Will Historic Job Growth Bring an End to the “Vibecession”?

For months now, one of the key questions—perhaps the key question—in American politics has been when, and if, good economic news will feed into the polling data on the Presidential race. Growth in employment and G.D.P. has been much stronger than expected, and the inflation rate has come down faster than predicted. Yet President Biden’s approval rating on handling the economy has barely budged. (As of Monday, according to a Real Clear Politics poll average, it stood at a lowly 39.6 per cent.) Last Friday’s job figures for March heightened the conundrum. The Labor Department announced that the economy created another 303,000 jobs last month, greatly exceeding Wall Street predictions; the unemployment rate ticked down from 3.9 per cent to 3.8 per cent, marking its twenty-sixth straight month below four per cent, a fifty-year record. Thomas Simons, an analyst at the investment bank Jefferies, commented, “The data leaves us borderline speechless.”

During the past year, the economy has added 2.9 million jobs, and since Biden came to office it has added 15.2 million jobs. All told, there are now about 5.8 million more Americans at work than there were immediately before the COVID-19 pandemic started. And for those who are still concerned about the inflation rate, which has fallen from a high of 9.1 per cent in June, 2022, to 3.2 per cent, the new jobs report contained some reassuring news on that front, too. In the twelve months before the report was issued, hourly wages rose by 4.1 per cent–—the lowest figure since June, 2021, and another indication that inflation is contained. Strong economic growth combined with low unemployment and low inflation is pretty much an ideal outcome for any policymaker.

There are at least three explanations for why Biden’s ratings haven’t benefitted from these developments: the consumer-prices theory, the lags theory, and the vibes theory. The prices theory emphasizes that price levels—and the over-all cost of living—remain high, despite much lower rates of inflation. The lags theory says that people’s perceptions about politicians and economic policymaking can take quite a while to catch up with a changing environment. The vibes theory says that, for whatever reason, many Americans’ subjective feelings about the economy have lost touch with reality. To use the term coined by the economic commentator Kyla Scanlon, many of them are still stuck in a “Vibecession.”

Evidence can be cited to support each of these theories. Although the price of food hasn’t climbed much in the past year, many groceries and other items, such as secondhand vehicles, are still a lot more expensive than they were when Biden was elected, in 2020. Wages have increased faster than prices in the past year, but they haven’t risen by enough to offset previous price hikes. That supports the prices theory. Supporting the lags theory are recent indications that broad economic sentiment has improved, even though this hasn’t yet made itself visible in political polls. Last month, the University of Michigan’s index of consumer sentiment was 28.1 per cent higher than it was a year ago. The same organization’s index of consumer expectations, which reflects survey respondents’ feelings about the future, has gone up even more. It seems reasonable to expect that improving consumer sentiment should eventually have an impact on people’s assessments of economic policymaking, including the President’s stewardship.

Complicating this picture, however, is some startling data from a Wall Street Journal poll of seven battleground states, released last week, that supports the vibes theory. Nearly two-thirds of respondents rated the strength of the U.S. economy as “Poor” or “Not so good,” and fifty-six per cent said the economy has “gotten worse” in the past couple of years. Neither of these findings jibes with recent economic statistics, but if you think that many people make their economic judgments based purely on the size of their grocery bills or the level of their rent, it’s perhaps possible to rationalize them. How, though, to make sense of the finding that, in all seven states, a majority of respondents said that inflation has gone in the wrong direction during the past year? According to the Consumer Price Index, inflation is currently running at 3.2 per cent, nearly two per cent below its level twelve months ago.

Or what about forty-seven per cent of respondents to the poll who said their investments or retirement savings had gone in the wrong direction during the past year? In the twelve months leading up to Monday, March 25th, the day after the field work for the Journal poll was completed, the benchmark S&P 500 stock index rose by more than thirty per cent. Maybe the respondents didn’t have money in the stock market. But interest rates on savings accounts have also gone up a lot over the past year, and the price of real estate, another key investment asset, has risen too. “When it comes to the economy, the vibes are at war with the facts, and the vibes are winning,” Greg Ip, a Journal columnist, wrote in a piece about the gaping gap between perceptions and reality that the poll revealed.

In explaining this disjuncture, hyper-partisanship and filter bubbles surely play some role. It’s safe to assume that voters who rely on conservative media outlets or conservative social-media influencers for their news aren’t being regaled with stories about the strength of the post-pandemic economic recovery. But, if the polls are accurate, negative feelings about the economy aren’t confined to Republicans. In the latest Economist/YouGov survey, which came out last week, fifty-nine per cent of self-identified independents said the economy is getting worse. Based on the recent trend in jobs, G.D.P., inflation, and wages, that simply isn’t true.

More evidence that something has gone amiss in economic perceptions: whereas most of the respondents in the Journal poll said the national economy was in poor or not-so-good shape, a majority of them said that conditions in their home state were excellent or good. In Georgia, for example, just thirty-two per cent said the national economy was good or excellent. Fifty-nine per cent said conditions in the Peach State fit that description. The pattern was the same in Arizona, Michigan, Nevada, North Carolina, Pennsylvania, and Wisconsin. These poll findings weren’t a one-off. A long-running Federal Reserve survey of over-all financial well-being has found that, during the pandemic and its aftermath, people’s views of the national economy deteriorated much more sharply than their views of their own well-being and that of their local economies.

It’s hard to look at surveys like these without thinking about how economic narratives get shaped. In January, Ben Harris and Aaron Sojourner, two economists associated with the Brookings Institution, in Washington, D.C., published a study examining data from the “Index of Economic News Sentiment,” which was constructed by the San Francisco Federal Reserve and is based on an analysis of news articles from two dozen U.S. newspapers. The Brookings study concluded that, beginning in 2018, economic coverage has become more negative, “with the negative bias growing over the past three years.” When I spoke with Sojourner on Monday, he said the study provided “direct evidence that reporters and editors are making different calls than they were before 2018. The news sentiment is not just randomly different. It is systematically more negative.”

That’s certainly an interesting finding, but there is another twist to the story. In a recent blog post, Harris and Sojourner updated their analysis to the end of 2023, when the economy was growing more strongly than expected. They wrote, “We have seen a slight reversal over the past two quarters whereby the national economic news was actually slightly more positive than would be predicted” by their model. In other words, the sentiment of news coverage did reflect the positive developments in the economy at the end of last year, which may help to explain why consumer sentiment has picked up in recent months.

But it doesn’t explain why Biden’s economic poll ratings have barely shifted. Lags may still be an issue. Research by two Stanford economists, Neale Mahoney and Ryan Cummings, has shown that the impact of inflation on consumer sentiment is persistent, with the negative effect of prior increases in the inflation rate decaying at a rate of about fifty per cent a year. Perhaps, the lags between changes in the inflation rate and Presidential economic-approval ratings are even longer. (Recently, there has been some change in head-to-head polls. Various surveys have shown Biden narrowly leading Trump; in the Real Clear Politics poll average, they are now virtually tied.)

Despite the recent change in the tone of economic news coverage, the broad narrative of the past few years is arguably still awry. Sojourner, who is a labor economist, and worked at the White House Council of Economic Advisers in 2016 and 2017, certainly thinks so. He pointed to recent trends in job security, which depends, at least in part, on the threat of getting laid off. Up until the pandemic, he told me, the lowest monthly rate of layoffs and firings was 1.1 per cent, but since January, 2021, when Biden became President, the layoff rate has been at or below 1.1 per cent nearly constantly. This change implies a significant improvement in job security. “If you rely on the news, you would never know that,” Sojourner said. “It’s just not the media story of the economy.” ♦