Pessimism about the economy is about both partisanship and prices

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In many ways, the US economy is doing well. Unemployment is near the lowest levels and employment near the highest levels. Competition for workers has helped drive up wages. Drop a 2009 or mid-2020 American into the 2022 job market and they’d probably be thrilled.

But those higher wages are less helpful when gasoline prices are at an all-time high. Earning more each week is mitigated by paying more for food and other commodities, especially things that are downstream of fuel costs.

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It’s no wonder, then, that a YouGov poll for The Economist last month found that 58% of Americans think the economy is getting worse. This pessimism matches (and, in recent weeks, has surpassed) the pessimism at the start of the coronavirus pandemic. Prior to that, the highest measured pessimism had emerged early in Barack Obama’s presidency, as the country recovered from the Great Recession.

You can see the change below. The effect of the pandemic on Donald Trump’s three-quarters term in office is evident; confidence in the economy has collapsed. He recovered a bit before coming back down. Then, shortly after President Biden took office — and as the pandemic appeared to be receding for good — optimism returned. Until it doesn’t.

An inextricable part of this is partisanship. If we separate the parties in the YouGov poll, you can see how much opinions on the economy depend on party. During Obama’s presidency, Democrats were quite confident in the economy while Republicans were extremely pessimistic. Then Trump took office and positions quickly changed.

The pandemic made everyone more pessimistic, but Republican confidence quickly recovered…until Trump lost re-election. Republican pessimism quickly returned.

Part of the challenge for Biden is that Republicans are less likely to offer a grudging assessment that things are “about the same” — essentially a win for a Democratic president. But also part of it is that Democrats themselves are less likely to be uniformly positive about how things are going. There was no YouGov poll taken during Obama’s second term in which Democrats were more pessimistic than optimistic about the economy. There have been 13 such polls for Biden this year.

Despite the media’s focus on various economic indicators, these partisan views are often disconnected from actual economic data. For example, there is no strong correlation between the change in stock prices in a month and the number of Americans saying they are positive about the direction of the economy. On the charts below, showing the sharp views of the economy (those who think things are improving less those who think things are getting worse) fell early in the pandemic along with stock prices. Otherwise, the movement is not clearly related (visually or mathematically).

One of the challenges here is that the pandemic has been such a shock to the system that it tends to break the scale of things like job change. But note the subtle drop in jobs on the far left of the “jobs trend” chart below and how that correlates to pessimism about the economy. Except for the pandemic period, there is no other obvious connection.

If we look only at the time Biden was president, the correlation between stock prices and positivity about the economy is slightly stronger. The correlation between job growth and views on the economy ranges from non-existent to slight.

Then we come to inflation, measured with the consumer price index. The CPI has risen every month since the pandemic hit, with increases during Biden’s tenure being significantly larger. And increases in the CPI have been more correlated than any other factor to the overall view of the economy since the start of 2021, albeit in reverse. (In other words, inflation increases, optimism decreases.)

Biden supporters will likely point out that the focus on inflation is helping push views on the economy south. It’s hard to disentangle real increases in inflation from inflation hedging, for obvious reasons, which makes this theory both appealing and hard to refute. I will note, however, that while Fox News has reported more on inflation than CNN or MSNBC, monthly cable inflation mentions are no more strongly correlated with views on the economy than actual inflation numbers. (For what it’s worth, which admittedly isn’t much.)

Unfortunately for the president, inflation has a tangibility that employment does not. If you have a job, you are probably less aware of fluctuations in the job market. But almost everyone notices that food and gas are more expensive, even Democrats.

Partisanship is part of what drives pessimism. As you’d expect, prices are clearly part of that too.

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