Math has never been my forte, but economics as a study of people and behavior has always fascinated me.
And right now, this study says Americans are behaving strangely.
By several measures, America has a strong economy.
Unemployment is back to pre-coronavirus pandemic lows, with hundreds of thousands of jobs being added each month, according to the US Bureau of Labor Statistics. These jobs come in higher-paying professional and healthcare sectors, not just low-paying hospitality.
According to a recent article in The Wall Street Journal, Americans had a total of $18.5 trillion in deposits, savings and money market accounts at the end of March, about $5 trillion more than before the pandemic. The Journal said even lower-income Americans pooled more money. According to the Journal, at the end of the first quarter, Americans’ net worth, which includes homes and stocks, was eight times Americans’ disposable income, more than during the housing boom of the 2000s.
Despite all the indicators showing that Americans are doing well overall — working, having money in the bank, and assets to borrow in tough times — Americans feel like we’re in the middle of a recession .
According to the same Journal article, consumer spending growth has flattened to 2% this spring from 7% last year. A long-running University of Michigan household survey found consumer sentiment was as low as it was during the Great Recession of 2007-09.
Why? Record high inflation means Americans have more money, but are making less money with it. That weighs on consumer sentiment, which tightens spending.
And those cuts in spending can have an impact across the economy. The stock exchange contracts. Restaurants and shops see fewer customers, causing them to hold back on hiring or even fire staff when business is poor. Laid-off workers dig into their savings or take on new debt and eat up wealth.
In short, our bad views on the economy right now could become a self-fulfilling prophecy. If we Americans remain pessimistic and keep our wallets in our pockets, we could drain an economy that’s actually doing pretty well.
But if we’re overly optimistic and spend our wealth, it could spur demand, which could push prices further higher, which could cause more of us to retrench spending, triggering those nasty ripple effects again.
The economy depends on a delicate balance between just the right amount of optimism and spending and stable prices.
That’s the macro, but it’s made up of millions of microeconomies. Each of us has a personal economy, a set amount of money, and a set of values that determine what we are willing to do with that money.
When we personally see that we are paying twice as much at the grocery store for the same items we have always bought and twice as much at the pump to drive as much as we have always driven, we can make decisions to to try to compensate for this. We may shop less groceries or change our diet to eat cheaper. We can make fewer trips. We can do such things even when we could technically afford to continue doing so by digging a little deeper into our healthy savings accounts.
When we see those bills piling up, realize our favorite treats are missing from our cupboards, and we don’t see our friends as often because we don’t make the trip, no one can blame us for feeling mad about the economy, no matter how strong this economy can be.
Multiply that sentiment by more than 100 million homes in the US, and the massive American economy begins to transform.
It fascinates me to think that we are all so interconnected that each of our individual decisions can accumulate into an avalanche that moves the stock market, prompts the President to make a speech, prompts the Fed to change interest rates .
Our politicians have many decisions to make. They need to fix the supply chain issues that have contributed to higher gas prices. They need to make sensible decisions about interest rates and whether (or should) fuel taxes be suspended.
But it seems that each of us individually could do a lot to keep the economy afloat.
I’m not an economist, but I think we should strive for as much economic optimism as possible and continue to spend as much as we think we can without overdoing it, especially with locally owned businesses.
So go ahead and eat out. Buy that new swimsuit you’ve always wanted. Take a trip to see your friend.
And try to be as alert as possible.
Justin A. Hinkley can be reached at 989-354-3112 or [email protected] Follow him on Twitter @JustinHinkley.
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