Big news! The 3Q23 GDP came in at 4.9%. This is a real increase- double of 2Q23. Consumer spending, which makes up 68% of GDP, keeps charging ahead. And the job market is doing well. Unemployment is at 3.8%, about where it was before COVID in January 2020. Auto workers are settling their strikes with big increases. There is a larger share of those aged 15-64 working today than pre-pandemic.
Yet, Americans are not happy. 69% of Americans think the country is headed in the wrong direction. Inflation peaked at 9.1% in June last year and now is 3.7%. No question about it, almost everything costs more than it did a few years ago. But inflation is not the real reason for all the gloominess.
Consumer sentiment is one of the key factors. It was 100 before COVID and now it’s 67. Historically, the consumer sentiment index, e.g. the University Michigan index, generally tracks the “misery index.” The “misery index” is the sum of inflation and unemployment. The current value is 7.50% (3.7% +3.8%). When Jimmy Carter was running for reelection as President in 1980 the misery index was 22%. Ouch. The misery index has had lows, slightly more than 5% in 2015 and 2019, but shot up to 15% in April 2020 due to COVID.
The graph below shows that the misery index has historically been inversely correlated with the UofM consumer sentiment index from inception in 1978 to 2022. That’s not a surprise, if inflation and unemployment are low, typically most consumers are happy. But today, that logical inverse correlation no longer exists. Despite a low misery index currently, consumer sentiment is low, not high.
According to Greg Ip in the WSJ last week, “median wages, adjusted for inflation, are above 2019 levels and workers have more time off and more flexibility.” Household finances, assisted in part by pandemic related stimulus payments, are in better shape than before COVID. And, according to Mr. Ip, despite the pandemic, the median household wealth after inflation increased 37% between 2019 and 2022.
Of course, no one likes to pay higher prices. The average Starbucks coffee is up 20% since early 2020. Grocery prices are way up. Home prices have gone up and with mortgages at 7%-8%, potential buyers may have to wait even longer for home ownership and some others may have to give up the dream.
Certainly, politics has an impact. A Quinnipiac poll in August found that half of Republicans and Democrats rated their personal situation as excellent or good, while only 5% of Republicans said that about the economy as a whole, compared with 58% of Democrats. Of course, the party in control normally finds the economy is very good and the other party finds the economy terrible.
Geopolitical tensions have increased with the fighting in the Middle East. The Ukraine-Russia conflict is now almost two years old with no end in sight. Let’s not forget about often huge differences of political opinion on major topics like mass shooting, abortion, the border, crime and others.
Lastly, let’s talk about news coverage and social media. To drive “clickbait” both tend to highlight the more negative and dramatic news. Psychologist Don Grant, PhD, has indicated that this “journalism” leads to a suffering from “media saturation overload.” Similar terms recently used are “headline anxiety” and “headline stress disorder.” Negative news can have a significant impact on our brain and our mental health.
Social media, especially the short-form video popularized by Tik Tok, is making a huge impact. Young Americans spend at least 10% of their waking hours on Tik Tok and 76% of 18-24 year-old Americans are Tik Tok users. Only 7% of Americans 65 and older use Tik Tok. For example, the pro-Palestine content on Tik Tok has been 10 times that of pro-Israel content. According to Professor Scott Galloway of NYU, “the probability is high that Tik Tok is being manipulated and leveraged by the CCP to sow division in America.” Information warfare of all types abounds today. Social media does not favor accuracy or balance of diversity. It favors clicks.
American philosopher Sam Harris says you become where you spend your time. Social media or even one-sided news casts can become an addiction for many. Professor Galloway concludes that “social media algorithms identify our politics and then shepherd us into a hermetically sealed bubble, framing our worldview through a window of rage and extremism.” One sided newscasts do the same.
Conclusion: You may remember our DWM blog of May 10th: “Outlive” focused on living better and longer. As I pointed out then, as Total Wealth Managers, we know that Wealth is not just money. Health and Happiness count too. Happiness is increased by both monetary success and being healthy longer. There are lots of distractions in the world these days to keep us away from being happy. I agree with Sam Harris; we need to spend our time in the right places- places that make us happy. I am happy at work, with my family and friends, and my dog Buster Brown. When walking, I try to make eye contact and say hello and smile. I read the Financial Times and the Economist more than the Wall Street Journal or the New York Times. It’s really hard to get independent and balanced information, but I’ll keep trying. Let us know if you’ve found any good sources of honest, neutral news. We Americans need it.