Americans’ Economic Sentiment Improving, but Challenges Remain for President Biden’s Re-election Bid

University of Michigan survey shows an increase in sentiment, providing some hope for President Biden’s economic agenda

For the past year, the American economy has experienced a disconnect between its impressive growth and the downbeat sentiment among its citizens. While analysts and investors have been impressed by the economy’s performance, Americans themselves have remained skeptical, with sentiment levels resembling those during the global financial crisis. This poses a significant challenge for President Joe Biden, who is seeking re-election in just nine months. However, recent data suggests a glimmer of hope, as the University of Michigan’s monthly survey shows an improvement in sentiment, providing a potential boost for President Biden’s economic agenda.

The Puzzle of Economic Sentiment:

The University of Michigan’s survey, a closely watched gauge of popular sentiment about the economy, has consistently shown low results over the past year. This disparity between economic performance and public sentiment has puzzled experts. However, the latest survey results published on February 16th reveal a positive trend. The preliminary sentiment index came in at 79.6, marking the third consecutive monthly increase and the survey’s biggest rise over any three-month period in over three decades.

Mixed Economic Indicators:

Examining various economic indicators, it becomes clear that the improvement in sentiment is not unfounded. Inflation, a major concern for consumers, has slowed down significantly, with consumer prices rising at a rate of 3% in January compared to the previous year, down from a peak of 9% in mid-2022. However, the fact that prices are still nearly 20% higher than pre-pandemic levels tempers relief. The price of petrol, in particular, remains a noticeable factor for Americans, as it is well down from its peak but still higher than pre-pandemic levels.

Strong Labor Market and Wage Growth:

On the other hand, the labor market remains robust, with an unemployment rate of just 3.7%, close to a five-decade low. This has led to strong nominal wage growth, with average earnings returning to their pre-pandemic trajectory and steadily rising. It is important to note that the surge in average earnings in 2020-21 was a composition effect, resulting from low-income workers losing their jobs.

Record-High Stock Market:

Furthermore, the stock market’s upward trajectory, reaching record highs, adds weight to the argument that the economy is in good shape. This provides additional confidence for investors and can contribute to positive sentiment among the public.

Conclusion:

While Americans’ economic sentiment has been persistently low, the recent improvement reflected in the University of Michigan survey offers a glimmer of hope for President Biden and his economic agenda. The mixed economic indicators, including the slowdown in inflation, the strong labor market, and the record-high stock market, contribute to this cautiously positive sentiment. However, the lingering effects of high inflation and the fact that prices remain elevated compared to pre-pandemic levels continue to dampen overall sentiment. As the presidential election approaches, President Biden will need to address these concerns and continue to promote policies that support economic growth and stability to secure his re-election bid.