Here's the real reason why Americans feel lousy about the economy despite a strong job market
President Joe Biden touted the strong labor market this week as part of his"Bidenomics" campaign, but it may be a moot point to Americans.
While the jobless rate is at the lowest in more than 50 years, consumer sentiment readings are near levels associated with recession. As it turns out, the unemployment level now has far less influence over how people feel about the economy compared to years past, and consumers are instead focused on wages and inflation, a newHistorically, slowdowns in output and higher jobless rates weighed on consumer sentiment. But the last three years broke that pattern, with some commentators trying to explain it by pointing, for example, to how different political affiliations affect views on the economy.
Instead, Grant found that the job market's recovery in 2021 and 2022 was largely ignored by Americans, as they despaired over inflation. Unemployment has become"decoupled" from perceptions about the economy, and real wages have grown similarly disconnected from the strength of the labor market, he said.
"As low unemployment has ceased to translate into real wage gains, economic pessimism has grown," Grant said. He noted that in 2021 and 2022, unemployment and GDP growth normalized but real wages fell substantially, dragging down economic perceptions.To be sure, Americans have always felt badly about rising inflation. But in previous times, strength in the labor market has been able to offset that.
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