Unemployment Is Low, But So Is the National Mood

Every year the Federal Reserve takes a financial snapshot of America. It tells us how people are making ends meet, or not. Whether they’re (still) living with their parents, if they’ve saved money for retirement, whether they wish they had chosen a different major in college and so on.

Last year’s Survey of Household Economics and Decisionmaking, as the Fed calls it, covered 11,667 U.S. adults and was conducted online from Oct. 21 through Nov. 1. There are breakdowns by age, income, race and gender. Considering that there are no anecdotes and the writing is reserved, the Fed’s report on the survey, “Economic Well-Being of U.S. Households in 2022,” is a surprisingly human document.

The report, which was released on Monday, portrays a nation that is enjoying a strong job market but is unhappy about inflation. Most people feel at least OK about their personal situations but are down on the national economic situation. If I were sitting in the Oval Office right now, I would be concerned about the public’s fairly gloomy answers.

I’ll start with the chart that has the most political valence. It shows that the share of people who say they’re doing “at least OK” financially has been remarkably stable since 2017, at around three-quarters. The pandemic recession isn’t visible in the numbers. In contrast to that self-assessment, the share who say the national economy is good or excellent has fallen sharply, to just 18 percent last year from 41 percent in 2017.

True, some people may perceive “good or excellent” to be a tougher standard than “at least OK,” so you might expect the numbers on the national economy to be lower. What’s surprising (and bad for incumbent politicians) is that the gap in perceptions between the personal and the national has widened so much, to 55 percentage points last year from 25 percentage points in 2019.

People are comparison machines — we compare ourselves with others and with ourselves at different times — so maybe one reason for the gloomy appraisal of the national situation is that people feel things have been going in the wrong direction lately. When asked about their financial situations compared with 12 months earlier, the percentage who said “worse off” zoomed last year to 35 percent from just 13 percent as recently as 2018.

The Fed report is consistent with other recent surveys showing a pessimism that’s somewhat surprising, given the recent reduction in the (still high) inflation rate, as well as the continued strength of the job market. (The unemployment rate in April, 3.4 percent, tied for the lowest since 1969.) My Opinion colleague Paul Krugman speculated recently that negative media coverage, pessimism from economists and partisanship helped explain the divergence.

Yet inflation, albeit down from its peak, can’t be dismissed as a source of Americans’ unhappiness. The survey found that 66 percent of Americans stopped using a product or used less of it because of inflation, while 51 percent reduced their savings in response to higher prices. Among people without health insurance, 42 percent went without medical treatment because they couldn’t afford it, versus 26 percent among the insured.

A useful function of surveys such as this one is to remind us how many Americans struggle to get by even when the economy is growing. Numbers that are pointing in the right direction are still pretty bad. For example, the Fed survey asked people how they would cover an emergency expense of $400. Only 63 percent said they would pay for it using cash, savings or a credit card that they would fully pay off at the next statement. While that was better than the 50 percent who said in 2013 that they would do so, it’s still a shockingly small share. The rest said they would have to borrow, sell something or simply not pay the expense. And remember that inflation has made $400 emergency expenses more common.

I don’t want to deluge you with statistics, but I would like to finish with one interesting survey question, which is whether people would choose a different field of study if they had a chance to do things over again. People whose most recent educational program was in the humanities or arts were the most likely to say they would pick a different field, at 49 percent. Least likely to regret their choices were engineering majors. Here’s the whole chart:

Elsewhere: The Earned-Income Tax Credit

In Monday’s newsletter I wrote that work requirements for social welfare programs don’t necessarily boost employment much. A reader pointed me to a 2022 study saying the same thing is true of the earned-income tax credit, which is intended to make work more rewarding for low- and moderate-income workers by reducing their taxes or increasing refunds. “Apart from the federal 1993 reform, E.I.T.C. expansions have not had any clear and significant effects on employment,” Henrik Kleven, a Princeton economist, wrote. That’s meaningful because the E.I.T.C. “dwarfs cash welfare by a factor of about 27 in terms of the number of recipients,” he wrote.

Quote of the Day

“But on principle, it is quite wrong to try founding a theory on observable magnitudes alone. In reality the very opposite happens. It is the theory which decides what we can observe.”

— Albert Einstein, as quoted by Werner Heisenberg in “Physics and Beyond: Encounters and Conversations” (1971)

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