Connect with us

Economics

Why are Americans so gloomy about their great economy?

Published

on

Listen to this story.
Enjoy more audio and podcasts on iOS or Android.

Your browser does not support the <audio> element.

“The vibes are off” is a phrase that does not usually appear in rigorous economic analysis but has cropped up again and again in serious discussions about America over the past year. From an array of hard data, there is reason to think that people ought to be quite satisfied about the state of the economy: inflation has slowed sharply, petrol prices are down, jobs are plentiful, incomes are rising and the stockmarket is strong. But survey after survey suggests that Americans are in fact quite unhappy. They think that the economy is in bad shape and that President Joe Biden is mismanaging it. What gives?

Start with the evidence of gloom. The figure watched most closely by economists for an idea of what people are feeling is a consumer-sentiment index from the University of Michigan. For the past two years it has bounced around at levels last seen during the global financial crisis of 2007-09. Even with an improvement in December, it is still 30% below its recent peak on the eve of the covid-19 crisis in early 2020.

Image: The Economist

Many other surveys are equally downcast. Every week since 2009 The Economist/YouGov poll has asked some 1,500 Americans to assess the economy: nearly half now think it is getting worse, up from about one-third in the decade before covid. Questions focused on Mr Biden’s record yield even less enthusiasm: two-thirds of respondents to a Gallup poll in November disapproved of his handling of the economy. And all this despite America outgrowing its large, developed peers over the past few years.

The fact that so many Americans are so dejected about such a strong economy has spawned a cottage industry of theories. A first batch argues that they have every right to feel glum: some of the figures which matter most to their pocketbooks are just not that rosy. Inflation has eroded their wages. Controlling for consumer prices (one common measure of inflation), average earnings for private-sector workers are basically stuck at the same level as in February 2020, right before covid struck.

More recent baselines are even less flattering. Although few Americans would want to go back to a world of covid shutdowns, many did receive big benefits from the government’s spending spree at the time. After-tax personal income is about 15% lower now than in March 2021, when it was propped up by the massive stimulus package passed by Democrats soon after Mr Biden took office. Another unflattering comparison with the recent past: the aggressive interest-rate rises needed to tame inflation have made loans for houses and cars much more expensive. Housing affordability hit its lowest in decades last year, serving as an easy target for critics of Mr Biden. The Republican National Committee says Bidenomics is “pricing out millions of people from the American Dream”.

However, as the Biden administration is only too keen to point out, there are many things to like about the current economy. The supposed stagnation in private-sector wages is in fact a statistical illusion caused by upward bias in the consumer-price index. Use a better alternative—the personal-consumption expenditures index targeted by the Federal Reserve—and real wages are roughly on their pre-pandemic trend. At 3.7% the unemployment rate is just a touch above a five-decade low. Wage growth has been especially strong for low-income Americans. The S&P 500, an index of America’s leading stocks, has been flirting with record highs.

To judge from the range of indicators—good and bad—Americans do appear to be unduly pessimistic. Ryan Cummings and Neale Mahoney, two economists who previously served in the Biden White House, created a simple model to predict the level of the consumer-sentiment index, drawing on inflation, unemployment and consumption data as well as stockmarket performance. Their conclusion was that the index has been about 20% lower than where the data suggest it ought to be. Other models have found a similar discrepancy.

This suggests a second category of explanation: that opinion polling and sentiment surveys may have a negative bias. Profound partisan hostility is undoubtedly one factor. In their study Messrs Cummings and Mahoney calculated that Republican antipathy towards a Democrat-controlled White House may account for about 30% of the sentiment gap today.

Another element may be the tone of news coverage. Ben Harris and Aaron Sojourner of the Brookings Institution, a think-tank, studied the relationship between economic data and an index of economic news sentiment. Since 2021 the news-sentiment index has, like the consumer-sentiment index, been notably worse than what would be expected from the data. And that may be only scratching the surface. The news-sentiment index, created by the Federal Reserve’s branch in San Francisco, is based on economic articles in major American newspapers. Throw in the vitriol that tends to go viral on social-media platforms, and the negative bias might be even more pronounced.

A final explanation is that there may simply be a long lag between the post-pandemic recovery and feelings about the economy. It has been a topsy-turvy period. The extreme uncertainty of the covid years—job losses, school closures, bankruptcies and illness—took a toll on people. Many are still upset by the bruising battle with inflation. Although inflation has moderated, prices are nearly 20% higher than when Mr Biden took office. The sticker-shock takes some getting used to. Messrs Cummings and Mahoney estimate that a 10% inflation surge reduces consumer sentiment by 35 index points in the year it occurs, 16 points in the next year and eight points the year after that.

If a similar timeline is now in play, Americans have probably gone about halfway towards accepting their new higher-priced reality. It also helps that real-income growth has accelerated over the past year, letting them recover some of their lost purchasing power. The consumer-sentiment index has been volatile, but it did clearly bottom out in mid-2022—right around the peak in inflation—and it did also post a solid rise in December, even if it remains low by historical standards.

“Our theory of the case is that if we can continue to maintain a tight labour market while easing inflation and delivering real wage gains, that recipe should show up in improved sentiment. And we think we’re starting to see that,” says Jared Bernstein, chair of the White House Council of Economic Advisers. The vibes, in other words, may be picking up.

Stay on top of American politics with Checks and Balance, our weekly subscriber-only newsletter, which examines the state of American democracy and the issues that matter to voters.

Economics

How did the U.S. arrive at its tariff figures?

Published

on

U.S. President Donald Trump speaks during a “Make America Wealthy Again” trade announcement event in the Rose Garden at the White House on April 2, 2025 in Washington, DC.

Chip Somodevilla | Getty Images

Markets have turned their sights on how U.S. President Donald Trump’s administration arrived at the figures behind the sweeping tariffs on U.S. imports declared Wednesday, which sent global financial markets tumbling and sparked concerns worldwide.

Trump and the White House shared a series of charts on social media detailing the tariff rates they say other countries impose on the U.S. Those purported rates include the countries’ “Currency Manipulation and Trade Barriers.”

An adjacent column shows the new U.S. tariff rates on each country, as well as the European Union.

Chart of reciprocal tariffs.

Courtesy: Donald Trump via Truth Social

Those rates are, in most cases, roughly half of what the Trump administration claims each country has “charged” the U.S. CNBC could not independently verify the U.S. administration’s data on these duties.

It didn’t take long for market observers to try and reverse engineer the formula — to confusing results. Many, including journalist and author James Surowiecki, said the U.S. appeared to have divided the trade deficit by imports from a given country to arrive at tariff rates for individual countries.

Such methodology doesn’t necessarily align with the conventional approach to calculate tariffs and would imply the U.S. would have only looked at the trade deficit in goods and ignored trade in services.

For instance, the U.S. claims that China charges a tariff of 67%. The U.S. ran a deficit of $295.4 billion with China in 2024, while imported goods were worth $438.9 billion, according to official data. When you divide $295.4 billion by $438.9 billion, the result is 67%! The same math checks out for Vietnam.

“The formula is about trade imbalances with the U.S. rather than reciprocal tariffs in the sense of tariff level or non-tariff level distortions. This makes it very difficult for Asian, particularly the poorer Asian countries, to meet US demand to reduce tariffs in the short-term as the benchmark is buying more American goods than they export to the U.S., ” according to Trinh Nguyen, senior economist of emerging Asia at Natixis.

“Given that U.S. goods are much more expensive, and the purchasing power is lower for countries targeted with the highest levels of tariffs, such option is not optimal. Vietnam, for example, stands out in having the 4th largest trade surplus with the U.S., and has already lowered tariffs versus the U.S. ahead of tariff announcement without any reprieve,” Nguyen said.

The U.S. also appeared to have applied a 10% levy for regions where it is running a trade surplus.

"Absolutely nothing good coming out" of Trump tariff announcement, veteran economist Rosenberg says

The Office of the U.S. Trade Representative laid out its approach on its website, which appeared somewhat similar to what cyber sleuths had already figured out, barring a few differences.

The U.S.T.R. also included estimates for the elasticity of imports to import prices—in other words, how sensitive demand for foreign goods is to prices—and the passthrough of higher tariffs into higher prices of imported goods.

“While individually computing the trade deficit effects of tens of thousands of tariff, regulatory, tax and other policies in each country is complex, if not impossible, their combined effects can be proxied by computing the tariff level consistent with driving bilateral trade deficits to zero. If trade deficits are persistent because of tariff and non-tariff policies and fundamentals, then the tariff rate consistent with offsetting these policies and fundamentals is reciprocal and fair,” the website reads.

This screenshot of the U.S.T.R. webpage shows the methodology and formula that was used in greater detail:

A screenshot from the website of the Office of the United States Trade Representative.

Some analysts acknowledged that the U.S. government’s methodology could give it more wiggle room to reach an agreement.

“All I can say is that the opaqueness surrounding the tariff numbers may add some flexibility in making deals, but it could come at a cost to US credibility,” according to Rob Subbaraman, head of global macro research at Nomura.

 — CNBC’s Kevin Breuninger contributed to this piece.

Continue Reading

Economics

Analysts react to latest U.S. levies

Published

on

Charts that show the “reciprocal tariffs” the U.S. is charging other countries are on display at the James Brady Press Briefing Room of the White House on April 2, 2025 in Washington, DC. 

Alex Wong | Getty Images

U.S. President Donald Trump on Wednesday laid out the “reciprocal tariff” rates that more than 180 countries and territories will face under his sweeping new trade policy.

The announcement sent stocks tumbling and prompted investors to seek refuge in assets perceived to be safe.

Analysts generally had a pessimistic take on the announcement, with some even predicting an increased risk of a recession for the U.S.

Here is a compilation of reactions from experts and analysts:

Tai Hui, APAC Chief Market Strategist, J.P. Morgan Asset Management

“Today’s announcement could potentially raise U.S. average tariff rates to levels not seen since the early 20th century. If these tariffs persist, they could materially impact inflation, as U.S. manufacturing struggles to ramp up capacity and supply chains pass on costs to consumers. For instance, advanced semiconductor manufacturers in Taiwan may not absorb tariff costs without viable substitutes.

“The scale of these tariffs raises concerns about growth risks. U.S. consumers may cut back on spending due to pricier imports, and businesses might delay capital expenditures amid uncertainty about the tariffs’ full impact and potential retaliation from trade partners.”

David Rosenberg, President and founder of Rosenberg Research

“There are no winners in a global trade war. And when people have to realize, when you hear this clap trap about how consumers in United States are not going to bear any brunt. It’s all going to be the foreign producer. I roll my eyes whenever I hear that, because it shows a zero understanding of how trade works, because it is the importing business that pays the tariff, not the exporting country.

And a lot of that will get transmitted into the consumer, so we’re in for several months of a very significant price shock for the American household sector.”

Anthony Raza, Head of Multi-Asset Strategy, UOB Asset Management

“They’ve come up with the most extreme numbers that we can’t even comprehend. How they’re coming up with these? And then in terms of timing, I think we were hopeful that maybe this would be something that was rolled out over the course of a year, that would allow like time for negotiations or whatever. But it does seem like the timing is much more immediate and is, again, worse than our worst-case type scenario in terms of flexibility.”

David Roche, Strategist, Quantum Strategy

“These tariffs are not transitional. They are core to President Trump’s beliefs. They mark the shift from globalisation to isolationist, nationalist policies – and not just for economics. The process will last several years and be felt for decades. There will be spillovers into multiple policy domains such as geopolitics.

Right now, expect retaliation, not negotiation by the EU (targeting U.S. services) and China (focusing on U.S. strategic and business interests). The Rose Garden tariffs will cement the bear market. They will cause global stagflation as well as U.S. and EU recession.”

Shane Oliver, Head of Investment Strategy and Chief Economist, AMP

“Our rough calculation is that the 2nd April announcement will take the US average tariff rate to above levels seen in the 1930s after the Smoot/Hawley tariffs which will in turn add to the risk of a US recession – via a further blow to confidence and supply chain disruptions – and a bigger hit to global growth.

“The risk of a US recession is probably now around 40% and global growth could be pushed towards 2% (from around 3% currently) depending on how significant retaliation is and how countries like China respond with policy stimulus.”

Tom Kenny, Senior International Economist, ANZ

“Today’s announced US reciprocal tariffs are worse than expected. The effective tariff rate on U.S. merchandise imports is likely to climb to the 20-25% range, the highest since the early 1900s.

Yields on inflation-indexed bonds were higher and equities sold off after the announcement, suggesting the market thinks these tariffs will hurt growth and add to inflation. Market pricing of the federal funds rate points to cuts from the Federal Reserve coming sooner.”

Continue Reading

Economics

EC President von der Leyen

Published

on

The European Union is preparing further countermeasures against U.S. tariffs if negotiations fail, according to European Commission president Ursula von der Leyen.

U.S. President Donald Trump had imposed 20% tariffs on the bloc on Wednesday.

Von der Leyen’s comments come after retaliatory duties were announced by the bloc after the U.S. imposed tariffs on  last month in a bid to protect European workers and consumers. The EU at the time said it would introduce counter-tariffs on 26 billion euros ($28 billion) worth of U.S. goods.

Previously suspended duties — which were at least partially in place during Trump’s first term as president — are set to be re-introduced alongside a slew of additional duties on further goods.

Industrial-grade steel and aluminum, other steel and aluminum semi-finished and finished products, along with their derivative commercial products, such as machinery parts and knitting needles were set to be included. A range of other products such as bourbon, agricultural products, leather goods, home appliances and more were also on the EU’s list.

Following a postponement, these tariffs are expected to come into effect around the middle of April.

This is a developing story, please check back for updates.

Continue Reading

Trending