People pump gas into their vehicles at a Shell petrol station on October 2, 2023 in Alhambra, California.
Frederic J. Brown | Afp | Getty Images
The U.S. economy has added more than 2.3 million jobs this year, and the unemployment rate is below 4%. There are nearly 10 million open positions available. However, despite these positive indicators, many people still hold a negative perception of the economy.
So why is there still a prevailing belief that things are terrible? It all comes down to inflation. Although the rate of inflation has decreased, it is still considerably high, and this constant increase in prices affects people’s overall perception of the economic situation. Elizabeth Crofoot, a senior economist, highlights that economic statistics often fail to capture people’s day-to-day experiences.
Recently, the Labor Department reported a significant rise in nonfarm payrolls, along with various revisions that indicated substantial job growth. Yet, President Joe Biden’s economic approval rating remains relatively low. Consumer and business sentiment has improved slightly but is still below pre-pandemic levels.
One of the main reasons behind this negative sentiment is the ongoing high prices. Economist Elizabeth Crofoot notes that it can be challenging to discern the impact of high prices from macroeconomic data. As a consumer, she experiences the frustration of rising prices firsthand, with increased costs for items like children’s meals but fewer accompanying benefits.
Shrinkflation, where the size of products decreases while prices remain the same or increase, exacerbates this feeling of being taken advantage of as a consumer. The Labor Department’s data shows that around 10% of consumer items have experienced shrinkflation from 2015-2021, while only 4% have been upsized.
Given these factors, consumers feel like they are constantly losing in this economic environment, which contributes to their negative perception of the economy as a whole.
Higher housing
The rising cost of living extends beyond gas and groceries.
The aftermath of Covid-19 saw a surge in home prices, leading to a migration of people away from urban centers. The median home sales price has increased by 27% since the end of 2019, making homeownership particularly challenging for younger buyers such as millennials.
Moreover, the median age of a homebuyer is at its highest ever, while the percentage of income spent on home prices is also at a historic high. These factors create significant barriers for young adults seeking to enter the housing market.
Another concern affecting people’s perception of the economy is the quality of the jobs being created. A significant portion of the job growth in September came from lower-wage occupations in the leisure and hospitality industry. This lack of real career advancement opportunities leads to growing worry among teens and young adults about their economic future.
Additionally, inflation continues to be a major source of concern for young adults, affecting their mental well-being. Despite positive macroeconomic data, high prices serve as a counteracting force.
Although the consumer price index currently shows an annual inflation rate of 3.7%, it is about 20% higher compared to pre-pandemic levels. This means that individuals are spending more and saving less, ultimately leading to delayed retirement plans.
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