One of the persistent storylines of the last six months or so is the clash between Americans feeling pessimistic about the economy, and the reality of the actual (booming) economy. But that tale may be about to enter a new chapter.
The big picture: We’re at a pivot point in this bad vibe era as the Federal Reserve moves to for-real put the brakes on the economy — which could cool off the era’s signature hot labor market. Next week the Fed will likely hike rates by a half-percentage point.
Between the lines: U.S. GDP figures out Thursday played into the bad mood, as the first quarter came in weaker than expected — with negative headline growth for the first time in since 2020.
- But under the hood the report wasn’t so bad. GDP arithmetic means that soaring imports — which reflect strong domestic demand — combined with falling exports shaved more than three points off the quarter’s growth, as Axios’ Neil Irwin reported.
State of play: Regardless of a hot labor market, day to day things are, uh, less than awesome for a lot of people — from the ongoing pandemic weirdnesses to the shock of gas prices. It’s not surprising that bad vibes are in the air.
- “Consumers are increasingly feeling the pinch from high prices, of food, energy and rents, among other things,” Rubeela Farooqi, chief U.S. Economist at High Frequency Economics told Axios in an email. “But they have managed to spend, supported by gains in incomes and savings.”
- Though, people do keep spending, as our friends at Closer wrote yesterday. It’s unclear how much longer they can keep that up.
The intrigue: The hot labor market is the clear bright spot in the economy, with very low unemployment, and record job security. There are some signs it’s cooling a bit, says Nick Bunker, economic research director at the Indeed Hiring Lab.
- “But that’s moving from a labor market that was at 105 degrees to a market that’s maybe 95 degrees. Still hot.”
Yes, but: Jobs aren’t everything. Americans have a lot of worries on their minds.
- Inflation’s been the main cause of negative feelings, according to the surveys of consumers run by the University of Michigan, the longest-running study in the country.
- “Many people tell us that inflation has cut their living standards,” said Richard Curtin, the director of the survey since 1976.
- Russia’s invasion of Ukraine is also making people anxious about the economy: 79% of respondents to a survey released earlier this week from Allianz said they worried that current world tensions will cause a recession.
- And then there’s that darn supply chain, keeping us all from buying stuff we want. Last month, consumers reported that 41% of their prospective purchases were hindered by shortage, according to a recent Morning Consult poll.
The April edition of Michigan’s consumer sentiment report comes out today. Last month, 34% of consumers said they expected their financial situation to worsen in the year ahead, the highest level since the surveys started in the 1940s.
Zoom out: Looming over every single indicator is, of course, the reality of living through a pandemic that’s changed the way we work and live; serving up a steady stream of really bad vibes. Two-thirds of adults say their life was forever changed by it, according to a recent survey from the American Psychological Association.
The bottom line: All of these worries take a toll; Americans’ mental health issues have certainly worsened over the past two years.
- “People make complex economic decisions that aren’t just responding to one fact in their economic life,” Curtin said. “These concerns invariably have a negative impact on the economy, if they occur.”