December 14, 2023
There is a clear disconnect between how people rate the economy (the general economy, not their own economic condition – which most say is good) and standard measures of economic performance. This disconnect has led to a “vibes” vs economic reality debate, with one side arguing that negative news coverage and social media have led people to rate the economy poorly, while the other side argues that weak or declining real incomes explain negative attitudes.
Nate Cohn entered the vibes vs real economic conditions controversy with a unique contribution. He said that even though most standard economic measures, like employment, wages, and income suggest that people are doing pretty well, “factors dragging down consumers aren’t neatly captured by the usual economic statistics.”
“…some basic things have become harder. It’s harder to hire. It’s harder to get a loan. It’s more expensive to buy things. At times it was impossible to buy things because of supply chain shortages. It’s harder to buy a home. It’s harder to sell a home. If you wanted to engage in these kinds of economic activities, you should have done them before the fall of 2021.”
Cohn’s comments here are obviously speculative, he presents no data to support these assertions, but it’s worth considering the idea more carefully.
Some things definitely are harder today than in prior years, like buying and selling a home. With mortgage rates peaking at over 8.0 percent (they are now back under 7.0 percent), sales of existing homes fell by close to one-third from the 2021 pace. This is bad news, but still, the people who are actively looking to buy or sell a home in a given year (around 6 million, typically) are a relatively small share of the population.
Also, if we are looking at the negative story of high-interest rates, we should also look at the positive story that 14 million homeowners refinanced a mortgage during the period of low-interest rates from 2020-2022. Those who refinanced without taking out additional cash saved an average of more than $2,600 a year on interest payments. These savings do not show up in our standard data on income or disposable income.
Cohn tells us that it is harder to hire. This is true, but how many of us are looking to hire people? I suppose if we are looking for people to do work around the house, this could be the case. That is “the hard to get good help” theory of economic malaise.
The obvious flip side of it being harder to hire is that it is easier to find work. Ease of finding work is also not picked up in standard economic statistics and, as a practical matter, there are far more people who would be looking to find work than to hire.
We then have the claim that things are more expensive. That is true, but incomes have grown by more, and this is picked up in our economic statistics.
But then we have the claim that it is harder to buy things. There were certainly shortages of many items in 2021 and even into 2022, making it harder to buy many items. But by 2023, most of these shortages have disappeared. If this were a major factor in people’s economic discontent, we should have seen consumer sentiment improving over the course of the year, instead of deteriorating.
There also is another side to this issue. Online sales have exploded since the pandemic. Online sales accounted for 12.6 percent of retail sales in 2019. They now account for 16.7 percent of retail sales, an increase of more than a third. And this only counts the sales by online distributors, it does not include the growth of Internet sales for brick-and-mortar retailers or the explosion in food delivery from restaurants.
There are other important ways in which life has gotten easier that don’t show up in our standard economic data. Perhaps the top item in this category is the increase in the number of people able to work from home. According to the Bureau of Labor Statistics, 38 million people worked from home on average day last year. That’s an increase of more than 11 million from before the pandemic.
For these people, life is presumably considerably easier. In addition to the time saved on commuting, they are likely saving thousands of dollars a year on transportation and other costs associated with going to work at an office or other workplace.
In the same vein, telemedicine has become far more widely used. According to the Department of Health and Human Services, 22 percent of the population used telemedicine for a consultation with a healthcare professional in a typical four-week period. Since most people do not see a healthcare professional in any given four-week period, this implies a very large share of medical consultations are now done remotely.
This is a huge savings on time spent traveling to and from hospitals or other medical facilities. The benefits from being able to have a remote consultation are likely to be especially important to people in poor health, who disproportionately are the individuals seeking medical care.
In short, contrary to Nate Cohn’s assessment, there are many clearly identifiable ways in which life has gotten easier that are not picked up in economic statistics. To be fair, he was clearly just speculating in throwing out his life-getting-harder hypothesis, but it does not look like it holds up well under closer scrutiny.
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