Has the American labor market ever been better? Not in my lifetime, and probably not in yours, either. The jobless rate is just 3.8 percent. Employers added a blockbuster 336,000 jobs in September. Wage growth exceeded inflation too. But people are weary and angry. A majority of adults believe we’re tipping into a recession, if we are not in one already. Consumer confidence sagged in September, and the public’s expectations about where things are heading drooped as well.
The gap between how the economy is and how people feel things are going is enormous, and arguably has never been bigger. A few well-analyzed factors seem to be at play, the dire-toned media environment and political polarization among them. To that list, I want to add one more: something I think of as the “Economic Annoyance Index.” Sometimes, people’s personal financial situations are just stressful—burdensome to manage and frustrating to think about—beyond what is happening in dollars-and-cents terms. And although economic growth is strong and unemployment is low, the Economic Annoyance Index is riding high.
There’s plenty to be annoyed about. Voters are just not excited about the Joe Biden versus Donald Trump rematch. Trump’s favorability among Republicans has fallen. Half of Democrats want someone other than Biden to be the nominee. And voters really hate the guy running on the other side of the aisle. Polarization is fueling a huge gap in partisan economic expectations: Republicans don’t think the economy is good when Democrats are in charge, just as Democrats refuse to believe the economy is good when Republicans are in the White House. The effect has grown big enough over time to lower Americans’ aggregate views of the economy.
The media environment is not helping matters either. We’ve now had several years of headlines warning about an impending recession that has not yet materialized, or anything close to it. Consider how The New York Times covered the great job news earlier this month. When I looked at the top of the homepage one recent Friday, I saw three headlines about the employment numbers: “U.S. Job Growth Surges Past Expectations in Troubling News for the Fed”; “The Jobs Report May Hamper the Federal Reserve’s Efforts to Cool the Economy and Wrangle Inflation”; and “Interest Rates Are Jumping on Wall Street. What Will They Do to Housing and the Economy?” Meanwhile, in The Wall Street Journal: “The Markets Are Jittery. Here’s Why the Strong Jobs Report May Not Help.” Each of these stories was a good story with a lot of nuance. But the overall message was This is bad!, not Wow, what a labor market!
The relentless focus on bad news helps explain the enormous differences between how people say they are doing and how they say the world is doing, as my colleague Derek Thompson has noted. Most Americans think their personal-financial situation is pretty good—that makes sense, given the unemployment rate and income figures we’ve seen over the past few years. But most think the country is doing horribly, because of all the worries about the Fed, interest rates, and inflation, putting us in a “vibecession,” as the writer Kyla Scanlon has memorably described it.
Those surveys asking people about their personal situation may also be missing the tenor of their response: Something is driving a wedge between economic sentiment and the headline economic reality, and people might be admitting that they’re doing okay only through gritted teeth. Almost everyone who wants a job has one—that’s great. Wages are rising across the board—also good. But a lot of economic factors that are frustrating and vexing to deal with are tempering people’s feelings about the economy as a whole.
First and foremost: inflation. Yes, price growth has moderated. Yes, people’s incomes are rising faster than prices are rising, leaving most consumers better off overall. But people hate inflation. They hate doing the mental math and realizing how expensive everything is every single time they go to the grocery store, pick up takeout for dinner, and stock up on shampoo and painkillers at the pharmacy. Inflation does not just erode people’s earning power. It ticks people off. (Student loans have a similar effect. Most people who take out student loans come out ahead. But folks hate feeling like they have a second mortgage to pay down month after month.)
Second, and relatedly: interest rates. Borrowing money is very, very expensive right now. As a result, credit-card defaults are way up, and many people are putting off buying big things on credit. The average monthly payment on a new car is more than $700, well beyond what many families can afford. The housing market is a nightmare too—something that is not easy to see in headline economic statistics. Rental prices are sky-high in many metro areas. And the real-estate market is frozen solid because of those high interest rates. Nobody can sell, because who wants to give up a low mortgage rate? And nobody can afford to buy. The situation is going to be miserable for years to come too: If interest rates go down, buyers will flood into the market, pushing prices up even higher. Lots of people are trapped in places they don’t want to be living, with no end in sight.
Finally, nostalgia, true or false, is driving up the Annoyance Index. Even if things are pretty good at the moment, many Americans remember them feeling better in the recent past. Families had way more cash on hand during the pandemic. Interest rates were much lower. Wage growth was faster a year ago. Prices were lower—a lot lower—before the pandemic. And many employees have been forced back to the office, when they were happy working at home.
Things are great, but folks are mad. All we need is for prices to come down, interest rates to stabilize, housing markets to normalize, polarization to decrease, and the news media’s incentives to change. Until then, the Economic Annoyance Index will just keep getting higher.
