Americans are refusing to accept the idea that growth will be sustained
It’s difficult, looking at the main economic indicators, to say that the US economy is doing poorly. Yet it seems to be a near impossible task to convince Americans that their economy is performing well.
The United States can boast the strongest post-pandemic bounceback in the G7 and the country continues to boom. Economic growth was just shy of 5pc (at an annualised rate) in the third quarter of last year, and estimates for the fourth quarter are still above 3pc.
It’s the kind of growth politicians in Europe can only dream about. As the UK remains on tenterhooks to discover whether it has tipped onto the wrong side of a technical recession, it’s not hard to imagine Rishi Sunak or Keir Starmer making a deal with the devil to get a piece of this action.
Moreover, anyone who wants to be working in America right now appears to be able to do so. According to the latest statistics, in January employers added an extra 350,000 employees to their payrolls: the strongest figure for a year, far exceeding expectations.
Unemployment remains very low – at 3.7pc – while wages continue to outpace inflation. Like the Bank of England, the Federal Reserve is watching these figures closely, nervous that a booming labour market could stoke price rises.
But unlike in the UK, the reception to higher wages is more positive. The chair of the Federal Reserve, Jerome Powell, described the latest labour market report as a “good situation” – quite the contrast to the Bank of England’s governor Andrew Bailey, who continues to insist (wrongly) that higher wages are disproportionately responsible for the UK’s inflation miseries.
Inflation in the US, meanwhile, sits at 3.4pc. This isn’t yet back to the Fed’s target of 2pc, but the rate has slowed much faster in the US than in the UK, and is still below the UK’s 4pc (a figure that many fear has risen due to trade disruption in the Red Sea – the details of which we’ll learn more about next week).
Americans have had to deal with the perils of price rises, yes, but it’s still been a more manageable process than the sagas that have played out in other rich nations.
All of this should be spectacular news for Joe Biden, who is set to ask Americans to give him a second term with a vibrant economy as his backdrop. Yet a glance at the polls would tell you that voters are not anywhere near as confident about the future of the economy as the current figures suggest they should be.
Opinions about the economy are improving – but very slowly. The Gallup Economic Confidence Index (which looks at what Americans think about the economy and also its trajectory) has seen signs of increasing approval – reaching, at the end of last month, its highest point in two years.
But break the numbers down and there is much less to celebrate: the index (which can range from +100 to -100 depending on how respondents answer) currently sits at -26. The small recent uptick was largely driven by the views of just over a quarter of respondents in January describing the economy in positive terms (5pc as “excellent” and 22pc as “good”). A massive 63pc of respondents said the economy was getting “worse” last month, down from 68pc in December.
If you’re the president, these figures are not encouraging – not least because it’s near impossible to imagine just how much better the headline economic indicators could get ahead of November’s election.
What explains the gap between such positive economic data in America and relatively negative sentiments? This has been a lingering question in US politics, with many trying to explain it away as a “vibe-cession” – the idea that people don’t feel well-off trumping any sense of the actual figures.
But feelings of being worse-off aren’t made up. Major mistakes have been made at the national level, including Biden and his team insisting that the Inflation Reduction Act has tackled the problems of inflation, while Americans are still reeling from the higher prices.
Many are misguidedly waiting for prices to drop – an ugly consequence of the administration never properly explaining to voters the long-term impact of inflation, and that inflation coming back to target still means prices are rising.
But many of the negative feelings seem to stem from worries about the future, as Americans refuse to settle into the idea that economic growth will be sustained. The Wall Street Journal’s deep dive this week into the mismatch of the numbers and sentiment revealed that, for many Americans, “long-term financial security feels fragile and vulnerable to wide-ranging social and political threats” including wars abroad and messy politics at home.
This, perhaps, explains why – despite his booming economy – Biden is even with Donald Trump in the most recent polls, and in some cases falling behind.
It is hard to separate voters’ trepidation about economic oversight in the future from their nervousness about what the next four years look like for the president.
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