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A deep and enduring “vibecession” – Partisan differences are increasingly dominating perceptions of the economy.
By almost every metric, the US economy is doing quite well at the moment. There are many ways to evaluate economic vitality. The most obvious is the headline unemployment rate, which was used throughout the Great Recession to monitor the (slow) recovery. Today, though, unemployment is hovering near record lows at <4%.
Beyond this, there are somewhat nerdier, more technical measurements that still capture important aspects of the economy. Things like inflation, GDP growth, and the stock market. All of these indicators are somewhere between “good” and “great”. Inflation has come way down and is now around 3.7%. Core inflation, a better measurement of long-term inflation that excludes volatile commodities like gas prices, is even lower at around 2.5%, essentially hitting the Fed’s 2% target. GDP growth is surprisingly high for Q3 at 4.9%. The stock market is also doing fairly well, with the S&P500 being less than 10% off its all-time high at the end of 2021 and being well-above the pre-COVID high in Jan 2020.
Drilling even deeper, at this point you start to get the indicators people and the media can “fish” for in order to find bad news. Things like median wage growth, wealth inequality, and prime-age labor participation rate. The thinking with these metrics is that even if the more commonly cited stats are doing well, they might not paint a full picture. For instance, if the economy is growing but the rich are eating all the gains, then things like wage growth and inequality can show how most people aren’t benefitting. Likewise, if the unemployment rate has fallen because people have become discouraged and just don’t bother looking for work any more, then labor participation can show what’s really going on. The steelman of these metrics is that they can be helpful in painting a fuller picture, although in practice I’ve often only seen them used when people are willing to use motivated reasoning to paint the economy as underperforming (e.g. politicians, doomers, or the media just trying to create a story). That said, even by these metrics the US economy is doing well. Median wage growth is very high and is well-above inflation. Regular Americans are getting richer, and wealth inequality has fallen.. The prime age employment rate is also near record highs.
In spite of all of this though, many peoples’ opinions of the economy remain in the dumps. The consumer sentiment index has recovered only slightly from its record low a few months ago, but is still barely better than during the worst parts of the Great Recession. What gives? Well, there’s quite a bit of evidence that it’s just partisan emotional expression, i.e. “vibes”. There’s plenty of data showing that Americans tend to rate the national economy as being much worse than their own personal financial circumstances. Kevin Drum has some evidence that this national-personal split is mostly being driven by Republicans. 71% of Democrats and 57% of Republicans say the economy is doing well in terms of their personal situation. But in terms of the nation as whole, 58% of Democrats and just 5% (!!!) of Republicans say the economy is doing well on a national scale. So you have this goofy scenario where Republicans across the country say things are going well for them individually, but as a collective things must simply disastrous. Where is this “disaster” occurring? “Well, not here, but it’s surely happening somewhere”. The 5% mark is particularly interesting because it perfectly matches Republican’s approval rating of Biden. In other words, it seems like asking people how well the economy is doing is just a proxy for “what do you think of the current sitting president”. I’d doubt the numbers would correlate this perfectly all the time, but there’d still be a significant relationship. Whichever party doesn’t control the White House will see the economy in much more pessimistic terms.
Currently this is just applied to Republicans being pessimistic, but it’s almost certainly symmetrical. When Republicans eventually take back control of the presidency, it’s not hard to predict that Democrats will suddenly think the sky is falling in economic terms.
The reason the feel of this economy is off is because people can still remember how things were going Pre-Covid, and they have a keen recollection of how much was 'lost' during the Covid period, and one can easily argue that we have not yet 're-established' the baseline from before, and with the current interest rates, we might not be able to anytime soon.
What is absolutely fair to say is that we avoided a serious recession resulting from Covid and the attendant restrictions.
But if you're an average American, you've likely depleted most of your personal savings., you've got a high car payment ("affordable" used cars aren't a thing anymore), and may be in default on the loan, your rent has increased around 30% since 2019.
Of course with savings depleted, more people will start financing purchases/using credit cards. In a rising-interest-rate environment.
Oh, and Student Loan payments just resumed after a LONG hiatus.. It's hard to feel good about higher wages if you can directly observe that most of the extra money is going to service debt and you can't actually put much of it away for later. It feels even worse if your overall debt continues to rise so you're treading water rather than making actual headway towards reducing your indebtedness.
So if you were motivated to convince people they were doing well, economically speaking, you could isolate the variable declaring that wages are up so you can say "stop complaining things have reverted to the pre-covid norm!"
But if you were to ask a simple-ish question: "Are you materially better or worse off today than you were in 2019?" I would hazard a guess that most people are 'struggling' to maintain their standard of living more than before, and this feeling comes through.
Now, my own personal concern is that we've already used up a bunch of economic 'slack' during Covid times, Putin started further troubles, and oh golly gee the Middle East is now acting up again. So at some point we have to start rebuilding our reserves for some possible future shock, and few seem interested in doing that. Nowhere is this more apparent than the Strategic Petroleum Reserve, which was depleted to historic lows and, as of yet, has not begun to be refilled.
It is nowhere near empty, mind, I just find this illustrative of the situation. We burned a lot of spare capacity and we still seem to be teetering on a precipice, what else can we deploy if we actually tip over the edge?
Not sure what you mean by affordable, but they very much are. Just go on the internet and you can find used cars in working order which do good MPG for pretty damn cheap. Sure, most of them might be on the older side and a bit scratched, but that's hardly that important.
About 8 years ago I bought a '98 Honda Accord with 65k miles on it for a hair over $4k.
1.5 years ago I purchased a 2012 Honda Civic with 80k miles on it for a hair over $15k.
It is almost literally impossible these days to find a vehicle with <100k miles for <$10k.
If you find an 'affordable' car (read: could be purchased by a college student working part time) then it is going to be in rough shape, probably been in an accident, with >100k miles, which is to say it's going to come with a hefty maintenance/repair bill built in.
Car repairs are more expensive now, too.
https://www.cnbc.com/2023/07/25/car-repair-costs-are-up-almost-20percent-over-the-past-year-heres-why.html
I would hardly deny that buying cars is more expensive now that several years ago, but the increase has been nothing like on the scale you're implying. Again, numbers are your friend. Since Biden took office average used car prices have gone up somewhere around 25%. That's bad, not even close to the over 2x increase you are suggesting.
And if you to any online second hand car website you can find stacks upon stacks of car with under 100k miles for well under 10k.
Edit: wrong link, correct one here https://fred.stlouisfed.org/series/CUSR0000SETA02
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