Economic Pessimism Makes Sense Right Now

Most Americans believe that the economy is getting worse, and economic confidence measures are low. At the same time, as analysts have pointed out, a lot of the economic data look pretty rosy. The unemployment rate is 4.6% and falling, and U.S. consumers have built up $2.3 trillion in extra savings over the course of the pandemic.

My Bloomberg Opinion colleague Justin Fox has helpfully explained this divergence of perspectives, but I would like to ask a slightly different question: Which view of the economy is “right” — the public’s or the data’s? On this issue, I side with the pessimistic voice of the people. Although I am optimistic about the U.S. economy in the long term, current conditions and near-term prospects are still subpar.

The best way to adjudicate competing claims about today’s economy is to consider opportunities for consumption. Over much of the last two years, labor supply contracted significantly, in large part due to the pandemic. That means the economy produced less. If you produce less, sooner or later you have to consume less, too. And if you consume less, you will be dissatisfied with economic conditions, especially in America, where the consumer typically is considered to be king (or queen).

There isn’t any way around this basic logic, no matter what the data say. Even if measured consumption is currently high, at some point it will have to fall relative to expectations. And indeed there are a host of problems, with shortages, supply-chain delays and a sluggish service sector. In a normal year, more Americans would have seen “Dune” on the big screen and gone to concerts. Americans are not quite able to get what they want, and that is obscured in the aggregate statistics.