If America had a national mood, it would be gloom.
Things aren’t so bad, according to the data. Yes, inflation has been a problem, but it’s coming under control and many other things are going right. The job market remains strong, unemployment is low, the economy is growing, and the ebullient Taylor Swift is Time’s Person of the Year.
Yet America seethes. The University of Michigan’s sentiment survey is at recessionary levels, nearly as bad as during the financial crash of 2008. President Biden’s approval rating is a weak 40% or so, even though Biden is right that job growth during his term has been the strongest under any president, ever. In a November Yahoo Finance-Ipsos survey, only 17% of respondents said they felt Biden’s policies have helped them, while 37% said they have hurt (and the rest said they have had no effect).
The disconnect between a relatively good economy and dismal consumer attitudes has puzzled economists, who point out that the same consumers who have a recessionary mindset continue to spend money, keeping the economy out of recession. Maybe inflation is so traumatic that the rising cost of rent, gas, or bacon simply freaks people out.
Here’s another theory: Americans are so overwhelmed with negative news that they’re more inclined than ever before to think things are terrible. In a new report for Moody’s Analytics, economist Matt Colyar finds that negative attitudes have intensified over the decades as the internet and digital communication have flooded people with news, much of it bad.
“Never before have subjective evaluations of the economy been so divorced from economic data,” Colyar wrote. “More people are encountering more news, and for a variety of psychological and commercial reasons, news tends to skew negative. The increase in the share of respondents saying they have heard news about changes in business conditions has been disproportionately distributed toward the unfavorable kind.”
Consumer psychology began to diverge from firmer economic data around 20 years, ago, as the digital revolution was transforming the economy. The Michigan sentiment survey, which dates to 1978, illustrates the growing impact of negative news. In 1980, inflation hit a post-war high of 14.6%. Around the same time, the portion of respondents in the Michigan survey saying they had heard negative news about higher prices peaked at 20%.
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In 2022, inflation hit 9%, which was the highest level since 1980. The portion of survey respondents saying they had heard negative news about higher prices hit 38%. So the 2022 inflation peak was well below the 1980 peak, but the portion of people hearing about it was nearly double. News travels fast these days, bad news even faster.