We produce and we consume. That is the central fact of what an economy is. Both are essential to well-being — having a job with good pay in return for producing, and having access to the things we wish to buy at reasonable prices. Right now, though, it is Americans' identity as consumers, not as producers, that is driving their unhappiness with economic conditions.
Why it matters: Policymakers have taken for granted that if they can get the job market roaring, people will feel good about the economy. But now, discomfort over inflation and product shortages is overwhelming good job vibes.
By the numbers: The University of Michigan consumer sentiment survey fell in preliminary February numbers to its lowest level since October 2011. That month, the unemployment rate was 8.8%. Now: 4%.
- Historically, consumer sentiment has had a stronger correlation with unemployment than with inflation. If you wanted to guess public opinion about the economy, you'd rather know the jobs situation. Not anymore.
- Meanwhile, 72% of adults agreed with the idea that this is a good time to find a quality job, according to a January Gallup poll. A 74% reading on the same question in October was the highest recorded in data going back to 2001.
In the Michigan survey, the decline in sentiment was driven by families making over $100,000 a year, suggesting volatile markets may have factored into the discontent.
- Yes, but: If the Biden administration and the Federal Reserve had failed to deliver the improvement in the job market that has happened in last year, it is entirely possible that public opinion on the economy would be even worse.
The bottom line: The vibes are bad, and the usual solution — creating more jobs — isn't the answer as long as Americans' identity crisis tilts toward their role as consumers.