For many months, there’s been a debate about why Americans’ views of the economy are so negative. Even now, despite consistent economic growth, job growth, declining inflation, growth in real wages, declining rents, and record highs on the stock market, 61% of Americans say the national economy is very or fairly bad.
So here’s the puzzle: How can perceptions be so bad when the economy is so good? This debate often divides people who believe that perceptions accurately reflect economic circumstances and those who believe that perceptions are skewed by negative messages about the economy. To this latter group, the problem is bad “vibes” creating a “vibecession.”
But maybe the puzzle isn’t actually that puzzling. At least, that’s what some political science research suggests. Let’s dive in.
How people form economic perceptions
The debate about reality vs. “vibes” is unfortunate. I think this has muddied a pretty straightforward account of how people develop their views of the economy.
First, reality does matter. People think the economy is worse when it’s doing worse, like during a recession. In part, people can glean information about the economy from their lives. Research has shown, for example, that people learn about gas prices from their everyday experiences – which makes sense, given that gas prices are prominently advertised all over town.
Second, people learn about the economy from information they get in the media. This is the perhaps less controversial way to say “vibes.” But when people think about the economy as a whole, not simply their own financial circumstances, they pick up on what they read, watch, or see. This is particularly true for macroeconomic indicators like unemployment.
Third, partisanship can filter people’s perceptions. People are more positive when their party controls the White House. This bias has grown stronger over time and is especially pronounced when 1) surveys ask people about the national economy, rather than their own financial circumstances; and 2) economic signals are at least somewhat ambiguous. Those signals were pretty unambiguous during the 2008-2009 Great Recession, for example, and partisan differences in economic perceptions mostly disappeared.
Unpacking the puzzle, part 1: partisan bias
If the goal is to explain why economic perceptions today are so negative, part of the story is partisan bias. Economists Ryan Cummings and Neale Mahoney have shown that between 2006-2023, Republicans’ evaluations of the U.S. economy were more sensitive to which party controlled the White House than were Democrats’ evaluations. As they put it, Republicans “cheer louder and boo harder.” According to Cummings and Mahoney, that fact explains about 30% of the gap between what consumer sentiment “should be” based on objective economic conditions and what it actually is (namely, lower than expected). So Republican partisanship is part of the explanation.
Unpacking the puzzle, part 2: negative news coverage
Obviously, there’s more to the story. How does media coverage factor in? We know from a lot of research that news coverage of the economy emphasizes bad news over good news (as news coverage does for many topics). It’s why since 2021 there has been far more news coverage of inflation than the low levels of unemployment.
But news coverage of the economy seems distinctively negative in the last several years. One analysis showed that the tone of economic news coverage is indeed worse than a combination of key indicators predict, including gross domestic product, unemployment, inflation, and the Dow Jones average. As the authors of that analysis put it, “biased sources of information play a role” in the discrepancy between economic perceptions and economic reality. In other words, vibes matter.
Why the puzzle might not be puzzling
So far, so good. But there’s one question outstanding: Why has news coverage been so negative? Here’s where some political science is particularly helpful. In their study of news coverage and economic perceptions from 1980-2011, Stuart Soroka, Dominik Stecula, and Christopher Wlezien found that news coverage of the economy is more sensitive to future economic conditions – that is, to leading indicators – than it is to present indicators or lagging indicators. In other words, news coverage reflects where the economy seems to be heading, not simply whether there’s good or bad news today or whether things are better than the past.
Here’s an example of my own choosing. This New York Times article begins with fundamentally good news about the current economy:
With inflation falling, unemployment low and the Federal Reserve signaling it could soon begin cutting interest rates, forecasters are becoming increasingly optimistic that the U.S. economy could avoid a recession.
Note that already the article is looking forward – i.e., to whether there will be a recession in the future. This quickly provides fodder for a more cautious or even pessimistic assessment, despite the “increasingly optimistic” reference in the first sentence:
Yet if forecasters were wrong when they predicted a recession last year, they could be wrong again, this time in the opposite direction. The risks that economists highlighted in 2023 haven’t gone away, and recent economic data, though still mostly positive, has suggested some cracks beneath the surface.
To me, this illustrates exactly how a focus on the future produces a more negative story than current indicators alone might suggest.
Why does this matter? Because Soroka and co-authors show that both leading economic indicators and the tone of news coverage of the economy are associated with how the public feels about the economy. It’s reality and vibes.
Their analysis also shows the reverse: Public perceptions influence news coverage. This suggests the possibility of a feedback loop where negative coverage and pessimistic perceptions reinforce each other.
Now, let’s bring it to the present. In a recent piece based on this research, Soroka and Wlezien note that their primary measure of leading economic indicators (from the Conference Board) has been quite low for some time. In fact, this index of leading economic indicators has been signaling a recession for some months.
So now we can see why the puzzle isn’t so puzzling. If news coverage responds primarily to leading indicators, and those indicators have signaled future troubles despite today’s good economy, then that helps explain why news coverage has been so negative. And, in turn, that helps explain why the public’s perceptions are so negative, too.
Of course, there is nothing sacred about leading indicators or the Conference Board’s measure. Indeed, some scholars have questioned this measure precisely because it has been forecasting a recession for months even though one hasn’t materialized. The point isn’t that this is how news outlets should cover the economy. It’s that leading indicators appear important in how news outlets do cover the economy.
The U.S. economic rebound fits the same pattern
In the past couple months, Americans’ gloomy view of the economy has started to improve. Surveys by the University of Michigan, Pew, Gallup, and the New York Federal Reserve show economic evaluations are more upbeat. Depending on the specific survey questions, the improvements are mostly among Democrats or visible in both parties.
Once again, this appears to reflect both reality and news coverage. There has been a modest improvement in this leading indicators index. News coverage has become more positive, too.
We started with a puzzle about Americans’ surprising economic pessimism, and a debate over whether to attribute this to economic reality or to media coverage or “vibes.” What the research shows is that both reality and vibes matter. And the way that the media cover the economy may explain why Americans have felt badly even when the economy seems good – and why their feelings may finally be improving.