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The clouds have parted. A warm sun is shining down on American consumers – and potentially on President Biden's re-election chances.
There was a lot of mystery about the US economy last year. This includes the huge gap between how impressive the economy looks on paper and how Americans feel about it.
In many ways, the economy is doing remarkably well: Unemployment has not exceeded 4 percent in two years, and there have been few layoffs. Inflation is generally declining. Economic growth has continued.
Relatively speaking, we are doing great. We are outperforming our peer countries, most of which experience much higher inflation. We are also exceeding forecasts from a year ago (when economists predicted an impending recession) and even forecasts before the pandemic hit.
None of that was enough to cheer consumers, who until recently were as negative about the economy as they were during the Great Recession, when unemployment hovered around 9 percent. By mid-2023, most Americans thought we were stuck in a recession – despite their decision to spend as if the economy was booming, and despite the fact that there were virtually no signs of a recession other than the bad “sentiment.”
Follow this authorCatherine Rampell's opinions
But recently that mood has changed. Optimism is spreading across the country.
Since November, for example, the University of Michigan's long-term consumer sentiment index has risen 29 percent overall. This is the strongest two-month increase since 1991, putting sentiment at its highest level since mid-2021.
A similar measure of consumer confidence from the Conference Board, a business think tank, also saw an increase. And polls from YouGov and the Economist show that the share of Americans who believe the economy is in recession has declined.
There are many competing theories about why our collective spirits might be recovering and, accordingly, why they might have been gloomier than the first hard data.
Some, including Biden, blamed the media, particularly right-wing news sources and TikTok. While I agree that journalists tend to be biased towards negative news, I don't think media coverage can explain everything here, especially considering the recent upswing in public sentiment and the fact that Democratic voters are also concerned about theirs have complained about personal finances.
In my opinion, the noticeable improvements over the last few months have made a big difference. Gasoline prices have fallen more than 80 cents a gallon since the summer. The stock market closed at record highs on Monday, partly due to expectations of interest rate cuts.
Inflation has been cooling for some time and Americans have had more time to get used to the price increases they have experienced so far. This means they will be less shocked every time they shop at the grocery store and may no longer hold their breath when it comes to price drops that are unlikely to happen. Milk for about $4 a gallon is simply the new normal.
Meanwhile, Americans' wages have continued to rise, outpacing inflation, and many consumers seem to believe that inflation has finally turned the corner. Their inflation expectations for the coming year are the lowest since December 2020 and are now broadly in line with pre-pandemic years.
These are all great developments for Biden's re-election campaign. While it seems unlikely that the economy will suddenly become a winning issue for the incumbent, it could stop being an albatross around his neck.
A possible scenario for the 2024 presidential election is one that is very similar to that of 2012. During this campaign cycle, negative views on the economy had a major impact on President Barack Obama's approval rating. A year before the election, Obama trailed his likely Republican challengers in a dozen swing states, and his chances of re-election were considered relatively slim. But economic conditions gradually improved, as did voters' views of the economy. When November was over, Obama had clearly won.
Of course, the country has changed a lot since 2012. Expected 2024 Republican nominee Donald Trump enjoys a cult following that his 2012 counterpart Mitt Romney never had. And this time, a sudden shock could distort the economic story, real or perceived. Economists surveyed by The Wall Street Journal are no longer predicting an imminent recession, but they do expect weak economic growth this year that could “feel” like a recession again.
Furthermore, the recovery is not evenly distributed and some sectors are already struggling. Manufacturing, which is overrepresented in swing states, has been in crisis for more than a year, despite Biden making it the centerpiece of his economic message. Key metrics like gas prices are also subject to the vagaries of global events beyond Biden's control, including war.
But hey, any improvement related to mood is still an improvement.
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