The economy is improving with a 50-year low. Yes, there is high inflation, but NGDP has risen 10.6% in the last 4 quarters, easily surpassing the inflation rate. However, The public feels horrible:

U.S. consumer sentiment plunged to a record low in early June [since 1978] Rising inflation has led to financial losses for households.

The University of Michigan’s early June sentiment index fell to 50.2, from 58.4 in May, according to data released on Friday. This number was weaker than all estimates in the Bloomberg survey of economists with a median forecast of 58.1.

This is rather surprising, given that the economy presents a mixed picture with both good and bad. Why so anxious?

In April of last year, I predicted So that the mood of the people becomes bad. While discussing the huge financial stimulus, I observed:

There is always a price to pay for unstable good times, and thus I hope the mood of the people will become bitter in autumn and winter, even as employment is restored – indeed Because employment is restored. Someone has to do all those bad things.

My point was that people would work harder, but not make more money. At the time, some workers were earning more on unemployment than in their previous jobs.

Is there any information to support my claim? I mentioned above that NGDP has increased by 10.6%. In most cases, these figures are highly correlated with changes in personal income. But not this time. In the twelve months to April 2022, personal income grew by only 2.6%, well below the inflation rate. This reflects the withdrawal of revenue stimulus. No wonder the public is so enraged. (Unexpectedly higher inflation made things worse than I expected last April.)

To put it bluntly, I don’t think it fully explains the public’s extremely bad mood. Consumer sentiment was much higher (71.8) in April 2020, when the unemployment rate was 14.6%. The public has obviously become grocery only because of factors outside the economic situation. But that’s a big part of the story.

PS Interestingly, consumer sentiment in June 2008 (56.4) and February 2009 (56.3) was virtually identical (at a very low level). But look how different the two economic conditions were!

June 2008: Unemployment = 5.6%, 12-month inflation = 4.9%

February 2009: Unemployment = 8.3%, 12-month inflation = 0.01%

What did Tolstoy say about the unhappy family?

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