It's not just vibes. Americans' perception of the economy has completely changed. - ABC... - 0 views
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Applying the same pre-pandemic model to consumer sentiment during and after the pandemic, however, simply does not work. The indicators that correlated with people's feelings about the economy before 2020 no longer seem to matter in the same way
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As with so many areas of American life, the pandemic has changed virtually everything about how people think about the economy and the issues that concern them
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Prior to the pandemic, our model shows consumers felt better about the economy when the personal savings rate, a measure of how much money households are able to save rather than spend each month, was higher. This makes sense: People feel better when they have money in the bank and are able to save for important purchases like cars and houses.
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Before the pandemic, a number of variables were statistically significant indicators for consumer sentiment in our model; in particular, the most salient variables appear to be vehicle sales, gas prices, median household income, the federal funds effective rate, personal savings and household expenditures (excluding food and energy).
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During the pandemic, the personal savings rate soared. In April 2020, the metric was nearly double its previous high, recorded in May 1975.
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All this taken together meant Americans were flush with cash but had nowhere to spend it. So despite the fact that the savings rate went way up, consumers still weren't feeling positively about the economy — contrary to the relationship between these two variables we saw in the decades before the pandemic.
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Fast forward to 2024, and the personal savings rate has dropped to one of its lowest levels ever (the only time the savings rate was lower was in the years surrounding the Great Recession)
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during and after the pandemic, Americans saw some of the highest rates of inflation the country has had in decades, and in a very short period of time. These sudden spikes naturally shocked many people who had been blissfully enjoying slow, steady price growth their entire adult lives. And it has taken a while for that shock to wear off, even as inflation has cre
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the numbers align with our intuitive sense of how consumers process suddenly having their grocery store bill jump, as well as the findings from our model. In simple terms: Even if inflation is getting better, Americans aren't done being ticked off that it was bad to begin with.
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surprisingly, our pre-pandemic model didn't find a notable relationship between housing prices and consumer sentiment
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However, in our post-pandemic data, when we examined how correlated consumer sentiment was with each indicator we considered, consumer sentiment and median housing prices had the strongest correlation of all****** (a negative one, meaning higher prices were associated with lower consumer sentiment)
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during the pandemic, low interest rates, high savings rates and changes in working patterns — namely, many workers' newfound ability to work from home — helped overheat the homebuying market, and buyers ran headlong into an enduring supply shortage. There simply weren't enough houses to buy, which drove up the costs of the ones that were for sale.
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That's true even if a family has been able to save enough for a down payment, already a difficult task when rents remain high as well. Fewer people are able to cover their current housing costs while saving enough to make a down payment.
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Low-income households are still the most likely to be burdened with high rents, but they're not the only ones affected anymore. High rents have also begun to affect those at middle-income levels as well.
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In short, there was already a housing affordability crisis before the pandemic. Now it's worse, locking a wider array of people, at higher and higher income levels, out of the home-buying market
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People who are renting but want to buy are stuck. People who live in starter homes and want to move to bigger homes are stuck. The conditions have frustrated a fundamental element of the American dream
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In our pre-pandemic model, total vehicle sales had a strong positive relationship with consumer sentiment: If people were buying cars, you could pretty reasonably bet that they felt good about the economy. This feels intuitive — who buys a car if they think the economy
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Cox Automotive also tracks vehicle affordability by calculating the estimated number of weeks' worth of median income needed to purchase the average new vehicle, and while that number has improved over the last two years, it remains high compared to pre-pandemic levels. In April, the most recent month with data, it took 37.7 weeks of median income to purchase a car, compared with fewer than 35 weeks at the end of 2019.
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"Right before the pandemic, the typical average transaction price was around $38,000 for a new car. By 2023, it was $48,000," Schirmer said. This could all be contributing to the break in the relationship between car sales and sentiment, he noted. Basically, people might be buying cars, but they aren't necessarily happy about it.
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Inspired by our model of economic indicators and sentiment from 1987 to 2019, we tried to train a similar linear regression model on the same data from 2021 to 2024 to more directly compare how things changed after the pandemic. While we were able to get a pretty good fit for this post-pandemic model,******* something interesting happened: Not a single variable showed up as a statistically significant predictor of consumer sentiment.
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This suggests there's something much more complicated going on behind the scenes: Interactions between these variables are probably driving the prediction, and there's too much noise in this small post-pandemic data set for the model to disentangle i
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Changes in the kinds of purchases we've discussed — homes, cars and everyday items like groceries — have fundamentally shifted the way Americans view how affordable their lives are and how they measure their quality of life.
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Even though some indicators may be improving, Americans are simply weighing the factors differently than they used to, and that gives folks more than enough reason to have the economic blues.