As a manager, I am baffled by the economy and the way people view it. On paper, the data looks pretty good to me. When I examine the typical indicators, the overall picture appears fairly strong. While the stock market has seen some volatility, it has also been in record territory recently.
Inflation is down significantly, job reports are outperforming most economic expectations, and gas prices—something virtually all of us measure with our wallets once a week—have been overall lower than in previous years.
Admittedly, the military action in Iran has had an impact on oil prices, which could affect prices at the pump. Maybe it’s me (and for the record, I am not even close to being an expert economist), but I decided to do some rudimentary digging into what’s going on.
I began examining why, despite positive data, so many of us are jittery about the nation’s economy. Even before the recent action in the Middle East. I know many people view the data in different ways. Some are driven by emotions, fear, and/or politics, which can change very rapidly.
Others believe in a long-term strategy and have the ability to ride out a storm.
Whatever your opinion, facts and data sometimes confuse us even more. Creating a disconnect between our individual perspectives and the way economists interpret the numbers. There is certainly more skepticism in the air these days.
The first thing most people agree on is the disparity between “the markets” and the average American.
As I age, I pay more attention to my 401(k)’s performance, as well as my wife’s. I do watch the Dow, Nasdaq, and S&P 500, but what about others in their everyday households? While most retirement accounts are managed by professionals, direct stock ownership remains far less common among average-income families.
Daily gains and losses in the markets do not translate as clearly to the broader population. In fact, many people see that world as unattainable. Let’s face it—if you’re struggling with rent, childcare, groceries, or rising healthcare costs, you likely couldn’t care less about the stock price of Apple or Spotify.
There is also something called “psychological residue,” which refers to traces of past experiences that remain in our minds.
We have all learned that despite declining inflation rates, prices rarely return to previous levels. Instead, they simply rise more slowly. The sticker shock of higher prices remains ingrained in our memories for quite some time.
Think back to the price of cars when you were younger. My dad used to walk in and pay cash for his cars. Of course, the price tag back in the 1970s was about $3,000.
That’s quite a different sticker today.
This lingering memory creates a lack of confidence that often lags behind positive economic indicators. Which helps explain the confusion I experience when I see improving numbers but negative attitudes.
Housing costs also play an especially powerful role. Even though interest rates remain above the 2.675% levels of 2020, few people realize that today’s 6% rates are still considered relatively low compared with historical averages.
When I bought my first home in 1997, my interest rate was over 10%, and that was with a good credit score.
Regardless, housing is usually the largest expense for most households. When that expense becomes unstable, confidence can shudder like a ground-shaking tremor.
Economic skepticism also stems from the amount of debt the average household accumulates. It’s difficult to argue that some of this is the result of personal spending habits. However, much of it also comes from people relying on credit more often because of rising costs and limited cash flow.
This situation becomes especially problematic when average credit card interest rates range between 21% and 25%. With minimum payments, many customers rarely find their way out of that cycle.
Another major factor is trust.
Today’s sentiment carries a palpable level of tension that seems to hang in the air. Many of us experienced a true economic shock during the 2008 financial meltdown. Not to mention the pandemic disruptions six years ago that led to supply chain chaos and a rapid inflation rate of 9.2%.
I remember feeling like we would never recover. Even today, optimism sometimes carries the proverbial “waiting for the other shoe to drop” mentality.
University of Michigan studies show that subjective perceptions can differ significantly from objective indicators. What matters most on the personal level? Personal experience, political affiliation, and our own jaded expectations.
What about the media’s role in shaping how people perceive the economy?
It is never the only factor, but it does amplify doubt and reinforce narratives that shape reactions to economic conditions. This influence is not always driven by partisan bias. More often, it stems from selection bias. News sites and outlets frequently feel incentivized to highlight problems and conflicts.
It doesn’t take a rocket scientist to know that negative information attracts attention. Headlines about layoffs and fears of recession generate more ears, eyes, and clicks than stories about steady job growth. Even when economic news shows strength, coverage often focuses on potential threats.
“A downturn headed our way” beats “Recovery could be in sight.”
The good news is that media influence has its limits. Research shows that personal experience often outweighs what people see and hear in the news.
We also cannot overlook the significant impact of social media. It should come as no surprise that algorithms favor emotionally charged content, which undoubtedly skews how people interpret events.
What spreads faster—fear or reassurance? Anxiety spreads like wildfire, especially among a generation of young people who grew up amid economic and social disruption.
It is difficult to deny the increase in anxiety among Gen Z. All of these pressures can be amplified in the minds of younger audiences. Navigating these challenges is undoubtedly harder today than it was for Boomers and Gen Xers.
In short, doubts about the economy do not necessarily contradict the available data. Instead, skepticism often reflects our personal experiences. In the end, it seems that markets measure performance while the rest of us measure security. Unfortunately, the two do not always appear to align very well.
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