real wage growth remained strong at 4.3%. This illustrates a remarkably resilient labor market. Inflation is slowing and the prospect of lower interest rates is emerging. In other words, the hard data reveals few obvious reasons for anything other than unbridled optimism about the U.S. economy.
So what is driving this “vibecession”?
Economists and policymakers were quick to ignore falling trust numbers last year. They have characterized them as fuzzy, unquantifiable feelings influenced by post-pandemic trauma, increasing political polarization and consumers' over-anchoring on common purchases like groceries and gasoline in relation to recent inflation.
To be sure, there is bias in the way Americans respond to confidence surveys, but it is a mistake to reject soft sentiment numbers entirely.
Advertisement – Scroll to continue
Trust in the economy and expectations of the economy do not arise in isolation or strictly at the grocery checkout or at the gas pump. They are influenced by the voices that dominate our daily lives and are honed in conversation with our communities. They are the result of social exchange.
For many American adults, conversations about what we do for a living and where we work dominate. Work is an unavoidably important part of the lives of most American adults, and our attitudes toward work affect our attitudes toward the economy and the future more broadly.
Too many current discussions about economic confidence overlook the workplace as a key conduit for economic sentiment. Glassdoor's data suggests that while recruiting remains on solid footing, there have been two important shifts deep in the working lives of many Americans. These changes confirm the economic boredom that many Americans are reporting to pollsters.
Advertisement – Scroll to continue
The first transmission channel in the workplace is trickle-down pessimism.
When asked about the six-month business outlook of the company that employs them, fewer and fewer American workers are expressing optimism. Specifically, according to February's Glassdoor Employee Confidence Index, the share of mid-level employees reporting a positive future outlook for their employer is just 48%, an all-time low dating back to 2016.
It's possible that these corporate insiders know something that generalist economic observers don't, but more likely the pessimism reflects the sentiment they hear in corporate communications and meetings.
Advertisement – Scroll to continue
Significantly, the prospects of the most senior employees began to deteriorate significantly in early 2022, three quarters before the decline in sentiment among younger employees. The business outlook for the next six months for executive and board member employees peaked in the first quarter of 2022. The share with positive business prospects had fallen by around five percentage points by the end of the year. Over the same period, the prospects for entry-level employees in the GECI remained, on average, unchanged.
Given the higher cost of capital and inflationary pressures, fear of the future was natural and justified as interest rates began to rise. It is also natural for young professionals to internalize the messages that their superiors and company managers convey. Increasing demands for transparency in the workplace are forcing managers to be more open about their own fears and insecurities. An open discussion of the known and unknown is certainly better than performative bravado, but it also carries risks.
The second transmission channel in the workplace is the weakening of job quality.
Advertisement – Scroll to continue
Real wage growth has turned positive as consumer price inflation has slowed, but there is an important gap in the data. No official measure of real wages attempts to control for job quality, a statistical control common in measuring the prices of consumer goods and services. For example, most people realize that there are two ways an airline can make our trip more or less pleasant: it can increase the price of a ticket or it can reduce the quality of the trip by making cuts such as foregoing a drink service or discounting it restrict legroom. In other words: There may be price or quality adjustments.
Similar to the “shrinkflation” phenomenon we see so often in consumer goods, Glassdoor data on employee sentiment regarding work-life balance and career growth prospects suggests that there has been some erosion in job quality over the past year has come – possibly due to the return to work, office and productivity efforts. We see this particularly in a few skilled professions where employees are used to extensive autonomy and career opportunities in their working lives. These include business intelligence engineers (average work-life balance score on Glassdoor -0.4 percentage points from 2022 to 2023), machine learning scientists (-0.3 percentage points), and software engineers (-0.2 percentage points ).
The exceptionally tight labor market of 2021 and 2022 has set new standards for what “good” feels like for a generation of workers. What labor economists see as a renormalization of pre-pandemic norms feels like a loss of relative status for many workers.
Doctors routinely dismissed fuzzy emotions like pain and fear as mental illnesses that had no connection to objective reality. In recent years, cutting-edge medicine has learned to view these quantitatively amorphous concepts as real phenomena. Economists would be wise to follow this example.
Feelings may be fuzzy, but they are no less significant to our physical and economic well-being than the usual statistical canaries. They deserve our serious consideration, not our professional gaslighting.
Op-eds like this one are written by writers outside of Barron's and MarketWatch newsrooms. They reflect the perspective and opinions of the authors. Send comment suggestions and other feedback to [email protected].
Comments are closed.