The U.S. economy has just gone through an extraordinarily successful year. Many economists (although not all of us) predicted that getting inflation under control would require a recession and an extended period of high unemployment. Instead, inflation has plunged — over the past six months the Federal Reserve’s preferred measure of underlying inflation has been running slightly below the target rate of 2 percent — even as the economy has boomed, with real G.D.P. rising 3.1 percent and employment rising by 2.9 million.
In case you’re wondering, Tuesday’s somewhat hot inflation report doesn’t change the story much. You never want to read too much into one month’s data, especially for January, which is often erratic. As Goldman Sachs noted in advance in a newsletter, the bank expects “a temporary boost to core C.P.I. from start-of-year price increases, which we expect to be most pronounced in the prescription drugs, car insurance, tobacco, and medical services categories.”
Fundamentally, the economic picture remains very good.
Yet I keep hearing political analysts and commentators saying that President Biden shouldn’t boast about the good economy, because Americans aren’t feeling it, and talking up the good news makes Democrats seem out of touch.
This is very strange advice.
For one thing, when has being humble about the economy ever worked as a political strategy? Donald Trump boasted about job creation in May 2020, when the unemployment rate was 13.3 percent, because it was down from 14.7 percent the previous month. Did this hurt him? Are pundits suggesting that Biden emulate Jimmy Carter by talking about national malaise?
More to the point, the factual premise of this commentary is wrong. All the major surveys of consumer sentiment say that Americans are, in fact, aware that the economy is improving. The venerable Michigan survey says that consumer sentiment has rocketed up over the past few months. Another long-running survey, from the Conference Board, says that consumers’ evaluation of the “present situation” is back roughly to where it was at the beginning of 2018. And a new entrant, Civiqs, also shows a substantial improvement since 2022, which has accelerated in recent months.
Why is consumer sentiment surging? It might be the rising stock market. It might also reflect the fact that news reporting on the economy, as tracked by the San Francisco Fed, has become much more positive in recent months:
It’s true that these surveys still show consumer sentiment significantly worse than you might have expected given low unemployment, falling inflation and rising real wages. But a lot of this reflects the growing role of partisanship in economic sentiment. Americans have become increasingly likely to judge the economy based on whether the political party they prefer is holding the White House.
And while this effect applies to both sides of the political divide, it’s much stronger for Republicans. According to the Civiqs data, Republican views of the economy switched from strongly negative to overwhelmingly positive after Donald Trump took office, then became almost unanimously negative when Biden came in, and have stayed there despite the good news over the past year:
According to Michigan data, Republicans rate the current economy as being worse than the economy of June 2009, when unemployment was 9.5 percent, or June 1980, when inflation was more than 14 percent:
Democrats’ perceptions behave very differently. It’s not just that they view the Biden economy much more favorably than Republicans do; their evaluation is responsive to conditions in a way that Republicans’ is not. One simple measure of the state of the economy is the “misery index,” the sum of unemployment and inflation; this index got worse during Biden’s first 18 months as inflation shot up, then improved greatly:
Sure enough, Democrats’ views fell as the misery index rose, then rose as the index fell:
What about independents? Basically, there’s no such thing. Political scientists have long known that most voters who claim to be independent actually behave like Republicans or Democrats.
What this says to me about the politics is that while average assessments of the U.S. economy are still somewhat depressed, that largely reflects the unmovable hostility of people who will never, ever vote Democratic no matter what. Potentially persuadable voters are, in fact, aware that the economy is doing well.
So where does the view that Democrats shouldn’t talk up their economic success come from? My guess is that at least some pundits decided a year or more ago that voters just weren’t feeling the good news and are clinging to that view even though the evidence has changed. That is, at this point they aren’t even saying that we should ignore the economic data and focus on the vibes; now that the vibes have changed, they’re saying that we should focus not on consumer surveys but on their own vibes about the vibes.
One special issue: I keep hearing that Americans don’t care about the inflation rate, only about the level of prices. That may sound plausible, but the fact is that persuadable voters started feeling much better about the economy once inflation came down, even though prices are still rising.
One thing that is true is that so far voters don’t seem to be giving Biden credit for the good economy. This may or may not just be a matter of time. But if you’re presiding over a good economy, and persuadable voters seem to be aware that it’s a good economy, why on earth wouldn’t you try to claim credit?
And for what it’s worth, I’d argue that Biden does deserve at least partial credit for an economy that is doing better than that of any other major advanced nation. At the very least, U.S. performance refutes the harsh criticisms of Biden policy made not just by Republicans but by some Democrats.
So yes, Biden should talk up his economic record. It’s bizarre to argue otherwise.
Quick Hits
One unheralded U.S. advantage: We have better data.
Economists worry that the Fed may be too tight.
Households are feeling much better about their financial prospects.