Episode 32

Episode summary

The economy has been incredibly resilient in the wake of the pandemic, strong even. Yet survey after survey continues to show that many people don’t share that perspective. In this episode, Caleb and Liz discuss this phenomenon, the contradictions within it, and how we can separate reality from all the noise.


Anger about the economy is everywhere [Stay-At-Home Macro (SAHM)]





Liz Wilke (00:00:31) – Hi, I’m Liz Wilke. 

Caleb Newquist (00:00:35) – And I’m Caleb Newquist. 

Liz Wilke (00:00:36) – And this is the Gustonomics Podcast. In each episode, we bring you a little bit of economics knowledge so you can be more informed, use the information in your business or work, or upgrade your poolside chit-chat game. 

Caleb Newquist (00:00:52) – Please remember to rate, review, and subscribe to the show, or share it with an economics curious friend. Anything you can do to spread the word about the podcast is greatly appreciated. Hello, Liz. 

Liz Wilke (00:01:05) – Hello, Caleb. 

Caleb Newquist (00:01:08) – How are you doing? How are you feeling, Liz? 

Liz Wilke (00:01:11) – I am feeling, well, actually, I’m feeling quite good, but that’s probably not the setup you wanted. You probably wanted me to tell you that I’m feeling kind of wishy-washy about the state of the world, and honestly, not so good. 

Caleb Newquist (00:01:26) – I’ll take both, really. I’m glad that you’re doing okay. And just to ease the transition of this conversation, I suppose, I’ll take the wishy-washy feelings. So tell me about these wishy-washy feelings. Why are you feeling wishy-washy? 

Liz Wilke (00:01:40) – Yeah. Well, so I’ll give a more formal lead-in to our listeners. We’re going to talk about the difference between all the great economic data that’s been coming out and the honestly really abysmal consumer sentiment that is accompanying that data. 

Caleb Newquist (00:01:54) – I want to understand you correctly. A lot of the economic data that we talk about on this show, but also a lot of other stuff that we don’t talk about, is generally pretty good, but if you talk to the average person on the street, they’re like, not so sure. It doesn’t matter. All that economic data doesn’t mean much. They don’t have a good feeling about the economy, and that’s what you’re driving at. That’s what we’re going to talk about, right? 

Liz Wilke (00:02:23) – Yeah. We’re going to talk about the data versus the vibes today. So I think because it shows up in the data, lots of Americans are thinking, OK, I don’t actually feel that good about the economy in my region or the economy across the whole United States, even if my specific financial condition is pretty good. That’s sort of the disconnect that we’re talking about is we’ve got good jobs reports, inflation we’re finally making some progress on. We made a lot of inflation progress last year. But people still feel pretty bad about the economy when you ask them in surveys. And I will say it has tied the economics profession up in knots trying to figure out why this big disconnect between these great economic prints, right, month over month, and the fact that most Americans are like, meh, I’m doing OK, but I don’t think the economy is doing OK. Right. 

Caleb Newquist (00:03:21) – And we’ve talked about this before on a prior episode, right? We talked about consumer sentiment, right? And you have some issues with consumer sentiment in general. But this is a slightly different conversation. Is that fair to say? 

Liz Wilke (00:03:36) – Yeah, I would think that’s that’s fair to say. 

Caleb Newquist (00:03:38) – OK. So maybe to start things off, maybe can you give like a snapshot of like the positive data and then kind of contrast that with the bad vibes? 

Liz Wilke (00:03:54) – If you take last month’s jobs report, we had two hundred and seventy two thousand jobs net created in the economy, which is pretty good. It’s also following months, a couple hundred thousand jobs per month, right, created. And in the meantime, right, we’re still making sort of bit by part progress on inflation. We’re actually getting the soft landing that everybody doubted could happen. 

Liz Wilke (00:04:17) – We’re making progress on inflation. The unemployment numbers are still pretty darn good. It’s like the longest run in recent history that we’ve had unemployment rate below 4%. But the consumer sentiment index is still pretty bad. It’s, I don’t know exactly what it’s hovering at. But consumer sentiment really hasn’t picked up to match that, right? So even as far back as last fall, the Fed does this survey of households and how they’re feeling and what their expectations are for the next year. 72% of people said that they were doing financially okay or living comfortably, which is pretty good. It’s fallen off from the 80% in 2021, but it’s been in that range. But when you ask the same people about how their local economy is doing, only 42% of them say it’s good or excellent. And only 22% of them say that the national economy is good or excellent. You have this real disconnect, right? Between how people personally feel that they are doing and how they think the economy is doing. And you think that when the economy is doing well, people are making money, they’re spending, they’re basically optimistic and people are doing well, but they are not optimistic. And nobody can really figure this out. There are many explanations about why this is. And as I said, economists have spent much ink and keyboard strokes trying to figure out why this is. 

Caleb Newquist (00:05:46) – Okay, so can you give us a sense of the thinking about this? I guess it’s just a phenomenon, right? Because it’s pretty unusual. So what’s some of the common themes in explaining the phenomenon? 

Liz Wilke (00:06:05) – A lot of time and attention has been spent right now on inflation. Because actually, historically, when prices go up, people feel squeezed and then they feel bad. That’s pretty standard. But right now, we’re actually at a point of disinflation. Inflation is coming down. Prices are increasing much more slowly than they were in prior years. And people still feel bad. So economists have thought, well, maybe people just don’t really understand inflation. And they’re not as concerned about the fact that prices are rising slower. They’re really feeling bad about the fact that prices are much higher than they used to be, and that they went up in this short amount of time. And so people aren’t really upset about inflation. They’re upset about the level of prices that they’re paying now. 

Caleb Newquist (00:06:54) – So for example, if I may just interject, I’m looking at a chart based on data from the BLS. And it shows that since January of 2021, the cumulative change in prices is about 19%. But the year-over-year inflation has dropped considerably since its peak, which I don’t remember what it topped out around, 9% or so? Does that sound about right? 

Liz Wilke (00:07:22) – Yeah, that’s about right. 

Caleb Newquist (00:07:23) – Yeah, in the summer of 2022. And now it’s back to around 3%. And so that’s a lot of progress, right? The fact that prices were increasing at 9%, and now they’re only increasing at 3%, that’s pretty darn good. But the cumulative change over the past three or four years has been such that that’s playing into people’s dissatisfaction with prices. 

Liz Wilke (00:07:51) – Yeah, that’s one explanation, right? And it’s been tying up a bunch of economists right now. There are other potential explanations, right? 

Caleb Newquist (00:07:58) – Right, because it’s not necessarily a clean explanation. But that is a possible explanation. 

Liz Wilke (00:08:05) – Yeah, the other one is, so there are lots of others. One is the interest rate, which works in a bunch of ways. People say the interest rate is going up. It’s making homes more costly. And homes are getting more expensive for everybody anyway. And so it’s putting that sort of American dream ideal out of reach, especially for a bunch of millennials and elder Gen Zers who are reaching the point in their lives where they are buying their first homes or trying to upgrade. And that’s really that’s sort of harshing their vibes a little bit. And also that if you are a borrower for a car, for a home, for a loan of any kind, you are feeling those effects. And so some people are maybe OK. But other people are not. And then so that’s one other possible explanation that people have been throwing around, too. OK. There’s another one, which is just.

Liz Wilke (00:09:00) – you know, the news has gotten more negative. And we’re just focusing on all of the things that are wrong. And that that is coming sort of in the context of the fact that, you know, there’s increased homelessness. And there are now loneliness and drug abuse problems that are more significant since the pandemic. And that inequality has gone up. And there’s sort of people are feeling, you know, some of the, you might call like the social bads, right? 

Caleb Newquist (00:09:25) – Yeah. 

Liz Wilke (00:09:26) – As economic vibes, right? They say, I’m doing fine, but the world just seems like a worse place. And I think that that’s because the, and I think that the economy is tied into that. 

Caleb Newquist (00:09:37) – Okay. So I’m gonna put you on the spot. Of these three that we’ve mentioned, the inflation explanation, the interest rate explanation, and the social gloom, I’ll call it, explanation. Of those three, where do you fall? 

Liz Wilke (00:09:56) – I think all of these answers are maybe part of it for any particular individual, but these answers are incomplete. Because it used to be that how you felt about your own situation basically went in parallel with how you felt about everybody else’s situation. And since the pandemic, the gap between how you think about your own situation and how other, and how you think about other people’s situation has gotten much wider and has basically stayed consistent. And so, inflation can’t explain a 2020 widening of that gap, right? And increased social ills like homelessness or the rising cost of living can’t explain the widening of that gap at this time because those things were happening before the pandemic. And interest rates can’t explain it either, right? Because interest rates happen sort of after that fact. So the answer is, we don’t really know. And probably, this is not an economics question. This is maybe a question about how we feel, our mental outlook, how we assess sort of the state of the world or the positivity of our future. Maybe it is related to negative coverage. I’m not quite sure. 

Caleb Newquist (00:11:14) – Are you saying we need a sociologist on the podcast, Liz? Do we need, do you have any sociologists? 

Liz Wilke (00:11:20) – We might need a sociologist on the podcast. I mean, we’ve said before, I’ve said before on the podcast that economics cannot answer every question about the things we care about. There are things we care about that are not part of the economy and that economic explanations do not account for. And we might very well be in that territory right now. 

Caleb Newquist (00:11:39) – Right. So, someday we’ll get a sociologist on here. But in the meantime, why do we care about this? Why do small businesses care about this? Why do people who work for small businesses care about this? Because in our little bubbles, everybody seems to be okay. But when we look at the rest of the world, we’re feeling kind of crummy. So how do we all reconcile that for ourselves? 

Liz Wilke (00:12:08) – Well, I think the first thing isn’t actually at the personal level, but at the political level. This is an election year. And how people feel about the economy is a reasonable determinant of how they vote and whether or not they show up to the polls. And so, even if we get very good economic numbers between now and November, there is a wide open question about how much that will affect voters. And I’m not really trying to say one way or the other what will happen because I’m not a pollster and I don’t know. 

Liz Wilke (00:12:40) – But what I do know is that people’s assessment of the economy. Well, maybe we’ll have, oh, what’s his name? Nate Silver. Maybe we’ll have Nate Silver on the podcast. 

Caleb Newquist (00:12:52) – Oh, that’d be a pretty good guest. Yeah. That’d be a good guest. 

Caleb Newquist (00:12:57) – Okay, anyway, sorry. 

Liz Wilke (00:12:59) – But I honestly think it’s gonna be a confounder, right? Or a potential surprise for election results one way or the other, which is that you can’t count on the historical relationship between how consumers feel and the economic data, right? And how they vote. I think that’s a big question mark. And then if you’re at the individual level, if you’re a business owner or you’re thinking about your own situation, I would just say, really separate for yourself the difference between the economic news, which continues to be good. And the people that come into your shop or who are talking to you over a business lunch, right? And I think keeping in mind, right, the knowledge that people are consistently underestimating the strength of their local economy and the national economy, that’s gonna come into the conversations that you have with business partners. It’s gonna come into the conversations that you have with customers. It might even come into the negotiations that you have with business associates about contracts, et cetera. Keep an eye on this day knowing that this gap exists and that it’s bigger than it used to be I think can help people in their conversations and to also Understand when somebody is telling you what they feel versus what actually exists, right? 

Caleb Newquist (00:14:19) – Feelings are not necessarily facts 

Liz Wilke (00:14:24) – Feelings are not necessarily facts 

Caleb Newquist (00:14:27) – Some people might say that they’re not facts at all, but Sometimes they overlap but most of the time no, 

Liz Wilke (00:14:37) – I think that’s a little meta for this for this podcast. 

Caleb Newquist (00:14:41) – We’ll let it we’ll let it we’ll let it just hang out there for everybody. Okay, so Liz any final thoughts from you about just vibes like is is your is your general kind of counsel here to just like Be aware Be aware Be aware of your feelings be aware of other people’s feelings be aware of that feelings are a thing but try to separate them from what you kind of just see on the street, right like if I go down for example to my You know my downtown area. I live in Littleton, Colorado. There’s a downtown area on the weekends. I Think it is fair to say that it is bustling on the weekends in my general area and to me that suggests that things are pretty good and I’m you know setting aside my own personal feelings. I can just observe what I see going on in and around where I live and things seem to be pretty good. But you’re right when you listen to the news or you go on social media there’s all kinds of stuff that would maybe cause you to question that and maybe those reasons are valid, but maybe they’re not and so Try to observe and take things for what they are. 

Caleb Newquist (00:16:10) – How do you feel about that? 

Liz Wilke (00:16:10) – Yeah, I mean I  agree, is my reaction. I think it’s good for us and our own outlook right to be able to hold these two things, Each in one hand, right, it’s right. It’s it’s okay to understand the vibes but it might help our own vibey-ness or our own assessment and how good we personally feel if we also know that vibes are vibes and that the economic data is actually pretty good, right? taking a look at your Saturday market or the businesses in your area and how they are doing 

Caleb Newquist (00:16:46) – One other thing that I’ll just bring to mind and just as an example If I’m not mistaken, we just the Memorial Day holiday weekend was just a few weeks ago. And if I’m not mistaken, it was the busiest travel holiday weekend for that for that weekend for the Memorial Holiday weekend Memorial Day holiday weekend. It was the busiest on record if I’m not mistaken and that suggests to me that people are feeling good enough to travel and that’s a sign that things are okay and yet if you might you and you use this you’ve you’ve kind of given examples like this in the past but like you go to the beach and people are having a nice time at the beach And if you ask him a question about the economy, it’s like yeah. Yeah, it’s just terrible, you know. Meanwhile, people are having a very nice time at a beach Far from where they live 

Liz Wilke (00:17:45) – Yeah, yeah, I mean again I said I I think that that fundamentally this question about the difference between these vibes cannot be explained by any economic theory that we have. Maybe we do need a sociologist on the podcast but I think we are in the realm of people’s feelings and anybody who knows and loves an economist knows that feelings are not their professional strength and we are We are out of our depth here perhaps to explain the sentiment of consumers right in the absence of some good correlational data 

Caleb Newquist (00:18:21) – That’s a great place to end this episode. We hope you learned something new and useful for yourself for your business. Please let us know what you think of the podcast by leaving a review or share it with a friend or colleague who might Enjoy it. I’m Caleb Newquist 

Liz Wilke (00:18:33) – I’m Liz Wilke. Thanks for listening

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