Americans Are Earning More Even as They Complain About the Economy

Wages are higher. The unemployment rate is the lowest it's been in years. The economy is growing. People have money to spend and are spending it.

On Tuesday, the Bureau of Labor Statistics said that workers are earning more than they did in June. And for the year to September 2023, wages and salaries jumped by 4.6 percent, higher than what they were at the same time in 2019 prior to the pandemic.

This should be great news.

Yet Americans are "pessimistic" about the future and the economy, worried about their finances, and expect a recession over the next year, according to The Conference Board's Consumer Confidence Survey, released on Tuesday.

"Consumer confidence fell again in October 2023, marking three consecutive months of decline," Dana Peterson, chief economist at The Conference Board, said in a statement. "The continued skepticism about the future is notable given U.S. consumers—at least through the third quarter of this year—continued to spend heavily on both goods and services."

In the third quarter of 2023, the economy grew by 4.9 percent, more than double the expansion seen in the previous quarter, driven by billions of dollars of spending by Americans as they splurged on dinners out, Taylor Swift and Beyonce concert tickets, and vacations. Consumers, despite a drop in their savings, still say they will fork out their hard-earned cash for gifts during the upcoming holiday season.

Meanwhile, employers added nearly 340,000 jobs in September, keeping the unemployment rate at 3.8 percent, almost back to pre-pandemic levels. And consumers are also navigating the environment of high borrowing costs and elevated prices to buy houses. In September, sales of new single-family homes skyrocketed by more than 12 percent compared with August (to 759,000) and were up nearly 34 percent from a year ago. Employers kept their workers and paid them higher salaries.

So, why are Americans so gloomy?

"Consumers clearly are not thrilled about the state of the economy," Daniel Zhao, lead economist at Glassdoor, told Newsweek. "But there is a case of 'watch what we do, but not what we say.'"

Evidence suggesting that consumer spending remains strong could be a better lens of how Americans think about their finances.

"It appears Americans are still spending money, which usually is an indication that they feel pretty good about their personal financial situation," Zhao said. "To some extent, there might be a disconnect here between how people are feeling about their own financial situation versus how they feel about the economy overall."

Inflation may be to blame.

"People hate inflation—hate it," Federal Reserve chairman Jerome Powell told reporters in September, explaining why people are so dissatisfied with the economy. "And that causes people to say, 'The economy's terrible.' But, at the same time, they're spending money. Their behavior is not exactly what you would expect from the surveys."

Inflation hit a 40-year high last year, and the Fed responded by hiking rates to their current level of 5.25 to 5.5 percent, the highest in two decades. The aggressive policy moves helped to slow down a rise in prices to 3.7 percent in September, but that is still double the rate of the central bank target of 2 percent. The jump in rates has pushed up borrowing costs for homes, cars, and business investments.

The belief that inflation will continue to be high and that interest rates will stay higher for longer may explain why Americans say the economy is headed in the wrong direction despite all the other good news.

"More than two-thirds of consumers still said recession is 'somewhat' or 'very likely' in October," Peterson said. "The fluctuating soundings likely reflect ongoing uncertainty given mixed buying plans. On a six-month moving average basis, plans to purchase autos and appliances rose while plans to buy homes—in line with rising interest rates—continued to trend downward."

Some analysts suggest that feelings of economic anxiety are in part due to the series of hits Americans have had to endure over the last few years.

"During the past four years, we have lived through a series of negative events, including the pandemic, economic shutdowns, very high rates of inflation, the war in Ukraine and surging interest rates," former Federal Reserve economist Claudia Sahm said in a Bloomberg op-ed published Monday.

Sahm also blamed the way social media amplifies bad news as being one of the reasons behind the negative feelings Americans have about the economy.

The jump in wages announced on Tuesday, though, suggested that the economy appears to be in a self-reinforcing cycle, Zhao told Newsweek.

"The economy has been stronger than expected, that means that there's still healthy demand for workers from the employer side," he said. "That, in turn, means that wage growth has not decelerated as much as we expected."

The Federal Reserve's rate hike's effect on the labor market may still be lagging, and the economy could see a softening of the jobs market. Recent data suggests that hiring has slowed even if there was little evidence of layoffs, indicating that employees are keeping their workers but not recruiting.

"It does feel like things are slowing down. But it's just a question of at what pace are things slowing," Zhao said.