People Are Right. The Economy Ain’t As Strong As Washington Says.

After a couple of strong growth figures in the real gross domestic product (GDP) and a powerful January report on hiring, the administration has crowed. Things are going well, the president and his spokespeople say. People are wrong to be wary about economic prospects. This argument is far from new. It has ebbed and flowed for months. Articles have tried to explain the difference, including a worthy piece recently in The Wall Street Journal. This piece, however, and others like it, do not go far enough. Behind many of the bright headlines, there is much to say that Washington is wrong, and that the public’s wariness is well placed.

Take, for instance, the recent strength in hiring. The figures trumpeted by Washington are indeed impressive. The Labor Department reported that in December and January payrolls increased by almost 700,000, an impressive figure by any standard. At the same time, however, the department published an accounting drawn from a poll of households instead of employers. There it found that job holders had fallen some 692,000, effectively the reverse of the payroll tally. This household survey, in fact, indicates no net jobs growth since last July. Some of this difference might reflect the number of people with more than one job. For the household survey, they report that they simply are employed, but the employers count each job. Still, such statistical considerations cannot account for the entire difference or even much of it. There may be no way presently to know which picture is correct, but the difference warrants some reserve regarding the picture of boom.

Then there is the inflation question. Washington has emphasized how the pace has slowed from the dark days of 2022. And indeed, it has. The consumer price index in mid-2022 was rising at a 9% annual pace, and for the last few months the pace has come in at slightly less than 3.5%. There is much comfort in this, and Washington has pointed to it as a great achievement. But the pace is still well above the Federal Reserve’s (Fed’s) preferred 2% pace. For the American householder, it remains uncomfortably above the 1.8% annual rise in living costs averaged over the ten years prior to the pandemic. In this average person’s mind, the exact statistics matter less than the perception that the world has changed for the worse. Pain is coming more intensely than before the pandemic. Washington’s talk of slowdown sounds to them as a promise that new unwelcome pain will now mount at a less intense pace than in 2022. It is now merely a filling, no longer root canal.

What is more, households must deal with a cumulative effect of past, rapid rates of inflation. In the last three years, the cost of living, according to the Labor Department’s consumer price index, has risen almost 20%. Some workers have seen their paychecks keep up. Most have not. Households struggling with their budgets can easily remember a fatter time. Joe and Jane Sixpack once felt like Joe and Jane Chardonnay, and they are not at all happy with the lost status.

The Fed’s data on delinquencies makes the pain evident. At the end of 2020, delinquency rates (failures and late payments) on all consumer loans ran at about 1.5%. They hovered near that level even as inflation heated up in 2022. But to keep up with the rising cost of living, households relied increasingly on credit, especially on credit cards. In time, increasing numbers of people were bound to fall behind. By late 2023, the Fed’s statisticians reported delinquency rates of 2.5% on all consumer loans and 3% on credit cards. The latter figure is higher than before the pandemic. Clearly, households are feeling strains that have no place in the pronouncements – as opposed to the statistics – coming out of Washington.

And because the authorities keep telling people all is well, struggling households see no hope of a remedy coming out of Washington, or even an effort at a remedy. Reports of ongoing rates of federal spending and deficits beyond any historical precedents speak to a complete lack of any strategy to deal with the economy’s failings. In addition to all people’s present burdens, Washington has consequently added tremendous uncertainty about the future. No one can ascertain if the authorities plan cuts in programs that have become essential to them or plan tax increases on the middle class or both. According to the Policy Uncertainty Index — an independent tracker of this kind of anxiety – uncertainty about future economic policies has risen 30% above pre-pandemic levels.

To be sure, the average citizen does not follow the detailed flow of statistics coming out of Washington. But while the headlines and pronouncements say that things are good, these people live daily with strains brought on by a rising cost of living, a different jobs picture than some reporting suggests, credit pressures, and uncertainties about next steps – not just uncertainty but because Washington refuses even to acknowledge a problem, no hope that the authorities will ever take remedial steps. Little wonder that the American public has a more jaded view of conditions than the administration. It has reason.

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