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SPEAKER_02: We have ourselves a proper economic mystery on our hands. For like all of modern economic times, there has been this basic truth.
SPEAKER_06: When the economy is doing well, people, they can feel that. And if the economy is not doing well, well, they can feel that too. It's not rocket science, but you know, it's like gravity or whatever. It matters.
SPEAKER_02: And we know this because for 80 years now, we have been measuring consumer sentiment, quantifying people's vibes about the economy. But, and here is that mystery, it appears somehow, right now, we have lost our ability to feel the economy.
SPEAKER_06: And the economists, they are perplexed. Yeah, so no, I am scratching my head.
SPEAKER_04: Claudia Som is an economist, used to work at the Federal Reserve, was one of the advisors for pandemic emergency programs like stimulus checks.
SPEAKER_02: And for the last few years, Claudia has been carefully watching consumer sentiment.
SPEAKER_06: Sentiment plummeted when the pandemic began.
SPEAKER_04: Reasonable.
SPEAKER_02: No surprise, right? Worst recession since the Great Depression.
SPEAKER_04: But then, you know, some of these pandemic-era economic programs start to roll out.
SPEAKER_06: You got student loan pause.
SPEAKER_02: You've got the PPP loans for businesses.
SPEAKER_06: You've got the stimulus checks, the stimulus checks.
SPEAKER_02: About a year after the pandemic started, we're actually feeling pretty good again.
SPEAKER_06: And then, after April 2021, sentiment starts plummeting again.
SPEAKER_04: And that was where we started to see inflation rising. Okay. Right? So that's a, it does, you know, it can make sense. But, this is sort of the last moment that things really make sense.
SPEAKER_02: This is where the plot thickens in our economics mystery. Right. In the middle of 2021, the job market turns surprisingly good.
SPEAKER_06: This is when we saw all these stories about how people are able to quit jobs and move around to better jobs. Because the job market is that good. And then, in 2022, inflation peaks.
SPEAKER_02: It hits 9.1 percent. Like, definitely not good. But, it starts going down. And down. And down. And it seems pretty clear that we are not headed for the super bad, like double-digit inflation numbers that we saw in the late 70s and early 80s, for example. And yet, as the economic news got better and better in 2021 and 2022, consumer sentiment just kind of stays in the pits.
SPEAKER_04: And frankly, I think this year, in 2023, the disconnect has become glaring because, as inflation has come down, inflation back down, unemployment still low. And people are not having any of it. Not having any of the good news.
SPEAKER_02: I mean, look, is everything perfect? Absolutely not. But, if you look at graphs of these feelings measures versus more traditional economic measures, there is now a historic split. And Claudia, she feels a professional obligation to try and understand why.
SPEAKER_06: And so lately, she's been trying just to ask people. Yeah. But I have a very hard time having that conversation because people, rightly so, are gloomy.
SPEAKER_06: Right. What tends to happen is Claudia goes to Twitter slash X like, Hey, if you look at the numbers, there are some good things going on with the economy. And I'd really just love to understand what those numbers might be missing and why people are still feeling bad. And then people are like, shut up, you cold-hearted economist. Don't tell us how we should feel. Yeah. And if people are really gloomy and angry, going in and tell them to be happy, it doesn't really surprise me that they're going to get angry at me.
SPEAKER_04: I mean, legitimately, some things are bad. Like, I'm not going to try and tell people inflation is a happy thing or that inflation coming down should be them throwing a party. Right. But clearly, there's a disconnect between how people are doing financially and how they assess that. As an economist, I need to understand what's under the hood.
SPEAKER_04: Right. And I can't evaluate policy. I can't give policy advice if I don't understand the economic piece.
SPEAKER_02: Um, I guess we should probably try and figure out what's going on then, yes? Yes. You have an answer? It's a work in progress.
SPEAKER_02: Hello and welcome to Planet Money. I'm Kenny Malone.
SPEAKER_06: And I'm Weilin Wang. Today on the show, why are we bummed? Why do the economic vibes not match the economic moment?
SPEAKER_02: We'll go straight to the source to watch one of the most famous consumer sentiment surveys get collected, talk to the person in charge, and ride along with Claudia Saam as she tries to figure out if we've lost our ability to feel the economy or if the economists have. There are no easy answers here, only getting yelled at on the internet, which actually might be, I don't know, one of the answers.
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SPEAKER_02: So if we're going to try and unravel the mystery of why the economic realities no longer match people's feelings about the economy, it is probably useful to ask, what is this economics feelings information anyway? And Claudia Saam says there are a bunch of measures of consumer sentiment, but there is one survey that she pays really close attention to.
SPEAKER_06: The Michigan survey, so the one ran out of the University of Michigan, so consumer sentiment that goes back to right after World War II,
SPEAKER_04: gets a lot of attention. Like that's probably the go-to sentiment survey. Go-to sentiment survey? Of course we needed to go to the go-to sentiment survey.
SPEAKER_06: Hi, how are you? Good morning. We are in Ann Arbor, Michigan, the offices where Michigan's surveys of consumers are conducted.
SPEAKER_02: It's cubicles, phones, people in the cubicles, using the phones.
SPEAKER_06: Hello, my name's Betsy Kirchhen. I'm calling from the University of Michigan.
SPEAKER_03: Betsy Kirchhen is one of the interviewers. She actually calls people up to conduct this sentiment survey.
SPEAKER_02: And look, if we are here to get to the heart of why the economic vibes are off, well, you know, Betsy is sort of the first person to feel those vibes, I guess. Betsy is a retired English prep school teacher, and on the day we visit, her desk is perfectly clean, except for a solitary tin of Altoids.
SPEAKER_06: And she tells us she has developed some tricks for cold calling people in the year 2023. If they're going to hang up on me early, they're going to hang up on me.
SPEAKER_03: But if they haven't, then I want them to know that, oh, my voice is being heard, and that this really is an important part of our economic life.
SPEAKER_06: Now, we had hoped that by coming here and watching Betsy conduct a survey, we might get a better sense of what it actually means when we say people are feeling bad about the economy. Yes. We just, you know, needed someone to actually take one of Betsy's calls.
SPEAKER_02: And after quite a number of no answers, she finally gets a real-life human on the phone.
SPEAKER_03: I do hope I reached you at a good time to hear some of your opinions on how the economy is working for your household and the household's time.
SPEAKER_02: We're only allowed to record Betsy's side of this conversation. That's right. And Betsy explains to this person that the survey is going to take about 25 minutes.
SPEAKER_06: And then she asks the very first question. We are interested in how people are getting along financially these days.
SPEAKER_03: Now, would you say that you and your family living there are better off or worse off financially than you were a year ago?
SPEAKER_06: Worse off is what most people said in the recent report from October. 51 percent. Only 30 percent said they were doing better. Now, turning to business conditions in the country as a whole, do you think that during the next 12 months we'll have good times financially or bad?
SPEAKER_03: Uh, bad. According to a solid two-thirds of people in that October survey.
SPEAKER_02: Thank you. This is very useful for our research. Now, generally speaking, do you think now is a good time or a bad time to buy a house?
SPEAKER_03: Bad time! Bad time! According to nearly 80 percent of people.
SPEAKER_06: And why do you say so?
SPEAKER_03: Why? Well, interest rates and housing prices, obviously.
SPEAKER_02: Yeah, those are by far the two most popular reasons. And for good reasons.
SPEAKER_06: Home prices have skyrocketed and mortgage rates are the highest they've been in more than 20 years.
SPEAKER_02: Yeah, so like housing stuff is clearly part of what's feeding into the bad vibes here. Thank you. This is very useful for our research.
SPEAKER_03: You're welcome. So, yeah, this is how the consumer sentiment, consumer sausage, gets consumer made.
SPEAKER_06: There are about 50 questions in this survey about inflation and employment and wages and durable goods and the government. And then the very useful thing that Michigan does is grind all of that up into one meaty data point, the consumer sentiment index.
SPEAKER_02: It is a delicious number that by itself doesn't really mean anything. Like, I will tell you that consumer sentiment for October was 63.8.
SPEAKER_06: But OK. Yeah. So we we headed over to a separate office with a locked and surprisingly heavy door where the head of the survey works and hopefully has a little insight for us.
SPEAKER_02: We have been measuring vibes since 1946 at the end of the day. This is this is not new for us.
SPEAKER_05: Joanne Hsu is an economist, used to work at the Fed, and even before she ran this survey, she used to look at the sentiment data all the time.
SPEAKER_02: And the benefit of having all of these interviews going back to 1946 is experts have done on this team and outside our team.
SPEAKER_05: We've done research on why people feel the way they do. Right. What is so useful about Michigan is that they've been doing this for so long that we can look back through history and ask how good or bad were the economic conditions the last time consumer sentiment was at 63.8?
SPEAKER_06: Bad. The conditions were bad. Like, for example, we hit that number during the Great Recession.
SPEAKER_02: And also during the 1990 recession that came after the savings and loan crisis.
SPEAKER_02: Yeah. Crisis. Crisis. But but if we're looking for a specific period of time to focus on the last few years of sentiment numbers look an awful lot like the late 1970s and early 80s. Now, this was a period when inflation hit 13.5 percent. Unemployment hit 10.8 percent. And we had not one recession. But but but to a double dipper double dipper session that makes it sound fun, but it's not fun at all.
SPEAKER_06: It's true. And certainly things today are not perfect, but they're not 1970s 80s bad, which is the crux of the big economic mystery. Why then do we feel like things are so bad? Well, Joanne has spent a ton of time looking at how specific answers to specific questions on this survey have changed.
SPEAKER_02: And she wanted to highlight one question in particular. That question is, quote, during the last few months, have you heard any favorable or unfavorable changes in business conditions? The share of people telling us over the last year that they've heard bad news about inflation is so much higher than it was in the late 70s, in spite of the fact that objectively, by any measure, inflation was so much worse in the 70s than it was now.
SPEAKER_05: People lining up around the block to pump gas. That's not a thing right now. And still, people are saying, oh, I'm hearing such terrible news about the economy. Joanne thinks what may be different today is the hearing of the bad news about the economy.
SPEAKER_02: This actually makes perfect sense when you think about, you know, what wasn't around in the 1970s and 80s. The smartphone with non stop access to Twitter slash X, where bad news echoes and amplifies more than the good news does.
SPEAKER_06: And, you know, there's another question on the survey that Joanne wanted to highlight is an open ended thing at the very end that just says, is there anything else you want to share?
SPEAKER_02: People want to talk. They want to talk about gun control. They want to talk about immigration. They they they want to talk about climate change.
SPEAKER_05: And some of these things have stronger ties to the economy than others. But it's people want to talk about a lot of things. Yeah, there is this theory out there that we're going to call the angry voter theory.
SPEAKER_06: So the theory goes that we're in a very polarized political time. And so when somebody gets a call from the University of Michigan, they are answering these economic sentiment questions more politically than maybe they used to.
SPEAKER_05: What we are able to see is that political polarization is weighing on people in addition to inflation. And I think that's reflected in how much people want to talk about political factors at the end of the survey. And it's worth stepping back here for a second to point something out about these two possible explanations. Angry voters seeping into economic answers, doom scrolling, making us all less happy. These are not really economic answers.
SPEAKER_06: Right. If we think about it that way, then all of this economic gloom isn't reflecting the actual economic reality. So maybe we only think the economy is bad. But what if it is not all in our heads? What if the economy is bad, but just bad in a way that we're feeling and traditional economic measures are somehow missing? That's after the break.
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SPEAKER_02: Okay, so we've gone through a couple of possible bad vibes explanations, you know, politics seeping more and more into surveys, bad news, clobbering us more than ever. Like these are non economic factors.
SPEAKER_06: And if that is exclusively what's responsible for unusually low sentiment, well, then maybe consumer sentiment has become a more useful indicator for, I don't know, experts in psychology or media studies or something. If it's not economics, the economists ought to like step back. Yeah, let the real experts figure it out.
SPEAKER_02: You will remember economist Claudia Som who we met at the very beginning of this episode. And Claudia has been trying to separate out the sort of social cultural explanations from any possible economics explanations.
SPEAKER_06: I can be very helpful in saying, okay, this portion of it. This looks like it's the economics. This looks like something I can add my expertise to.
SPEAKER_02: So the basic question in this is, is there a way that people are feeling the economic realities that the data is missing?
SPEAKER_06: So one of the first possible economic explanations we wanted to talk to Claudia about is this one. Is it possible that this somehow is a story of an unequal pandemic recovery? That absolutely would be one to go at first.
SPEAKER_04: Right. You can imagine a situation where on paper it looks like the economy is recovering well, but really it is just rich people doing great while everyone else falls behind.
SPEAKER_04: Look, I spend a lot of time, I work on a lot of policy to help bring up the bottom. So I absolutely looked and was watching in real time as we were getting this information. Information about who seemed to be benefiting as the economy recovered from the pandemic.
SPEAKER_02: It's just like, wow, this recovery was so good at the bottom.
SPEAKER_04: It's not perfect, but this is if you compare to the recovery after the Great Recession, this is just knock it out of the park. There were a lot of factors, stimulus checks for one.
SPEAKER_06: Many households got thousands and thousands of dollars from the government, which studies have shown helped people build up savings and pay down their debt. Plus, as the labor market tightened, the data show that workers at the bottom really benefited from leverage to move into higher paying jobs, for example.
SPEAKER_02: And new numbers show that household income rose for the lowest earners. This is true even when you adjust for inflation. I mean, rich people are always going to do OK. They did OK like they always do OK. But this is not just rich people are doing better.
SPEAKER_04: OK, so then what other economic things could be feeding into the bad vibes?
SPEAKER_02: Well, for Claudia, she's been thinking about the most basic consumer sentiment question, like literally one of the core questions we ask in the economic sentiment survey.
SPEAKER_06: When I ask people, are you better off financially than you were a year ago or five years ago, I think of that as do you have a bigger paycheck?
SPEAKER_04: Do you have more in your bank account? Do you have a better job? But I can see the case for when you ask people, are you better off financially? They bring in more than that. They bring in how stable is it?
SPEAKER_02: And there are a number of ways you could imagine something like stability, like not quite getting captured by traditional data.
SPEAKER_06: For example, Claudia wonders what might be getting missed in the jobs numbers. As she points out, the world has changed quite a bit since the Bureau of Labor Statistics started collecting information on jobs. Like it started when there was a man who was the breadwinner and he worked 40 hours a week at the factory.
SPEAKER_04: So it was a very kind of stable concept of a job. The questions aren't designed for gig work as one example, even though gig work has been with us forever, right? The informal sector, but they're just, we don't get a good sense of the texture of a lot of people's work life.
SPEAKER_04: You know, it's possible that, I don't know, on paper you see a self-employed person earning a good income, but if that person is piecing together gig work, like that might not feel stable or sustainable or good.
SPEAKER_02: But you know, people were working gig jobs before the pandemic and consumer sentiment was not in the tank.
SPEAKER_06: No, but there is another pandemic specific stability issue that Claudia pointed out.
SPEAKER_02: We had a lot of relief that went out in 2021 and then has expired and that can be very disruptive if you have money and then it goes away.
SPEAKER_04: So again, we look at people's bank accounts, credit card debts, asset to debt ratio. Maybe those things are better than before the pandemic.
SPEAKER_06: But think about some of the reasons. Three rounds of stimulus checks, a pause in student loan payments, a huge expansion to the child tax credit.
SPEAKER_02: Well, the stimulus checks have obviously stopped, the loan pause is over, and the child tax credit didn't get renewed. So you can see how people could benefit from those pandemic era programs, but still feel worse now that those things have gone away.
SPEAKER_06: And if that's an effect of these pandemic policies, Claudia in particular wants to know that. I did a lot of research and I was a big advocate for the stimulus checks. And I watched, you know, not only was the spending picked up, people paid down debt.
SPEAKER_04: The payday lending office closest to my house shut down. I was so thrilled. And you see it in the data, it's not just me on my walks. So then to be like, no, this wasn't good enough. I mean, if this was bad advice or this wasn't the way people, the relief was most helpful to them, then I need to understand that.
SPEAKER_04: Claudia is not done hunting for economic explanations. In fact, she says, please send them her way.
SPEAKER_06: But the more she digs into this, the more she suspects the main driver of the Vibes disconnect is the non economic stuff. But I mean, look, you know, all of this asking why, why the bad vibes, why the disconnect between sentiment and other measures, it does sort of skip past a huge looming question, which is what happens when everyone is this bummed?
SPEAKER_02: And economically, historically, at least, we do know what has happened. I mean, I've said before to people, if you want a recession, we can have one.
SPEAKER_04: I don't want a recession. Who's Claudia talking to?
SPEAKER_06: You can have one. You can have one.
SPEAKER_06: You can have a recession. You can get a recession. Look under your chairs. Right. So, you know, Claudia points to a recent research paper showing that consumer sentiment has been pretty good at predicting past recessions. And there are also arguments that really low consumer sentiment may even help bring on a recession.
SPEAKER_02: You know, if we all freak out and stop spending because the recession is coming, well, that is a kind of feedback loop. Like these feedback loops are, they can be very common going into a recession, especially a consumer led recession.
SPEAKER_06: However, this is maybe the one place where the disconnect between today's Vibes and the economic numbers isn't a bad thing. Yeah. Claudia says, like, at first, when she started seeing these low sentiment numbers, she thought like, uh-oh, is a recession coming?
SPEAKER_02: But it's been like months and months and months of consumers saying they feel bad about something. And yet as time went on, I'm like, whatever it is, they're not, they're still out there spending.
SPEAKER_04: Right. They're still out there making money. So then I become less worried about it telling me that it's, you know, a harbinger of economic doom. As an indicator, it does seem like consumer sentiment is like sort of broken at the moment, at least.
SPEAKER_02: And Claudia doesn't know what to make of it. Like maybe our Vibes will always be misaligned with the economics numbers going forward. Or maybe Claudia says it's just that the pandemic disrupted the economy so fully and left us all so battered and bruised that it is just going to take a while for people to get back in sync with the economic data again. This episode was produced by Emma Peasley. It was fact checked by Sierra Juarez and edited by Mollie Messick. It was engineered by Neil Rauch. Alex Goldmark is our executive producer. And a very, very, very special thanks this week to Jan Lugemann. I'm Weilin Wang.
SPEAKER_06: I'm Kenny Malone.
SPEAKER_02: This is NPR. Thanks for listening.
SPEAKER_01: Thank you. Thank you.
