The real reason Americans hate the economy so much

Americans’ confidence in the economy has reached its lowest point in decades, even as key economic indicators such as GDP growth and employment remain strong, according to recent surveys and data releases.

Data from the University of Michigan’s consumer sentiment survey, last conducted in September, shows the lowest confidence levels since the survey’s inception in 1952. Simultaneously, polls from CNN and CNBC reveal President Donald Trump’s approval ratings on the economy have hit all-time lows, at 30-39 percent respectively. Despite these perceptions, economic fundamentals like GDP growth and employment figures remain positive, with the stock market near record highs.

The core issue appears to be inflation. Recent data indicates inflation has reached its highest level in three years, outpacing wage growth for the first time in three years, and wholesale prices are rising sharply. This persistent inflation, combined with stagnant or slow wage increases, fuels public frustration about affordability. A significant majority—76 percent—of Americans cite high prices as their biggest economic concern, according to CNN’s survey.

Economists Jared Bernstein and Daniel Posthumus suggest that this disconnect stems from a ‘vibe gap’—a mismatch between Americans’ expectations of a stable, predictable economy based on decades of experience and the current reality marked by volatile prices and inflation. This perception has been exacerbated by the pandemic and recent geopolitical events like the Iran war, which have driven energy prices higher.

Why It Matters

This disconnect matters because consumer sentiment influences economic behavior, including spending and investment. The widespread dissatisfaction could slow economic growth and complicate policy responses, even as the underlying data suggests resilience. Understanding the roots of this sentiment gap is crucial for policymakers and businesses aiming to address public concerns and stabilize confidence.

Background

Americans’ economic outlook has fluctuated over recent decades, with optimism peaking during the late 1990s and early 2000s. Confidence declined sharply during and after the Great Recession, then recovered somewhat during the Trump administration before plunging again during the COVID-19 pandemic and subsequent inflation surge. The University of Michigan’s sentiment index, which peaked at 110 during the dot-com bubble, has fallen to levels below 60 in recent months, reflecting deepening pessimism despite relatively strong economic data.

Theories explaining this shift include long-term trends like rising inequality and the failure to fully recover from the 2008 recession, but recent research points to a ‘vibe gap’—a mismatch between expectations shaped over decades and current realities—as a key factor.

“Inflation is outpacing wage growth for the first time in three years, which is fueling consumer frustration about affordability.”

— Heather Long, Chief Economist at Navy Federal Credit Union

“The ‘vibe gap’ refers to the mismatch between what Americans expect from the economy and what they are actually experiencing, which fuels their frustration.”

— Jared Bernstein and Daniel Posthumus, economists

What Remains Unclear

It remains unclear how long this negative sentiment will persist and whether it will influence future economic policy or election outcomes. The full impact of inflation expectations versus actual economic conditions is still being studied.

What’s Next

Next steps include monitoring consumer sentiment surveys and inflation data over the coming months to see if perceptions improve as inflation stabilizes. Policymakers may also consider measures to address public expectations and restore confidence.

Key Questions

Why are Americans more negative about the economy now than during previous inflation periods?

Economists attribute this to a ‘vibe gap’—a mismatch between long-term expectations of stable prices and the current reality of persistent inflation, which has been especially painful for consumers.

Is the economy actually doing poorly?

Economic indicators such as GDP growth, employment, and stock market performance remain positive, but public perception is heavily influenced by inflation and affordability concerns.

Will this negative sentiment affect the economy?

Potentially, yes. If consumer confidence continues to decline, it could reduce spending and investment, slowing economic growth even if fundamental indicators stay strong.

What can policymakers do to improve public sentiment?

Addressing inflation directly through monetary policy and managing expectations around prices could help, along with efforts to improve wage growth and affordability.