A lot of the conversation around the "vibes" in the economy being bad despite topline numbers to me, if we take an empirical view, are about methodology and not vibes.
Economists are asking the wrong questions. Instead of asking, "If the measure is good, why do people feel bad?," they should be asking: "Why don't our measurements reflect attitudes about the economy?"
When we look at the methodology that determines stuff like the unemployment rate, the jobs numbers, wage growth, buried in the cross tabs there's lots of extremely unhealthy, unhappy indicators that people ignore when they overly focus on the topline number.
Yeah, unemployment is low (historically, it's relatively high compared to the post-pandemic recovery period), yes, but also workforce participation is down since COVID, and folks who are under employed are counted as employed not unemployed.
Yeah, wage growth is slow, but it's growing, faster than inflation, but in the crosstabs, we see a bifurcation between folks who are earning supervisory wages and folks in non-supervisory service and gig economy roles.
Yeah, we've had mixed jobs numbers, but often a lot of growth! Except our jobs numbers count someone working a gig job for extra scratch as working two jobs, even though one of those is not a happy thing, and there's no reflection of quality; and also, once we take healthcare sector out of the jobs numbers, they've all been negative for a while now.
So the economy is not good. We don't declare recessions until after the fact. If we were in a recession right now, it wouldn't be officially called one until we learn later that we were in one.
⬆️"When we look at the methodology that determines stuff like the unemployment rate, the jobs numbers, wage growth, buried in the cross tabs there's lots of extremely unhealthy, unhappy indicators that people ignore when they overly focus on the topline number."
I think you hit the nail on the head!
I was retired before the pandemic hit, but had I still been working, I would have been able to work from home. My job was also full-time with good benefits. It was a whole different world for essential workers or anyone working in service or hospitality.
During the pandemic, I was able to take advantage of the Biden-era enhanced ACA subsidies and saw a dramatic drop in health insurance costs. I became eligible for Medicare before the Big Ugly bill snatched away those subsidies in order to give billionaires tax cuts. People on Medicare or working for large corporations offering group health care insurance were more insulated from the more extreme price shocks.
I have been in my house long enough to pay it off, but anyone who was able to buy a house during the historically low interest rates after the Big Recession through Covid(https://www.macrotrends.net/2604/30-year-fixed-mortgage-rate-chart) has a district economic advantage over someone who currently rents an apartment or house. Properties in my area were renting for well above what I paid for the combination of mortgage, taxes and insurance long before I paid off the mortgage - I shudder to think what rent would be now!
And of course another factor that hits families extremely unevenly is childcare costs. Unless both parents are high-wage earners, child-care costs can make it unfeasible for both parents to work full-time even with just 1 or 2 kids.
I recall reading somewhere that the macro-factors inversely correlated with someone's likelihood to be be financially ready for retirement were number of kids, whether or not they had gotten divorced, and whether or not a serious illness resulted in medical debt - but not necessarily in the order. (I don't recall where exactly on the income scale the studied population fell, but it was definitely in the "middle class").
When people are taking out loans to buy sandwiches, there's a pretty deep disconnect/problem with the economy. And people may be spending more because they've given up all hope of ever buying a house or having a family, etc.
⬆️ "Using a technique called multilevel regression and post-stratification (aka “Mr. P”)..."
Although since I have a stats background, I am never a good judge of how incomprehensible an explanation might be for someone who claims no prior stats background.
I read Jared Bernstein’s column right before yours, and was fascinated to note that you’re both saying the same thing, coming from totally different directions: that the high level of prices, rather than inflation rates, are the big drivers of negative consumer/voter sentiment. I think this strengthens both of your arguments (consensus from completely different analytical methods).
The average price of a new car has hit $50K, not so much because of inflation but because car companies are prioritizing affluent buyers. Accordingly, automakers are producing more high-end vehicles. Anyway, I wonder how much the consumer sentiment index is a function of a sense that middle- and lower-income people are being shut out of parts the economy altogether.
In the next one I would be interested in some data acknowledging the fact that consumer sentiment and consumer behavior seem more detached today than in the past. Retailer (low end, high end and middle) and credit card reporting suggest people continue to spend like they are very comfortable with their own financial position.
I remember polling 2 years ago saying something like 15% said their own finances were bad, but a majority of others' were bad. Same for "how is the economy in your area/state" vs. "how is the economy nationwide. This is where Kyla Scanlon coined "vibesession".
Similar polling results for crime: how bad is crime in your area/state, vs. how bad is crime nationally.
I've thought a lot about "good by historical norms". That makes sense to economists, but not in people's lived experience.
At this point, the majority of people had never experienced double-digit inflation nor double-digit mortgage rates, so their perspective is a lot different. Much like current gas station signs can't accommodate prices over $10/gal now, in the '70s they couldn't accommodate prices over $1/gal. So it was pretty jarring to see signs rigged with a "1" in front of the price when gas prices had typically been in the 30 cent range before 1973. So having seen gas prices quadruple in less than a decade, seeing inflation rates down to 4% as they were when Reagan was re-elected made people pretty happy, even after all the pain of double-digit unemployment that it took to get there.
This is not the majority of people's lived experience today.
How about an explanation that ties many of these ideas together: Given COVID, economic bubbles, and the increasing costs of healthcare/etc., more people feel that Black Swan events are either more likely more devastating than they once were. Therefore, why save? Why not just spend it now?
Part of this could be a generational shift. Imagine looking back through your memories and seeing near-constant war, economic destabilization, and increasing effects of climate change. Whatever that person might be able to save could easily seem minuscule compared to the effects of such events.
Generational views/effects aside, if I see the above factors on the horizon and believe (with good reason) that they will worsen, it seems I will live with the specter of Black Swan like events hovering above me. I can’t do anything about those but I can try to enjoy life now.
Hence, increasing prices now have a much more serious psychological impact than before.
There is no place left for me to retreat or regroup to, if I’m now priced out of a market.
That explanation would be a good one if you believe consumer sentiment means more than as a variable than it might. There is a British based consumer analyst @retail_guru who is on bluesky (and X) who keeps coming back to "Watch what they do not what they say". I am guessing people are spending because they actually have money but they believe everyone else is struggling because of the media/social media vibes. My initial question was really about analyzing whether sentiment and behavior are further apart today than prior to Covid.
I like the gopher too and am glad you got out hiking! I suspect the rising price of food and shelter does explain why people don't see or experience any benefit from a general decrease in inflation. If people can't meet their most basic needs, whether employed or not, they get pissed off, and there are sadly more of them than folks buying lattes and Prada bags.
"The theory here is simple: prices didn’t used to dominate how people thought about their personal finances. But now they do, and that’s a source and level of anxiety that doesn’t show up in historical data on inflation, unemployment etc."
I have a theory.
I think people used to feel optimistic that tough times would get better, because we lived in a wealthy, powerful, stable democracy, so we could change up our reps and expect better policies in the future.
Trump has upended ALL of that. And though he's not responsible for Citizens United, the destabilizing effect of Big Money donors owning our government reps and ensuring that tax cuts for the uber-rich are the be-all and end-all of government legislation has revealed just how entrenched income inequality has become. There's no reason to hope that healthcare, housing, or higher education will become more affordable. We know that climate change is going to drive costs up, not down.
For MAGA folks, the initial thrill of owning the libs is fading as kitchen-table issues become more and more pressing every day, and the Trump administration is constantly setting fires to make things worse.
There is no sense of a future that can be bright for our children and grandchildren. Our entire paradigm of America is on the ropes. No wonder we are all in a sour mood. Malaise.
I commented above with an idea that ties together your comment with some other ideas in a larger framework. I agree with you! I just think that there are other strands that also go into it that make all of this an even more robust explanatory framework.
A lot of the conversation around the "vibes" in the economy being bad despite topline numbers to me, if we take an empirical view, are about methodology and not vibes.
Economists are asking the wrong questions. Instead of asking, "If the measure is good, why do people feel bad?," they should be asking: "Why don't our measurements reflect attitudes about the economy?"
When we look at the methodology that determines stuff like the unemployment rate, the jobs numbers, wage growth, buried in the cross tabs there's lots of extremely unhealthy, unhappy indicators that people ignore when they overly focus on the topline number.
Yeah, unemployment is low (historically, it's relatively high compared to the post-pandemic recovery period), yes, but also workforce participation is down since COVID, and folks who are under employed are counted as employed not unemployed.
Yeah, wage growth is slow, but it's growing, faster than inflation, but in the crosstabs, we see a bifurcation between folks who are earning supervisory wages and folks in non-supervisory service and gig economy roles.
Yeah, we've had mixed jobs numbers, but often a lot of growth! Except our jobs numbers count someone working a gig job for extra scratch as working two jobs, even though one of those is not a happy thing, and there's no reflection of quality; and also, once we take healthcare sector out of the jobs numbers, they've all been negative for a while now.
So the economy is not good. We don't declare recessions until after the fact. If we were in a recession right now, it wouldn't be officially called one until we learn later that we were in one.
⬆️"When we look at the methodology that determines stuff like the unemployment rate, the jobs numbers, wage growth, buried in the cross tabs there's lots of extremely unhealthy, unhappy indicators that people ignore when they overly focus on the topline number."
I think you hit the nail on the head!
I was retired before the pandemic hit, but had I still been working, I would have been able to work from home. My job was also full-time with good benefits. It was a whole different world for essential workers or anyone working in service or hospitality.
During the pandemic, I was able to take advantage of the Biden-era enhanced ACA subsidies and saw a dramatic drop in health insurance costs. I became eligible for Medicare before the Big Ugly bill snatched away those subsidies in order to give billionaires tax cuts. People on Medicare or working for large corporations offering group health care insurance were more insulated from the more extreme price shocks.
I have been in my house long enough to pay it off, but anyone who was able to buy a house during the historically low interest rates after the Big Recession through Covid(https://www.macrotrends.net/2604/30-year-fixed-mortgage-rate-chart) has a district economic advantage over someone who currently rents an apartment or house. Properties in my area were renting for well above what I paid for the combination of mortgage, taxes and insurance long before I paid off the mortgage - I shudder to think what rent would be now!
And of course another factor that hits families extremely unevenly is childcare costs. Unless both parents are high-wage earners, child-care costs can make it unfeasible for both parents to work full-time even with just 1 or 2 kids.
I recall reading somewhere that the macro-factors inversely correlated with someone's likelihood to be be financially ready for retirement were number of kids, whether or not they had gotten divorced, and whether or not a serious illness resulted in medical debt - but not necessarily in the order. (I don't recall where exactly on the income scale the studied population fell, but it was definitely in the "middle class").
When people are taking out loans to buy sandwiches, there's a pretty deep disconnect/problem with the economy. And people may be spending more because they've given up all hope of ever buying a house or having a family, etc.
MRP? Don't leave your English majors out in the woods with the gopher, please!
There is a link to a prior post where it is explained:
https://www.gelliottmorris.com/p/trump-is-underwater-in-every-competitive
⬆️ "Using a technique called multilevel regression and post-stratification (aka “Mr. P”)..."
Although since I have a stats background, I am never a good judge of how incomprehensible an explanation might be for someone who claims no prior stats background.
I read Jared Bernstein’s column right before yours, and was fascinated to note that you’re both saying the same thing, coming from totally different directions: that the high level of prices, rather than inflation rates, are the big drivers of negative consumer/voter sentiment. I think this strengthens both of your arguments (consensus from completely different analytical methods).
actual polls track what people think now in response that are happening now.
llm's may predict what people w/ given demographics tend to think "on average" but ignores context, ie, what is happening now.
the idea that llms can substitute in any meaningful way for actual polls is silly.
The average price of a new car has hit $50K, not so much because of inflation but because car companies are prioritizing affluent buyers. Accordingly, automakers are producing more high-end vehicles. Anyway, I wonder how much the consumer sentiment index is a function of a sense that middle- and lower-income people are being shut out of parts the economy altogether.
Hope you feel refreshed after your hike! TY for your great work!
In the next one I would be interested in some data acknowledging the fact that consumer sentiment and consumer behavior seem more detached today than in the past. Retailer (low end, high end and middle) and credit card reporting suggest people continue to spend like they are very comfortable with their own financial position.
I remember polling 2 years ago saying something like 15% said their own finances were bad, but a majority of others' were bad. Same for "how is the economy in your area/state" vs. "how is the economy nationwide. This is where Kyla Scanlon coined "vibesession".
Similar polling results for crime: how bad is crime in your area/state, vs. how bad is crime nationally.
I've thought a lot about "good by historical norms". That makes sense to economists, but not in people's lived experience.
At this point, the majority of people had never experienced double-digit inflation nor double-digit mortgage rates, so their perspective is a lot different. Much like current gas station signs can't accommodate prices over $10/gal now, in the '70s they couldn't accommodate prices over $1/gal. So it was pretty jarring to see signs rigged with a "1" in front of the price when gas prices had typically been in the 30 cent range before 1973. So having seen gas prices quadruple in less than a decade, seeing inflation rates down to 4% as they were when Reagan was re-elected made people pretty happy, even after all the pain of double-digit unemployment that it took to get there.
This is not the majority of people's lived experience today.
Good idea. Revealed behavior and all that. One possibility is that people are spending because they have to, and they feel bad about it?
How about an explanation that ties many of these ideas together: Given COVID, economic bubbles, and the increasing costs of healthcare/etc., more people feel that Black Swan events are either more likely more devastating than they once were. Therefore, why save? Why not just spend it now?
Part of this could be a generational shift. Imagine looking back through your memories and seeing near-constant war, economic destabilization, and increasing effects of climate change. Whatever that person might be able to save could easily seem minuscule compared to the effects of such events.
Generational views/effects aside, if I see the above factors on the horizon and believe (with good reason) that they will worsen, it seems I will live with the specter of Black Swan like events hovering above me. I can’t do anything about those but I can try to enjoy life now.
Hence, increasing prices now have a much more serious psychological impact than before.
There is no place left for me to retreat or regroup to, if I’m now priced out of a market.
That explanation would be a good one if you believe consumer sentiment means more than as a variable than it might. There is a British based consumer analyst @retail_guru who is on bluesky (and X) who keeps coming back to "Watch what they do not what they say". I am guessing people are spending because they actually have money but they believe everyone else is struggling because of the media/social media vibes. My initial question was really about analyzing whether sentiment and behavior are further apart today than prior to Covid.
Or they're buying now because they know that things are only going to get pricier later.
I like the gopher too and am glad you got out hiking! I suspect the rising price of food and shelter does explain why people don't see or experience any benefit from a general decrease in inflation. If people can't meet their most basic needs, whether employed or not, they get pissed off, and there are sadly more of them than folks buying lattes and Prada bags.
"The theory here is simple: prices didn’t used to dominate how people thought about their personal finances. But now they do, and that’s a source and level of anxiety that doesn’t show up in historical data on inflation, unemployment etc."
I have a theory.
I think people used to feel optimistic that tough times would get better, because we lived in a wealthy, powerful, stable democracy, so we could change up our reps and expect better policies in the future.
Trump has upended ALL of that. And though he's not responsible for Citizens United, the destabilizing effect of Big Money donors owning our government reps and ensuring that tax cuts for the uber-rich are the be-all and end-all of government legislation has revealed just how entrenched income inequality has become. There's no reason to hope that healthcare, housing, or higher education will become more affordable. We know that climate change is going to drive costs up, not down.
For MAGA folks, the initial thrill of owning the libs is fading as kitchen-table issues become more and more pressing every day, and the Trump administration is constantly setting fires to make things worse.
There is no sense of a future that can be bright for our children and grandchildren. Our entire paradigm of America is on the ropes. No wonder we are all in a sour mood. Malaise.
I commented above with an idea that ties together your comment with some other ideas in a larger framework. I agree with you! I just think that there are other strands that also go into it that make all of this an even more robust explanatory framework.
Excellent comment!! Thank you.
Love the gopher. It's nice to be reminded that there's a whole other world out there going about its merry business.