Why are we so bummed about the economy? | Planet Money

Intro

In this episode of the “Planet Money” podcast, titled “Why are we so bummed about the economy?”, hosts Whalen Wong and Kenny Malone explore the disconnect between economic indicators and people’s feelings about the economy. They delve into the reasons behind the gloomy consumer sentiment despite positive economic news and examine the impact of non-economic factors on people’s perceptions. Economist Claudia Somme provides insights into the potential explanations for this disparity.

Main Takeaways

Consumer sentiment and economic indicators

• For 80 years, consumer sentiment has been used to measure people’s vibes about the economy, but recently, there’s a disconnect between economic indicators and people’s feelings.
• During the pandemic, consumer sentiment plummeted, but as economic programs rolled out, sentiment improved.
• After April 2021, sentiment started plummeting again as inflation began to rise.
• In 2021, the job market turned surprisingly good, and inflation peaked at 9.1% before starting to decline.
• Despite improving economic news in 2021 and 2022, consumer sentiment remained low.
• In 2023, as inflation decreased and unemployment stayed low, people were still not feeling positive about the economy.

Understanding the discrepancy

• The Michigan Survey of Consumer Sentiment is a key gauge to capture people’s opinions on the economy.
• The survey aims to comprehend why people feel negatively despite positive economic indicators.
• In a recent survey, 51% of respondents reported being financially worse off compared to a year ago, while only 30% said they were doing better.
• Two-thirds of people surveyed believe that the next 12 months will bring bad financial times for the country as a whole.
• Nearly 80% of respondents feel that it’s a bad time to buy a house, citing high interest rates and skyrocketing home prices as the main reasons.

Influence of non-economic factors

• The perception of the economy may be influenced by the constant exposure to negative news through smartphones.
• On Twitter, bad news echoes and amplifies more than good news.
• Political factors are increasingly weighing on people, in addition to inflation, as reflected in survey responses.
• The economic gloom may not reflect the actual economic reality, prompting the question of whether the economy is truly bad in a way that traditional measures are missing.

Impact on consumer behavior and future outlook

• Despite low consumer sentiment, people continue to spend and make money, indicating a disconnect between feelings and economic behavior.
• There are concerns about the potential for a recession due to the disconnect between sentiment and economic measures.
• The pandemic may have disrupted the economy to the extent that it will take time for people to align with economic data again.
• There is a possibility that consumer sentiment may always be misaligned with economic numbers in the future.

Summary

The Disconnect Between Economic Indicators and Consumer Sentiment

Consumer sentiment, a measure of people’s vibes about the economy, has been used for 80 years. However, in recent times, there has been a disconnect between economic indicators and people’s feelings. During the pandemic, consumer sentiment plummeted but improved as economic programs rolled out. However, after April 2021, sentiment started declining again due to rising inflation. Despite positive economic news in 2021 and 2022, consumer sentiment remained low. Even as inflation decreased and unemployment stayed low in 2023, people were still not feeling positive about the economy.

Understanding the Discrepancy: The Michigan Survey of Consumer Sentiment

The Michigan Survey of Consumer Sentiment is a key gauge that aims to capture people’s opinions on the economy. In a recent survey, more respondents reported being financially worse off compared to a year ago. Additionally, a majority believe that the next 12 months will bring bad financial times for the country as a whole. High interest rates and skyrocketing home prices contribute to the sentiment that it’s a bad time to buy a house.

Influence of Non-Economic Factors on Consumer Sentiment

The constant exposure to negative news through smartphones may influence people’s perception of the economy. Bad news tends to echo and amplify more than good news, especially on platforms like Twitter. Political factors are also increasingly weighing on people’s sentiment, alongside inflation. This raises the question of whether the economy is truly bad in a way that traditional measures are missing.

Impact on Consumer Behavior and Future Outlook

Despite low consumer sentiment, people continue to spend and make money, indicating a disconnect between feelings and economic behavior. There are concerns about the potential for a recession due to the disconnect between sentiment and economic measures. The pandemic may have disrupted the economy to the extent that it will take time for people to align with economic data again. It is also possible that consumer sentiment may always be misaligned with economic numbers in the future.

Conclusion

The disconnect between economic indicators and consumer sentiment raises questions about the factors influencing people’s perception of the economy. Non-economic factors such as constant exposure to negative news and political polarization may contribute to the gloomy sentiment. While consumer sentiment may not align with economic numbers, it still plays a crucial role in understanding people’s attitudes towards the economy. As the economy continues to evolve, it remains important to consider the underlying reasons for the disparity between economic indicators and consumer sentiment.