By many accounts, the U.S. economy is firing on all cylinders—or at least a lot of cylinders. Inflation has come down markedly since last summer, real GDP has grown nearly 17% since the pandemic-induced 2020 recession, and employers added a record 4.5 million jobs in 2022, a hiring trend that has continued into the new year after last week’s explosive January jobs report brought the unemployment rate down to 3.4%, a 53-year low.
But all the good economic news in the world may not be enough to reverse Americans’ stubborn pessimism towards the economy, the stock market, and everything in between.
The majority of Americans are predicting inflation and interest rates will rise over the next six months, and they’re similarly pessimistic on the prospects of economic growth and stock market performance over the same period, according to a new poll released by Gallup Monday.
Last month’s CPI report extended the annual inflation rate’s decline streak to six consecutive months, and year-over-year inflation now hovers at 6.5%. But 67% of U.S. adults are forecasting inflation to rise again in the first half of the year, including 39% who say it will “go up a lot,” according to the Gallup poll, which collected results between Jan. 2 and Jan. 22. Nearly three-quarters of Americans expect interest rates to continue rising over the next six months and drag down economic growth, and 43% say it will slow this year. As for unemployment, 41% of Americans say it will start trending upward in the next few months.
In light of the positive economic news of the past few months, several once-pessimistic economists including former Treasury Secretary Larry Summers have brightened up on the economy’s prospects. And while recent forecasts have emphasized the current economic landscape’s strangeness and uncertainty, the latest Gallup results underscore the resilience of American gloominess, as well as the widening gulf between the reality of recent economic indicators and public perception.
The good news
Highlighting the growing disconnect in economic views is the question of whether the U.S. economy is currently in a recession. Almost half of Americans say it is, according to a January survey by Morning Consult, but most indicators right now are pointing to an economy that looks anything but recession-like.
Low unemployment and a strong labor market are not signs of an economy typically contracting, Treasury Secretary Janet Yellen said in a Monday interview with ABC’s Good Morning America.
“You don’t have a recession when you have 500,000 jobs and the lowest unemployment rate in more than 50 years,” she said, adding that the economy right now is looking “strong and resilient.”
Slower wage growth and weakening consumer spending in the last few months of last year also support the argument that inflation is on its way down, although these same factors have also dealt a blow to American workers, and may have lended to negative views on the economy. Inflation has been especially hard for the U.S. middle class, which has had to dip into savings just to get by.
Wages grew by 1% in the last quarter of 2022, and rose 5.1% over the entire year, but because of high inflation, real wages still declined 1.2% last year.
Prevailing pessimism
But if the recent economic news has all pointed in a positive direction, why are most Americans still so pessimistic?
An important factor may be a tendency to associate the stock market’s performance with that of the economy, according to the Gallup poll. Unlike recent positive news surrounding inflation and employment, markets have been in a rut for the past year, and forecasts aren’t betting on a recovery until the end of 2023 at least.
Only 31% of Americans polled by Gallup expect the stock market to improve in the first half of 2023, while a record-high 48% forecast it to fall even further as interest rates continue to rise.
Partisanship also played a role in Americans’ gloominess, with Republicans’ expectations that inflation will rise 23 percentage points higher than Democrats. Republicans were also more likely to hold pessimistic views towards the stock market’s performance, economic growth, and employment.
Republicans have been more gloomy about the economy since last year. While more than half of Americans described their personal financial situation as good in a December survey by AP-NORC, 59% of Democrats described the economy overall as “poor,” compared to 90% of Republicans.
President Biden has been routinely criticized by Republican lawmakers over the past year for his administration’s handling of inflation and public spending plans, including last year’s Inflation Reduction Act. But Biden is expected to double down on recent economic good news during Tuesday’s State of the Union address and for his likely 2024 reelection campaign.
