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While the economy hums along, consumer sentiment is surprisingly low

STEVE INSKEEP, HOST:

We've had months of positive economic news. Inflation has been stabilizing. The labor market has stayed strong. We have no recession. But American consumers say they feel terrible about the economy. Kenny Malone from our Planet Money podcast says this has economists perplexed.

KENNY MALONE, BYLINE: Now, to be clear, economist Claudia Sahm is not saying that today's economy is all rainbows and butterflies.

CLAUDIA SAHM: 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.

MALONE: Certainly, rising food and housing prices play a role in bad economic vibes. But our sentiment numbers are even lower than you would expect for this level of inflation. And if you look at graphs of consumer sentiment versus more traditional economic measures, there is now a historic split.

SAHM: Yeah. So no, I am scratching my head.

MALONE: Claudia used to work at the Federal Reserve, advised on pandemic policies like the stimulus checks. And lately, she started to think a lot about how we ask people for their economic feelings, like, you know, literally one of the core questions we ask in the economic sentiment survey.

SAHM: When I ask people, are you better off financially than you were a year ago, I think of that as, do you have a bigger paycheck? Do you have more in your bank account? Do you have, you know, 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?

MALONE: She says there are some things that look like good economic news that might actually feel like economic problems. So, for example, when we look at people's bank accounts, credit card debts, asset-to-debt ratios, like, those things are better than before the pandemic. But that's partly because we had three rounds of stimulus checks, a pause in student loan payments, and a huge expansion to the child tax credit. All of that stuff has ended. And so you can see how people could benefit economically from those pandemic era programs, but still feel worse now that those things have gone away.

SAHM: And there's a piece of it, probably a big piece of it, that goes beyond economics.

MALONE: As in some kinds of psychological or cultural changes that are contributing to the bad vibes.

SAHM: A technology that's come on the scene not just during COVID, but really not that much before COVID, is social media.

MALONE: Social media. It's weird to think about, but the pandemic was the first big economic disaster in the U.S. with full-on ubiquitous social media, which tends to amplify bad news over good news.

SAHM: Every single newspaper, all over social - it's just, like, plastered everywhere. Inflation, inflation, inflation.

MALONE: One ray of hope in our nationwide economic funk is that a recent study found that, historically, consumer sentiment has been a good way of predicting coming recessions. But, Claudia says, it has been months and months of bad feelings and no recession. So for now at least, she says it doesn't look like our bad vibes are a harbinger of economic doom.

Kenny Malone, NPR News.

(SOUNDBITE OF MEUTE'S "YOU AND ME") Transcript provided by NPR, Copyright NPR.

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Kenny Malone
Kenny Malone is a correspondent for NPR's Planet Money podcast. Before that, he was a reporter for WNYC's Only Human podcast. Before that, he was a reporter for Miami's WLRN. And before that, he was a reporter for his friend T.C.'s homemade newspaper, Neighborhood News.