News
How is the US economy doing?
Why is there such a huge gap between perception and reality about the economy?
It can be difficult to pinpoint exactly why there is a substantial gap between Americans’ perception of the economy and the reality of the data. It is possible that the situation is influenced by the persistent pain of inflation. This, paradoxically, has emerged as a greater concern among respondents over the past three years, even as the inflation rate has declined back to more typical levels.5
Furthermore, it is common for media and news organizations (not to mention social media) to prominently feature negative stories while downplaying or ignoring positive outcomes or resolutions. This is partly because readers and viewers seem to engage more with negative news, a psychological phenomenon known as “negativity bias”.6 This can lead to a distorted understanding of what is happening in the economy.
“For example, investors may have seen headlines about layoffs, and sometimes those numbers seem large and can give the impression that the entire U.S. job market is struggling,” says Malwal. “What is not covered as much, however, are the more gradual hiring that is happening across the country. Sometimes, even companies that are laying off employees in one area may be hiring employees in another at the same time.”
When the general mood is one of doom and gloom, even good news can be greeted with anxiety. Some investors believed that the fact that the S&P 500 index was regularly reaching new all-time highs in the first half of 2024 was the harbinger of an imminent collapse. Perennial concerns such as fear of a rising national debt or volatility as a result of upcoming presidential elections continue to influence investment decisions, perhaps negatively.
As an investor, however, it is critical that you reconcile your beliefs about the current economic situation with the data to ensure that the decisions you make regarding your assets, your portfolio, and your future are constructive and geared toward helping you achieve your goals.