With the November presidential election less than a week away, some evidence has emerged that U.S. consumers, who have harbored negative sentiments about the state of the economy since the early months of the COVID-19 pandemic, are beginning to appreciate its surprisingly robust performance over the past year or more.
On Tuesday, the widely watched U.S. Consumer Confidence Index, an indicator that is correlated with economic growth, rose from 99.2 in September to 108.7 in October, the largest upward jump in more than three years. The Conference Board, which releases the index, also said its index tracking expectations about future economic conditions increased by 6.3 points, to 89.1.
The data suggest that months of good economic news may be starting to break through to U.S. consumers, who are still reeling from the abnormally high inflation that sent prices of goods of all sorts soaring in the aftermath of the COVID-19 pandemic in 2022 and early 2023.
That could also be good news for Vice President Kamala Harris, the Democratic presidential nominee. She and President Joe Biden have, so far, struggled to convince Americans that the economy really has recovered.
At the same time, former President Donald Trump, the Republican presidential nominee, rarely misses an opportunity to remind voters of the inflation that marked the first half of the Biden administration and the damage it did to household budgets.
Other economic indicators
On Wednesday, the Commerce Department reported that the U.S. gross domestic product grew at an annualized rate of 2.8% in the third quarter of this year. The figure was below expectations but still indicated an economy that was larger than pre-pandemic trends suggested it would be, and that it was also growing at a faster rate.
Inflation, which has played a major role in driving down consumer sentiment, is now sitting at an annualized rate of 2.4%, just four-tenths of a percentage point above the Federal Reserve’s target rate and down from a peak of 9.1% in June 2022.
Meanwhile, the real wages of American workers, defined as the purchasing power of the money they earn, have been steadily growing. The Federal Reserve Bank of Atlanta says growth in average wages has been rising faster than the rate of inflation since early 2023. And according to the Treasury Department, the average household’s purchasing power is now higher than it was before the pandemic, even accounting for inflation.
Slow change in perceptions
“If you look at the economy from an aggregate level — at economic data and other metrics — the economy is in solid shape,” Greg McBride, chief financial analyst for Bankrate.com, told VOA. “We’re seeing growth at a higher-than-expected pace, yet inflation is coming down, and the job market continues to be very robust despite high interest rates.”
However, McBride said, it has taken time for good economic news to color the way consumers think about the economy.
“The reality that households are contending with is the fact that prices are a lot higher than they were a few years ago,” McBride continued. “And whether you’re walking the aisles of the supermarket or paying your monthly rent or insurance premiums, you have near-daily reminders of how much more stuff costs now than it used to.
“And that reality, that struggle, is very real, and that’s what has impacted how consumers feel about the economy — their personal economy.”
Perceptions lag reality
“Perceptions of the economy tend to lag the actual performance of the economy,” said Cullen Hendrix, a senior fellow at the Peterson Institute for International Economics.
“We’re now in our 16th straight month of wages growing faster than inflation,” Hendrix told VOA. “This has been going on now for a year and a third, which is potentially enough time for consumer sentiment to start to catch up with the actual and incredibly strong performance of the U.S. economy in the post-pandemic period.”
Hendrix said U.S. consumers might be even more bullish about the economy if they stopped to compare the country’s post-COVID-19 economic trajectory with that of other countries.
“If you’ve looked at any of the comparative data, you’ll know that the post-COVID rebound in the United States has been much, much stronger than the post-COVID rebounds in East Asia or in Germany, France, the U.K. or any of the other major economies,” he said.
Declining interest rates
Elizabeth Renter, senior economist at NerdWallet, told VOA that when it comes to consumer sentiment, the passage of time can be a major factor, as can the knowledge that the Federal Reserve has begun lowering interest rates, which were raised sharply to combat inflation.
“The further we get away from the high inflation period, the more likely consumer sentiment is going to come into better alignment with what the economy is actually doing,” she said.
“And now that we have the Fed’s first rate cut in hand, and probably another one coming next week, people know that there is hope on the horizon for lower interest rates, whether they’re interested in getting a mortgage or a car,” she said. “I do think knowing that those lower rates are coming is also going to have a positive impact on sentiment.”
Political reaction
On the campaign trail, Harris has not yet begun to speak as though Americans have adopted a more positive view of the economy. In recent appearances, including an address in Washington on Tuesday night, she has been careful to acknowledge that the wounds of inflation are still healing, and has listed ways she would address economic pain points, such as high grocery and housing costs.
However, in a White House briefing on Wednesday, Jared Bernstein, chair of the U.S. Council of Economic Advisers, said, “I think that upward trend in consumer confidence in sentiment — while not where we want it to be, our work is not done — is telling us that easing inflation, strong growth, a solid job market, and real wage and income gains are helping … American households.”
By contrast, Trump continues to hammer home his own narrative about the state of the U.S. economy.
“If Kamala Harris gets four more years, our economy can never recover,” he said during a rally in New York City on Sunday. “If I win, we will quickly build the greatest economy in the history of the world, which is what we had in our last term. We will rapidly defeat inflation, and we will very simply make America affordable again.”
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