“Unexpected Worry in an Otherwise Prosperous Economy: Why Aren’t Americans Embracing the Good Times?

As Americans head into the 2020 election season, economic data are giving them an unusually mixed message. Despite the fact that the nation has experienced a fairly strong economic recovery since the Great Recession, various measures of economic sentiment illustrate that Americans remain quite pessimistic about the overall condition of the U.S. economy. The unusual disconnect between an objectively solid economy and Americans’ feelings of pessimism has been dubbed an “economic paradox.” Indeed, Gallup polling from May 2020 showed that nearly 7 in 10 Americans still believe the country to be in recession, despite a steadily declining national unemployment rate and evidence of economic growth in select sectors. What could be the cause of this economic paradox? Some economists point to the current political climate as a major factor in creating a lingering sense of economic unease. Acrimonious debates over international trade, immigration, and other economic policies are likely contributing to uncertainty about the nation’s future economic prospects. In addition, persistent income inequality and the lack of job security for certain populations may also be contributing to the Hopkins Effect—the phenomenon of employers or consumers to remain frugal despite improved economic circumstances. It appears that Americans’ hesitancy to embrace a strong economic recovery could have major implications beyond the 2020 election. Consumer spending, which is the lifeblood of any economy, is currently lagging behind that of previous years. Personal savings rates are at record highs, indicating a lack of confidence in an economy that is, on paper, performing quite well. At the same time, financial markets have been increasingly volatile in recent months. This suggests that even those Americans who have the disposable income to invest may be adopting a wait-and-see approach. As the economy continues to evolve, it will become apparent whether or not Americans are being overly cautious in their financial decisions. Until then, the economic paradox that has defined this unique moment in U.S. history seems unlikely to be resolved anytime soon. As Americans head into the 2020 election season, economic data are giving them an unusually mixed message. Despite the fact that the nation has experienced a fairly strong economic recovery since the Great Recession, various measures of economic sentiment illustrate that Americans remain quite pessimistic about the overall condition of the U.S. economy. The unusual disconnect between an objectively solid economy and Americans’ feelings of pessimism has been dubbed an “economic paradox.” Indeed, Gallup polling from May 2020 showed that nearly 7 in 10 Americans still believe the country to be in recession, despite a steadily declining national unemployment rate and evidence of economic growth in select sectors. What could be the cause of this economic paradox? Some economists point to the current political climate as a major factor in creating a lingering sense of economic unease. Acrimonious debates over international trade, immigration, and other economic policies are likely contributing to uncertainty about the nation’s future economic prospects. In addition, persistent income inequality and the lack of job security for certain populations may also be contributing to the Hopkins Effect—the phenomenon of employers or consumers to remain frugal despite improved economic circumstances. It appears that Americans’ hesitancy to embrace a strong economic recovery could have major implications beyond the 2020 election. Consumer spending, which is the lifeblood of any economy, is currently lagging behind that of previous years. Personal savings rates are at record highs, indicating a lack of confidence in an economy that is, on paper, performing quite well. At the same time, financial markets have been increasingly volatile in recent months. This suggests that even those Americans who have the disposable income to invest may be adopting a wait-and-see approach. As the economy continues to evolve, it will become apparent whether or not Americans are being overly cautious in their financial decisions. Until then, the economic paradox that has defined this unique moment in U.S. history seems unlikely to be resolved anytime soon.