News reports and politics can make a boom feel bad

By the usual measures, the U.S. economy has been booming this year. Employment has risen by more than 5 million since January; a record number of Americans say this is a good time to find a quality job, a sentiment reflected in the willingness of an unprecedented number of workers to quit (yes, high quit rates are a good sign). Yet Americans are, or say they are, pessimistic about the economic situation. For example, the widely cited Michigan index of consumer sentiment has slid to a level not seen since the depths of the pandemic slump. How can people be feeling so bad about a seemingly good economy? One answer is that Americans are upset about inflation and disrupted supply chains. And that’s surely true. But I’d suggest it’s only part of the story — that to an important extent, when you ask people about the economy, their replies don’t necessarily reflect their actual experience. Instead, they respond based on what they imagine is happening to other people. That is, I’m suggesting that public views about the economy are a bit like public views on crime, which many people said was rising even when it was steadily falling.

OK, I don’t want to go all Phil Gramm here. For those who don’t get the reference, Gramm, a former congressman, was an adviser to John McCain during the 2008 presidential campaign, and he made waves by dismissing concerns about the economy. He said we were only in a “mental recession.”

So, for the record, inflation is indeed high by recent standards, and supply chain issues are real, although often overstated. (Retailers are hiring furiously for the holidays, suggesting that they expect to have plenty to sell.)

Still, when you look into consumer surveys, you find answers to the question “How is the economy doing?” don’t necessarily track with answers to “How are you doing?”

Surveys indicate that Americans, while legitimately troubled by inflation, are feeling pretty good about their own financial situation; their downbeat assessment involves a belief that bad things are happening to other people. Where does that belief come from?

To some extent, public perceptions may have been shaped by widespread media coverage of preliminary economic reports that suggested a struggling economy. After revisions, the data look much better; most notably, soft preliminary employment numbers for August and September received many headlines, while it’s a good bet that few Americans are aware of later revisions that added more than 200,000 jobs.

Which brings me to the effects of partisanship. Republicans and Democrats share the same economy, but their responses to surveys about that economy are very different. After Donald Trump’s still-not-acknowledged electoral defeat, Republicans turned hugely more negative on the economy, while Democrats turned somewhat more positive.

So why do Americans feel bad about a seemingly booming economy? Inflation and shortages of some goods are real issues, but much of the economic discontent seems to be based on news reports and partisan leanings.

This has important implications, among other things, for the politics of economic policy. The economy is likely to get considerably better over the months ahead as the pandemic subsides. But there is no guarantee the American public will even notice these gains. If the Biden administration wants to turn perceptions around, an objectively good economy won’t be enough; the good news will have to be sold, hard.