Home » Business » The Bleak Outlook for the US Economy: Reasons Behind the Pessimism and its Political Implications

The Bleak Outlook for the US Economy: Reasons Behind the Pessimism and its Political Implications

North Carolina truck driver Clayton Wiles is making about 20% more money than he did three years ago. Ohio nurse Kristine Funck got a steady raise, built retirement savings and owned her own home. Alfredo Arguello opened a restaurant outside Nashville when the new crown epidemic broke out. Now he has opened a second restaurant and employs nearly 50 employees.

But ask any of them about the state of the U.S. economy, and they all reveal the same pessimism. Arguello described the U.S. economy as “unstable.” Funck said: “Even though I feel okay now, there is always a feeling that everything could disappear in an instant.”

There’s a clear disconnect between Americans’ widespread pessimism and indicators showing the U.S. economy is actually performing strongly. Consumers are spending more enthusiastically than with restraint, a behavior that signals optimism. Inflation has eased. The unemployment rate has been below 4% for 24 consecutive months, the longest such stretch since the 1960s.

This disconnect has baffled economists, investors and business owners. But if you ask these Americans, the current economic situation is only one factor contributing to the bleak outlook. Many say Americans are pessimistic about the economy because their long-term financial security is fragile and vulnerable to a wide range of social and political threats.

A reliable step up the economic ladder, such as a college degree, no longer looks like a good investment. Overseas wars, coupled with a number of powerful hostile countries, make people feel that the world is in danger. Domestically, mediocre leaders run a government widely considered dysfunctional, giving rise to little hope that the country can rise to its challenges and solve its own problems.

There are many reasons for the bleak outlook for the United States, suggesting that even further economic improvement may not be enough to inspire citizens. In an election year, this will be one of the biggest obstacles to President Joe Biden’s re-election. In the past year, instead of falling into recession as expected, the U.S. economy has achieved a growth rate of 3.1% that far exceeds the 2022 growth rate. Despite this, Biden has hardly received praise for the good performance of the economy so far.

By some indicators, that improvement is starting to turn into a slightly more optimistic view of the economy. The University of Michigan’s consumer confidence index recently posted its largest two-month increase since 1991. However, the index is still about 20% lower than the strong economic period before the outbreak of the new crown epidemic in early 2020, and is at a level common at the end of a recession rather than during a period of solid economic growth.

Interviews with Americans across the country reveal the stress of fear of an unpredictable world in which no one in government or business is equipped to lead the country through precarious times. Some of the interviewees live affluent lives while others live hand to mouth; some have advanced degrees and some work in blue-collar jobs; some are Republicans and some are Democrats.

“You can say the unemployment rate is 3.7 percent, but with this uncertainty, who cares?” Arguello said. “Because that’s how people feel. They don’t feel hope. They don’t feel this is a country. What they feel is an adversarial, divided America.”

There is no “one-size-fits-all plan”

Theresa Foster estimates her family’s net worth has increased because the value of her family’s suburban Albany, N.Y., home has increased by about 20% since the start of the pandemic. “But every time I go to the store to buy something, I’m shocked by the price,” said Foster, who makes more than $200,000 a year combined with her husband. “I feel like we’re in a very fragile situation and there’s no theoretical basis for the approach that either political party has come up with to deal with economic problems.”

Foster, 57, earned her master’s degree on GI Bill benefits and worked part-time at a nonprofit while her husband worked full-time in human resources. To her, saying that cooling inflation would ease her financial worries is like telling a bleeding person that the blood flow has slowed.

Foster said she is frustrated that the U.S. government continues to spend money but makes mistakes one after another, such as the chaotic withdrawal of U.S. troops from Afghanistan. All this undermines confidence in leaders’ ability to deal with other complex issues.

“I feel like no matter what they talk about the economy, they don’t really know because they don’t have a coherent plan,” she said.

As the U.S. election approaches, she is disheartened by the two possible candidates, current President Joe Biden and former President Donald Trump, whom she calls “Loser No. 1 and Loser No. 2.” In the past two presidential campaigns, Foster voted libertarian in protest. She registered herself as an independent until recently when she changed her status to a Republican supporter, intending to vote against Trump in the New York state party primary in April this year.

Funck, a nurse from Milford, Ohio, said she saw the country’s decline as she cared for patients at a large medical center in Cincinnati, where many uninsured and homeless patients lived.

“Politicians seem to be doing fine while everyone else is struggling,” said Funck, 52, an independent who supported Biden in the 2020 election. She earns about $90,000 a year, has student loans forgiven after 20 years, and has no children to support. Still, she often worries that she will be overwhelmed by unexpected expenses and worries that the wars in Gaza and Ukraine will drive up the price of oil and food.

She said that after excluding the mortgage, car loan, daily necessities and utility bills, she had little income left. She prioritizes saving for retirement “because I don’t expect Social Security to be around and I have to be able to support myself.”

economic rift

While many groups in the United States have experienced income growth during the recovery from the epidemic, some cracks have also appeared in the economy.

Americans in some low-wage industries have seen the biggest pay raises in recent years, but wage growth is slowing overall, especially for these workers. Research from the Federal Reserve Bank of Dallas found that inflation hits lower-income households relatively harder, in part because they spend a large portion of their income on food, gas and rent.

While inflation has fallen sharply from its peak in 2022, wage growth only began to outpace price increases in mid-2023, meaning many Americans are still suffering from a long period of feeling like they don’t make enough.

U.S. unemployment remains near historic lows, but layoffs have hit some sectors of the economy hard, including technology and other white-collar industries such as accounting and media.

James Welch, a married father of two, was laid off from a hotel company early in the pandemic and then moved his family from Atlanta to Plano, Texas, to work as a manager at an online fitness company. Last July, he was fired again.

Welch, 49, said he has depleted nearly $450,000 of his retirement and emergency savings in recent years to pay for moving expenses, medical bills and college for his two children. His wife, an operations manager who earns about $72,000 a year, supports the family.

Welch said he believed he was a victim of his previous company’s cost-cutting efforts. Welch said that shortly after he was fired, he saw his job re-posted at a lower salary.

Emotional mismatch

In the view of many economists, the negative outlook does not reflect the current economic life of most Americans. Jason Furman, who served as White House chief economist under President Barack Obama, said there is some truth to some negative views on the economy, but not to the level of negativity seen in some survey data.

Furman said that historically, inflation and unemployment levels have been indicators of consumer sentiment, and the recent spate of price increases has made consumers uneasy. But that’s not enough to make consumers as pessimistic about the economy as they’ve expressed, he said.

Many Americans point to structural changes in the economy that make them anxious about the future. Reductions in corporate pensions shift more of the retirement funding risk from employers to employees. Many people who once thought a college degree was a stepping stone to the middle class now have doubts about its value.

Amy Bos, 44, who lives in Jackson, Mich., and is married with three children, said she wouldn’t necessarily advise her 18-year-old daughter to go to college. Bos himself went back to college in his 30s, upgrading his job from pharmacy technician to higher-paying human resources, where his pay roughly doubled to $30 an hour. However, she said she made huge sacrifices to pay off her $41,000 in student loans, which she only recently paid off.

“A lot of people go to college and then work either in a field that’s not their major, or they take on a lot of debt for a job that doesn’t pay well,” Bos said.

A survey jointly conducted by The Wall Street Journal and NORC last year found that about 78% of Americans surveyed said they were not confident that their children would be better off than themselves. This is the highest number of surveys since 1990. Another Wall Street Journal/NORC survey found that only 36% of respondents still have faith in the American Dream that anyone can get ahead through hard work, down from 53% about a decade ago. %.

In Wilmington, North Carolina, the Wiles family felt as though their family finances were slipping back despite getting a raise and developing frugal habits.

Clayton, 44, is a tow truck driver whose annual income from his job has increased by $10,000 compared with three years ago, bringing his family’s annual income to $58,000. But the Wiles can’t afford to repair their broken-down truck and plan to dip into their meager retirement savings to pay for health insurance for their two children when they lose Medicaid eligibility this year.

Haleigh, 30, is studying to be a teacher but worries they won’t be able to start saving for a house deposit even if their salary increases.

Rising borrowing costs coupled with rising home prices have made buying a home more unaffordable. The new 30-year fixed-rate mortgage, while down about a percentage point from last fall, is still closer to 7%, compared with less than 3% three years ago. Rising interest rates mean borrowers typically pay hundreds of dollars more per month for a similarly priced home.

“I think the American dream is gone,” Haleigh said. “I don’t think the American dream is possible anymore. Because you need money to make money, I think now you either start out ahead or you’re always playing catch-up.”

political tilt

One factor contributing to the bleak economic outlook is the political lens through which many Americans view the economy. Their outlook will be more optimistic when their chosen party occupies the White House.

A CNBC poll found that just weeks before the 2016 election, only 11% of Republicans thought the economy was doing “excellent” or “good.” After the election, even before Trump was sworn in as president, that share jumped to 26% and within a year to 73%. By contrast, Democrats’ views on the economy have grown more negative over the same period.

Some analysts are seeing signs that the partisan tilt around economic views is particularly pronounced now that Biden is in the White House, as Republicans are more likely than Democrats to have a negative view of the economy after their party loses ground.

“Republicans cheer louder when their party is in power, and cheer louder when their party loses,” Stanford University economics professor Neale Mahoney and doctoral student Ryan Cummings wrote in a November post on the Substack platform. When in control, they boo louder.” Mahoney served in the White House during the Biden and Obama administrations.

By statistically “adjusting the decibel level” to equalize cheers between the two parties, they found that about 30% of the gap between consumer confidence and economic data forecasts could be explained using what they said was “consumer confidence based on a person’s political party.” Asymmetric amplification” to explain.

In a supplementary study, two analysts at the Brookings Institution found that traditional news outlets such as the Atlanta Journal-Constitution, the Washington Post and the Big city newspapers such as the Wall Street Journal) report economic news that is more negative than actual economic indicators predict.

The San Francisco Fed’s daily news sentiment index has performed well for decades with measures of unemployment, GDP, inflation and stock prices, according to research by Aaron Sojourner and Ben Harris, who served as the top economist at the Treasury Department in the Biden administration. Correlation. The News Sentiment Index measures the positive or negative outlook of economic coverage in news publications. But in 2018, news sentiment became more negative than economic fundamentals, and that negative gap has widened further under the Biden administration.

The study did not include broadcast outlets that are widely considered partisan, such as Fox News or MSNBC. The study also does not prove that negative news leads to a decline in consumer confidence.

Michael Strain, director of economic policy research at the American Enterprise Institute, a right-leaning think tank, said the economic conditions people experience in their daily lives can largely explain the disconnect between Americans’ pessimism and strong economic indicators. He believes there is some mismatch between consumer confidence and economic fundamentals, but he believes that a large part of it is the corrosive impact of inflation, which has a wide range of effects and has been characterized by unusually high expectations for prices in recent years. Small increases have become commonplace.

“We should believe people when they say they feel bad about the economy,” Strain said.

“heavily clouded”

Arguello, a Nashville-area restaurateur, entered the foodservice industry in May 2020, during the early days of the COVID-19 pandemic. Arguello, 65, ended a 30-year career at General Electric, where he was most recently an executive, and decided to buy and operate a burger franchise with his son, who had just graduated from college. This taught his son how to run a business while deepening his roots in his own community after years of traveling.

Their Mooyah Burger franchise was so successful that they opened a second one. Revenue in the fourth quarter of 2023 was up 15% year over year, Arguello said.

Despite his personal success, Arguello said he believed “the light at the end of the tunnel is not there yet” for a country emerging from the trauma of the pandemic and high inflation. He said many other restaurants in the neighborhood have closed recently, and overall, he worries America is suffering because political leaders put the needs of their party ahead of the needs of the country.

Arguello, who was born in Nicaragua, said: “Politics is unstable, the world is very unstable, and the economy is full of uncertainty.” He believes that his political position is center-right. If Trump becomes the candidate for the U.S. Republican nomination, he will Will reluctantly vote for Trump.

“What people are feeling is not whether inflation is becoming moderate,” Arguello said. “But the dark clouds still haven’t dispersed.”

2024-02-07 23:50:00
#American #people #negative #countrys #strong #economy

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