This article is a follow up to the previous short read. If data shows that the average American is financially better off than 3 years ago, what’s with all the gloomy sentiment? Jobs data in the US hasn’t been better in a long time. Inflation seems to be easing off. The much awaited recession is nowhere to be seen. Yet, sentiment seems to have taken a beating. Annie Lowrey takes a stab at explaining this. She calls it the Economic Annoyance Index
“Sometimes, people’s personal financial situations are just stressful—burdensome to manage and frustrating to think about—beyond what is happening in dollars-and-cents terms. And although economic growth is strong and unemployment is low, the Economic Annoyance Index is riding high.
…Something is driving a wedge between economic sentiment and the headline economic reality, and people might be admitting that they’re doing okay only through gritted teeth. Almost everyone who wants a job has one—that’s great. Wages are rising across the board—also good. But a lot of economic factors that are frustrating and vexing to deal with are tempering people’s feelings about the economy as a whole.
First and foremost: inflation. Yes, price growth has moderated. Yes, people’s incomes are rising faster than prices are rising, leaving most consumers better off overall. But people hate inflation. They hate doing the mental math and realizing how expensive everything is every single time they go to the grocery store, pick up takeout for dinner, and stock up on shampoo and painkillers at the pharmacy. Inflation does not just erode people’s earning power. It ticks people off.
Second, and relatedly: interest rates. Borrowing money is very, very expensive right now. As a result, credit-card defaults are way up, and many people are putting off buying big things on credit. The average monthly payment on a new car is more than $700, well beyond what many families can afford. The housing market is a nightmare too—something that is not easy to see in headline economic statistics. Rental prices are sky-high in many metro areas. And the real-estate market is frozen solid because of those high interest rates. Nobody can sell, because who wants to give up a low mortgage rate? And nobody can afford to buy. The situation is going to be miserable for years to come too: If interest rates go down, buyers will flood into the market, pushing prices up even higher. Lots of people are trapped in places they don’t want to be living, with no end in sight.
Finally, nostalgia, true or false, is driving up the Annoyance Index. Even if things are pretty good at the moment, many Americans remember them feeling better in the recent past. Families had way more cash on hand during the pandemic. Interest rates were much lower. Wage growth was faster a year ago. Prices were lower—a lot lower—before the pandemic. And many employees have been forced back to the office, when they were happy working at home.”
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