It's The Economy, Stupid - New Year Edition

By any traditional measures our economy is firing on all eight cylinders.  Unemployment is at a fifty year low, wages (adjusted for inflation) are higher than they were before the pandemic, job satisfaction is up  and last month the Federal Reserve left interest rates unchanged and signaled that with inflation subsiding we may see three rate cuts in 2024.  It looks like there is little if any chance of a recession, with an economic soft landing instead.

So why is public opinion on the economy not reflecting all of this wonderful news? 

Conventional wisdom would suggest that people are grumpy about the economy even with the economic winds at their backs.

The best guess is that consumer sentiment over the economy has soured mostly as a consequence of high prices.  While inflation has slowed prices have not come down significantly.  We've seen a wee bit of a drop yet all you have to do is look at the tape total following a trip to the grocery store and it all makes perfect sense.  I also think there is some psychology in play as a consequence of social media trolls and garden-variety confirmation bias.  There is an election looming after all.

Consider this.  Only a couple short years ago, when inflation reared its ugly head and prices began to spike, consumer sentiment plunged in the opposite direction.  In 2022 the mood of the people, as measured by the University of Michigan Surveys of Consumers, was as bad as it could possibly be.  The Consumer Sentiment Index set a record  fifty year low!  That is a big deal.

With a drop of that magnitude it's difficult to gauge if folks were shell-shocked, confused or just plain pissed-off.  As with the case of the bogus $20 Big Mac was misinformation causing perception to replace reality?  Had people lost their minds?

Ordinarily, a strong economy bodes well for an incumbent president.  In this case consumers may be recovering from the sentiment hangover.  If economic grumpiness is the new normal this does not bode well for Biden's reelection prospects.

Maybe as we've embraced post-pandemic life our world has fundamentally changed somehow.  Maybe it is the cumulative impact of many things - supply chain interruptions, labor shortages leading to hiring disruptions, longer waits for a contractor, higher mortgage rates, increased cost of diesel, fertilizer, used cars, new cars, real estate and construction has put large numbers of people into a mind-numbing economic funk?   I cannot put my finger on it.

Nevertheless, gasoline prices have come down considerably ($2.34 Friday at the new Kwik Trip in Sturgeon Bay), the stock and bond markets have out-performed, my real estate taxes are affordable and have barely increased, interest rates are forecast to fall, the prospects of a recession seem to have been a mirage, my personal consumer confidence is strong and for everyone else is likely improving every month since hitting rock bottom.  The previously worrisome Consumer Sentiment Index is steadily rising. The economy is strong.  I have no major grievances.  If Joe Biden is reelected not much will change for me.  If Donald Trump is elected it is highly likely I'll continue to prosper and have beaucoup blog material.  Besides, any president's immediate influence on an economy as large as ours is overstated.  

So, we'll have to see how 2024 unfolds.  For this blogger the glass is half-full.