Should we rethink how we talk about the American economy?

The topline numbers about the U.S. economy don’t seem to match what millions of Americans are feeling. Which information is right?

Today, On Point: Why millions of Americans don't feel good about the economy.

Ryan Cummings, researcher at the Stanford Institute for Economic Policy Research, where he studies energy markets and consumer sentiment. Served as a staff economist at the White House Council of Economic Advisers from 2021 to 2023.

Abigail (Abbie) Wozniak, vice president and director of the Opportunity and Inclusive Growth Institute at the Minneapolis Federal Reserve.

Mary Spicer, Home health aide and assistant rural carrier with the U.S. Postal Service in Henrico, Virginia.

Felicia Reilly, pediatric occupational therapist in Spokane, Washington.

Part I

MEGHNA CHAKRABARTI: When it comes to the economy, there are top line summary numbers that economists, politicians, and the media like to talk about.

(MONTAGE)

NBC NEWS: Back now with breaking news on the state of the economy this morning. The Labor Department has released the latest consumer price index report, and it shows inflation continuing to improve.

Caleb, your first impressions, what stands out about this?

So we have a saying in finance and economics, the trend is your friend. So look at the trend for the past six months and it just keeps going down and to the right. And a number like that shows a normalization of the economy and that is just what we want.

CHAKRABARTI: That was NBC News coverage of this week's consumer price index report that shows inflation has slowed to below 3%, which as said, is just what we want. But there's another way to measure the country's economic health. In the actual lives of tens of millions of Americans.

(AUDIO CLIP)

I beg to differ. I ask where has it come down? Where? I don't see it.

CHAKRABARTI: Starting around about 2023, the media, money managers, economists, and the like came up with a nickname for a certain area economic mismatch.

Despite a strong U. S. economy and markets sitting near all-time highs, many investors still have large cash positions while our feature guest today says this divergence, we could call it the 'vibecession.'

CHAKRABARTI: TD Bank posted that video four months ago. And to be fair, it was not alone. That phrase was everywhere. I think we might've even mentioned it on this show. And I regret it, because no one should dismiss people's daily economic reality as all about the feels. If you keep doing it enough, you start sounding like TD Wealth chief strategist Brad Simpson, veering very close to Monopoly monocle wearing caricature.

BRAD SIMPSON: And really the idea of a vibecession is ultimately about not what the facts are around how the economy is doing, but how the economy makes you feel. And you've got to think that is consistent often with, I think, our new reality is increasingly how you feel about something is more important than the facts around something.

CHAKRABARTI: Huh. But the fact is, there is a real, tangible, not vibes-based chasm between headline economic numbers and financial reality for many Americans. Just listen to the difference.

(MONTAGE)

For the year ending in July, the CPI nudged under 3% for the first time since March of 2021.

We go to buy our groceries, and we maybe expect to spend $100 a week, and now it's like $160, $180.

Last year, wages went up by 4.1%. Your gas, your electric, your mortgage, the home and auto, all these bills, they seem to just go up.

For the first time since early 2021, The U.S. Labor Department says wages are rising at a faster rate than inflation.

Child care costs increasing greatly and the cost of food every time you go to the grocery store. It just seems like you never really get ahead.

272,000 jobs were added last month. That far exceeds the expected amount.

Having to work multiple jobs isn't my American dream. Picking up side hustles to make ends meet isn't my American dream.

But the headline number is pretty darn good.

We can't survive in this type of economy. So I don't know where they think it's getting better, but I don't see it.

CHAKRABARTI: This is On Point. I'm Meghna Chakrabarti. If the economy is meant to be the most powerful indicator of a nation's overall well being, then shouldn't the so called felt economy for tens of millions of Americans be, in fact, the single most important measure of the United States true economic strength or weakness?

That last voice you heard a few seconds ago belongs to Mary Spicer. She's 47 and lives in Henrico, Virginia. This is what her life is like in the current economy.

MARY SPICER: I'm working two jobs right now. The basic necessities, weekly costs, went from about $150 to about $400 now. And I'm just at my wit's end, like, how can I survive this?

CHAKRABARTI: Late last year, the number of Americans working multiple jobs to make ends meet reached its highest percentage since the pandemic's start. Mary is one of them.

SPICER: I am a home health aide, as well as work for the Postal Service. I am an ARC, which is an Assistant Rural Carrier, so I assist the rural carriers for their routes.

With the Postal Service, it's about 35 hours a week, and it's also about 35 hours a week with the home health aide. It's 12 an hour for home health aid. And then with the Postal Service, it depends on what hours I can get in. I can make anywhere, so I've had checks like $183 and I've had checks that were like $1,400.

It's difficult to add. What do I put more hours in? Where is there more time? I catch sleep when I can periodically and I'm right back up and I'm at it. Because if I don't work, I don't eat. Rent went up. The bills went up. It's $1,700 in just rent and utilities. That's not the phone. That's not an insurance.

That's not the car. That's just rent and utilities. At the grocery store, I can tell you when I look down and I only have three bags of groceries and it's $150 and I'm like, what? What did I buy? Milk and bread. And it's ridiculous. I'm making the most money that I ever have, but I'm also spending the most money that I've ever spent.

I was in a place where I was getting, paying off what I would need to spend on my credit cards and keeping balances at least below 50% of my credit. And now that it's like at, I'd say 89%, more like 90%, 95%. By the time I put money on the payment, I now have to spend more money because I can't afford this for food.

And a lot of times I can put that on a credit card, whereas some bills I can't pay with my credit card. I don't have medical insurance. I can't afford medical insurance. I do have car insurance because in Virginia you have to keep car insurance. But medical insurance, like recently I hurt my wrist. I put a stabilizer, a wrist stabilizer, and I had to tough it out. Because I can't afford to get seen. The medical bills, the expenses are too expensive.

CHAKRABARTI: Mary's brother is disabled and live alone. Mary moved in with him in 2019.

SPICER: He was living with my mom first. My mom got sick, and she had a massive heart attack and died. He couldn't figure out how to basically live without someone else, because everything's so expensive.

And even to get a place, you have to make three times the rent. He's not making that on his own. So he literally couldn't afford anywhere to live without someone living with him.

CHAKRABARTI: Her brother does receive disability benefits, but because Mary lives with him, he doesn't qualify for other kinds of assistance, such as SNAP, also known as food stamps.

SPICER: So he gets his little $900 a month. We paid $1,200 in rent. So by the time he puts his $600 in, he doesn't have money to put anything else. So the bills and everything are pretty much up to me. He doesn't qualify for any food benefits, nothing like cooling or heating assistance or any of those things.

They basically put both of our incomes together and say that we make a couple of dollars too much for him to get food. It just all falls on my back.

CHAKRABARTI: This is why Mary both bristles and despairs when she hears politicians and pundits talk up single indicators like jobs created, the CPI, or rising wages.

Sure, those high-altitude aggregate numbers are great, but down on the ground, we're Where Mary is living her life, the headwinds hindering her progress are still blowing hard, and not just on her.

SPICER: We're drowning in debt, we're drowning in inflation, we're drowning in overall necessities, things that are basic to living.

And to see my daughter, the next generation, going through the exact same thing, makes me so sad. I was just talking to my daughter about this. Literally two days ago and she was in tears, and I couldn't offer her any advice to help her. Because we've been over the credit things, we've been over how to get good rates, we've been over, but none of those things matter in today's economy. Because you either have money or you don't.

CHAKRABARTI: Mary Spicer lives in Henrico, Virginia. So again, what's more important? Overall economic indicators? Or the so called felt economy lived by people across the country? They are, of course, somewhat related. But are lawmakers and policy advisors whose own felt economy is likely very different from Mary's, are they taking people like her seriously enough when trying to steer American economic policy? Ryan Cummings joins us now. He's a researcher at the Stanford Institute for Economic Policy Research, where he studies energy markets and consumer sentiment. He also worked as a staff economist at the White House Council of Economic Advisors from 2021 to 2023. Ryan, welcome to On Point.

RYAN CUMMINGS: Hi, Meghna.

How's it going?

CHAKRABARTI: It's going well. So let's get straight at this question. Do you think policymakers take the so called felt economy lived by people like Mary, who we just heard from, seriously enough?

CUMMINGS: Yeah, whenever we're listening to stories of working class people like Mary, who experience a lot of different kind of crises, whether that's taking care of her brother, who she said was disabled, or that's trying to raise a daughter, as inflation is coming down on her, and she's working two jobs, I think a lot of people want to think about how does our social safety net help people like Mary?

For example, is she getting the child tax care credit, which during the pandemic, there was an expansion that which increased it to $3,600 a year. The Harris campaign has recently proposed increasing that. I think the Trump campaign, JD Vance recently talked about increasing it as well.

So are there different support for that? Whenever we talk about disability insurance, for example, for her brother, as you mentioned, he is not eligible for SNAP, because she's caretaking for him. So whenever policymakers think about somebody in Mary's shoes, all those components which are making her life difficult and her economic situation very tough are something that's definitely front of mind.

At the same time, they're definitely considering what's happening in the aggregate economy as well. Because if, for example, you only looked at the bad parts of the economy, you wouldn't necessarily understand very well what's working. So you want to separate out who's having a really difficult time and what are policies we can pass that can ameliorate those? But at the same time, understanding what's working well and what should we continue to do.

CHAKRABARTI: Can you talk to me about why you think there is now, at least for the past two years, this persistent gap between the slow upward trajectory of those economic indicators, and I don't want to say just consumer sentiment, because I hate defining people as consumers, but just overall economic and personal finance sentiment for millions of Americans. Is it just really explained as easily as inflation, or is there more to it?

CUMMINGS: Yeah, so just for background, the most talked about survey is the University of Michigan's Consumer Sentiment Survey. And what they do is they survey 600 people every single month, to understand how they're feeling about different parts of the economy. And so you could, in the past, before the pandemic, construct a pretty simple statistical model, which could explain movements in consumer sentiment, how people were feeling pretty well, if you just looked at these kind of top line numbers, like you mentioned in the beginning, inflation, the stock market, GDP, unemployment, consumption. But after the pandemic, a gap emerged where these numbers improved after the initial recession from the pandemic, but sentiment never increased.

So really, the puzzle here is people used to say that they feel very good about the economy, if you gave them the statistics about the economy that we have now. But after the pandemic, they don't feel as well about that. And so me and my co-author, Neale Mahoney, as well as another collaborator, Giacomo Fraccaroli, have looked at this and have come up with a variety of different answers.

Part II

CHAKRABARTI: A couple of weeks ago, we let On Point listeners know that we were going to do this show and wanted to hear from folks about what the economy feels like or how they're experiencing the economy in their own lives.

And we got a ton of responses and here are some of them.

(LISTENER MONTAGE)

Every time we go to the diner and maybe expect to spend $30 bucks for breakfast, and we get a $50 bill. We go to buy our groceries and we maybe, I used to expect to spend $100 a week, and now it's like $160, $180.

Your gas, your electric, your mortgage, the home and auto, all these bills, they seem to just go up, so does the daycare.

Me and my girlfriend, we're paying, what, $2,300. We both make a similar money, about $70,000 a year. We always have to be conscious of budget. Saving is really hard.

We haven't forgotten what prices were like back in 2018, 2019.

I had to do a GoFundMe to pay my property taxes.

My credit is not good. Like I have credit card debt that had just been accruing.

I just take the big things, the rent, the car insurance, and just try to manage those. But everything else, like even medical debt, I haven't been even late.

We see record stock market returns. We see high corporate earnings. But yet, real America is struggling paycheck to paycheck.

I'm a vet, and I just got out of active duty. And honestly, sometimes it just feels like I'm drowning. We have people who seem to make a lot of money telling us that the economy's good, and that everything is going to be fine. But anybody that's making below $70,000 or below, it's a real struggle.

Having to work multiple jobs isn't my American dream.

Picking up side hustles to make ends meet isn't my American dream. It's a disconnect. It feels like cognitive dissonance and it's insulting.

CHAKRABARTI: So some of the massive number of calls that we got from folks, and obviously in that group, you heard people who are very not just pessimistic about their own economy, but they're talking about the real pressures they're feeling. There were a lot of patterns for us to pull on or to observe in the calls that we got.

One of them is that there was somewhat of a generational divide. Because a few or several, quite a few people who called us who were, say, either approaching retirement or near retirement age, told us that they do feel at least secure financially, if not flushed with cash, but they nevertheless were still worried about the future for younger generations.

(LISTENER MONTAGE)

LISTENER #1: We have saved and we feel very good about the economy personally, yet we do see in our area, prices of houses have gone up considerably. We bought our house 25 years ago for $200,000, for example, and now it's worth like $800,000.

LISTENER #2: I'm retired. I'm doing fine. I have a pension. I made some good investments. I only have one child. My son is 20 years old. He's a high school graduate, got a job in manufacturing and he's making some good, decent money. The one worry that I feel that I hear about is the security of our social security system, whether or not that's going to be around for my son and others of his age.

LISTENER #3: What drives me crazy is that in our area, the CEO of a big regional convenience store slash gas station and corporate managers at statewide, like grocery chains, have publicly stated that they're keeping prices as high as they can, as long as they can, for their own profit margins and to please stockholders. This is nothing like we experienced when we were kids in the seventies and the early eighties. We learned to live frugal and save like misers. So my husband and I are, we're going to be pretty okay. However, our kids are Gen Z with college degrees.

They're getting paid less than $20 an hour. They're living frugal as we taught them to do. They don't have enough to save to cushion them for the future. Yes, we're all affected by inflation, but the underlying economic problems, they were present long before the pandemic.

CHAKRABARTI: Some On Point listeners there, talking to us about how they're experiencing this economy and their concerns about the future. So Ryan Cummings, tell us more about what you and your colleagues discovered about why there's this persistent gap between, no matter what the top line economic indicators are, the gap between that and how people say they're experiencing a lack of security in their own personal economic lives.

CUMMINGS: Sure, and just to size the gap a little bit. So if you applied the relationship between key macroeconomic variables and how people were feeling about the economy before the pandemic, to data after the pandemic, people are feeling roughly 44% worse about the economy than what you would expect them to, given the underlying data, which is a very large gap.

So what me and my colleagues are tried to do was diagnose this gap into kind of three separate parts. So the first part is the inflation. So I think a really good concrete example of this is the first caller you had. They said, we're used to going to the diner and paying $30, but now we get the bill and it's $50.

So what they're really talking about there is there's an upward shift in the price level. So whenever inflation happens, that's the rate at which prices increase. Now, a lot of people, whenever they see prices spike, what they expect is for deflation, for prices to go back down. Now, whenever inflation, the rate decreases, but is still positive, that still means prices are rising.

For example, for that caller, maybe they went to the diner in 2018, and it was $30, but then in 2021. It was $40. And then in 2022, it was $45. Now, initially, there was a $10 change and then a $5 change. So you had disinflation, that came down. But the price is they're still looking back to 2018 and saying, Hey, wait a minute.

It used to be $30. Now it's $45. They're not necessarily thinking, Oh the rate at which prices are increasing is decreasing. It's a more nuanced thing to wrap your head around. And especially if you're just working and you go out to eat, you're not thinking about these kinds of more complicated economic statistics.

So we looked at what is the effect of fact of this price level increasing and then staying high, because people need some time to acclimate to these new high prices. So for example, I think everybody knows somebody that'll say, Oh when I was young, you used to be able to go to the movie theater and get a popcorn for a dollar.

But now nobody really expects to go to the movie theater and get a ticket and a popcorn for a dollar. People are used to the fact that it's a little higher of a price now. So that takes some time for people to adjust that. So that's what we looked at. And we found pretty much the half life of the impact of inflation on sentiment.

It declines about 50% per year. So what does that mean? If there's a 10% increase in inflation, what we estimate is that people will feel roughly, the way to think about it, 34% worse about the economy in that year. That high price level will still make them in the following year feel roughly 17% worse about the economy.

And then the year after that, 9% worse, or as we say, decays at a rate of about 50%. So people just really take time to adjust to a new price level. That's the first bucket. And what we think it explains roughly a third of that gap. The next third is gap, and this is in the Michigan consumer sentiment survey, but this also extends broadly to our more polarized society, is what we call the asymmetric partisanship.

So what this really means is that if you ask Democrats and Republicans how they feel about the economy, in both cases, it's very sensitive to who's president, whether there's a Democrat or president in office. So just to give a concrete example, in the two months after Joe Biden got elected, Republicans said they roughly felt 16% worse about the economy.

Democrats said they felt about 11% better. So unless people's real situations are changing, that might be a little bit of a partisanship bias. And what we find is this bias, though, is asymmetric, meaning Republicans are roughly two and a half more sensitive to who's president. For example, Republicans, typically, if there's a Republican in the White House, they'll feel 15% better.

And if there's a Democrat, they feel 15% worse. For Democrats, that number is plus or minus 6%. So it's about two and a half times higher in the partisanship bias. Then this last third bit, we think is a little bit unexplained and it's more to do with the general vibes and that again, that's not dismissing anything.

But just to say, for example, there could be a lot more negative media coverage. So Ben Harris and Aaron Sojourner at the Brookings Institute have a really good piece where they go through a bunch of text data from newspapers and find that over time, especially since the '70s, news coverage in general has gotten a lot more negative.

So the kind of economic stories you're hearing are, in fact, a lot more negative. And then again, my collaborators, Neale Mahoney, Giacomo Fraccaroli over at Stanford, what we find too, is we look at gas prices and we wanted to say, okay, at what point does the media actually start covering gas prices? So if gas prices are really low, is there a lot of coverage about that, saying, Hey, it's really cheap time to go buy gas, go out there and do it.

And equivalently, if gas prices are high, is everybody out there talking about how high gas prices are? And what we found was pretty striking is if they get national average gasoline prices below $3.50 a gallon, it gets absolutely almost no coverage. But the second it gets above $3.50, there's a linear increase in the amount news networks are talking about it.

So we have all of the data from all of the Television news networks, all six major ones, going back to 2000. And so we estimate this based on that, we find this one for one kind of increase. And even across media outlets, it's very different for it. For example, on Fox News, whenever gas prices hit their national peak of $5.02 a gallon in June of 2022, 75% of Fox News shows were discussing high gasoline prices.

But again, as gasoline prices come down, so the currently national average is around $3.45. There's not really a whole lot of coverage of that. So if people are constantly being bombarded with negative news about the economy, it's not necessarily surprising that they feel more negative about it. Now, with that being said, there's, of course, long term structural issues that, for example, Mary at the beginning of the show and many other people are experiencing.

The Council of Economic Advisors in 2021 wrote an excellent brief on this long-term affordability crisis, and a lot of things that people talk about today. For example, education, the cost of that has increased by 400% from 1990 to 2019, while the overall price level just increased by only about 74%.

Similarly, Mary was talking about child care, that's increased by 200% over that time. And again, this is before the pandemic. So all these dynamics are made even worse. Whenever we talk about housing. Two thirds of Americans own their own home. So if you have a home, and a lot of them have mortgages that are below 5%. Roughly 60% of people now have a mortgage below 4% and over 75% of people have a mortgage that's below 5%.

So if you have a house, you have a low mortgage, and that house is appreciated substantially. But what if you're renting? So right now, we have a housing shortage of roughly 2 to 4 million homes. Depending on how you want to estimate it, for people that are going out there and trying to rent. And we know low-income people spend around 40% to 45% of their income on rent, which is just an extraordinary amount.

These are things that existed well before the pandemic, and we definitely need action soon to help fix them, because these events are not going to get better without better policy.

CHAKRABARTI: So Ryan, hang on here for just a second, because I want to bring Abigail Wozniak into the conversation. She's with us from St. Paul, Minnesota, and she's vice president and director of the Opportunity and Inclusive Growth Institute at the Minneapolis Federal Reserve. Abigail Wozniak, welcome to On Point.

ABIGAIL WOZNIAK: Nice to be here.

CHAKRABARTI: So Ryan just laid out a raft of different reasons why there's this gap between what people are experiencing in their own lives and their economy.

And again, as I'm lumping together these top line economic indicators, a lot of them had to do with like actual just sentiment. And then he talked a little bit at the end about real, long term financial or economic trends in people's actual lives. I want to dig into that part more. Because it seems as if, for example, with inflation, yeah, it might take people a couple of years to get used to new higher prices, but the fact that one of the reasons why it takes so long is because wages don't keep up with inflation. No one got a 9% wage increase in 2022, right?

When inflation was spiking. I think it's only recently now that we're seeing wages, wage increases track more closely with inflation. So tell me, the Minneapolis Fed did a study that shows who, in fact, is suffering the most right now, even as overall economic indicators are looking better. Who is that, Abbie?

WOZNIAK: Yeah. So first, let me just give one piece of context, one and a half. I am a researcher at the Minneapolis Fed. I'm going to be speaking today as myself, not necessarily representing our wider system, but it's great to be able to talk about this. Because the Opportunity and Inclusive Growth Institute, which I direct, is an initiative that the Minneapolis Fed started.

In part, to really address this question that you're centered on, which is, should we focus on an aggregate set of indicators, or do we need to understand really the diversity of experiences that folks are having and how can that inform our own thinking about the economy? So that's 100% what we're focused on.

And it's great to be able to chat about this with you. So you're asking about who's doing well now, and that in line with our interests is something we turned our attention to in that piece. What we got started on was this question of real wage growth. So you heard earlier that Ryan was making this distinction between growth or rates of change, how fast our price is going up, versus levels, which is, are prices higher now than they were before in numeric terms?

This is going to be the same kind of phenomenon that happens in wages. How fast are wages going up versus have they achieved a new level? And you heard Mary talk about the fact that she's making more now than she has. But it doesn't go as far, because prices have changed. So we were interested in that growth piece, who is experiencing that fast growth.

And we were interested, in particular, because as we all know, the Fed is paying a lot of attention to inflation and where it's going to go. And one question we had, is the labor market contributing to this? So a way to think about that is to ask, are these wage gains that folks are getting, are they outstripping inflation?

Are they something that could feed further inflation? We looked at that question. Our overall view, summarize in a sentence, is that this is not something that is pushing inflation very hard. But then we turned our question our attention to who is getting these wage gains? And what we're finding is that, first of all, real wage growth is basically now at the same level that it was just prior to the pandemic.

And, in fact, that we're seeing real wage growth that has moderated quite a bit for those lower earners. I think that is part of the disconnect folks are feeling. There was a huge surge in wage gains for lower earning workers. For example, service sector workers were seeing big wage increases to bring folks back into that labor intensive sector.

Just coming out of the shutdowns in the pandemic. Those big gains have really slowed. And so now we have real wage growth for the bottom quartile of earners that is actually at a lower level of growth than it was just going into the pandemic. Those folks have seen their real wage levels stay on par with where those real wage levels were going prior to the pandemic, but they haven't seen big gains. And I think that's again, part of that disconnect, with the messages they're hearing. They would have expected to feel more financially secure than they feel right now.

Part III

CHAKRABARTI: I want to just once again, give voice to the actual experiences of Americans. Because so many people did reach out to us, giving us a firsthand example of this gap that we've been talking about.

So Felicia Reilly is one of them. She's a pediatric occupational therapist in Spokane, Washington, and she says she thinks she earns pretty good money, roughly $105,000 a year, but even that salary does not make her feel financially secure. High prices mean at the end of the month, Felicia says she has a few hundred dollars on a credit card she simply cannot pay off.

FELICIA REILLY: I'm not taking wild vacations. I'm not buying massive amounts of clothing, or I don't have expensive hobbies. It just seems like I'm doing normal stuff and I can't stay off the credit card, which that is where I get frustrated.

CHAKRABARTI: Felicia has been cutting back on spending.

No food delivery. She buys only generic groceries, but even those efforts aren't going as far as they used to. She also can't do as many activities with her two kids who are 14 and 17.

REILLY: Like this summer, I took them on a vacation to Seattle to see friends and family. And instead of doing two nights in a hotel, we only could do one night in a hotel.

We decided not to, like we were going to go to this museum, and we decided not to. My kids are old enough. So they can understand if I say like budget wise, is this something you really want? Or is it something that we could maybe skip? And so that doesn't feel great as a parent to say, but I still wanted to give them some time this summer.

CHAKRABARTI: Felicia is also a homeowner. She also has a doctorate degree. And so she says she's sometimes embarrassed that she's living paycheck to paycheck, even though she has an established career. But the expenses don't stop. There's always another medical bill or a car that needs new tires. Where I am in my career, I don't see a huge wage growth.

REILLY: I'm at that point where I'll probably have small gains. I know that, like, I have a good life. It's just more of, I don't know, a little bit concerning about if my wages stay the same and nothing else changes. Will I always be in debt or what will I have to change dramatically? New York Times is like, oh, inflation is great.

We're okay. And I thought, yeah, but what about those months that it wasn't great that I got in debt? Sure, it's great now, but it will take me a while to dig out. And then I have concerns about the election coming up because everything shifts. It could shift a lot.

CHAKRABARTI: That's Felicia Reilly.

She lives in Spokane, Washington. So Abbie Wozniak, I want to emphasize something you had just said before the break, that for the bottom quartile, so the bottom 25%, the bottom quartile of American workers, real wage growth has essentially stalled, meaning the gap that was closing between the bottom quartile and the top quartile is now widening again. First of all, that's quite something to take into account, because that's not what we hear when the headline number is 4% wage growth, year on year. What about people who are in a higher quartile, that sort of 25% to 50% or even slightly higher like Felicia?

Has there also been some core, some side kind of structural change that makes them not just feel, but really experience the kind of insecurity that Felicia is talking about?

WOZNIAK: Yeah, I want to modify what you said just a tiny bit. Which is that real wage growth right now for the first quarter of 2024, which is what we have our latest snapshot on, is running about even across the quartiles.

So that means the gap isn't getting wider. But it's also not getting narrower. And we were seeing in the kind of first couple of years post pandemic, we were seeing some significant compression, where lower earners were catching up to higher earners. And that I do think got a little bit of attention.

It certainly got a lot of attention in economic circles. There was a lot of discussion about, are we in a new environment where there's a lot more power that workers have? And is that creating a new landscape for lower earning workers, relative to higher earning workers. I think my view and one of your earlier call in folks said it really well.

They said the underlying problems were present long before the pandemic. And I think my view was, this is going to move through and we are more likely than not to be back in the landscape that we were seeing before the pandemic. So what this kind of totals out to right now for folks like Felicia, is that we have had some compression for lower earners, catching up a bit relative to higher earners, but that has stopped.

Now, real wages are growing for everyone, but at a modest pace, which is the same as, in real terms, what people were experiencing before the pandemic. And what we have also seen is that for folks in those higher bins, real wage growth hasn't quite made up the level of real earnings that they would have expected coming right into the pandemic.

It's not a big shortfall, but I'm sure as folks have been explaining, when things are tight and you're making lots of choices, any shortfall at all is going to be very well felt. So I think really what we're seeing is a situation where for most workers, after years of turmoil and a lot of change, and being told a lot of different stories about the economy, we're finding ourselves more or less where we were in 2015 to 2019, with all of the challenges that entails.

CHAKRABARTI: Okay. So part of your report then also digs in deeper, right? Because you say that real wage growth has particularly cooled for retail workers, rural workers, men, and nonwhite workers, and particularly for people of color, nonwhite workers are seeing quote, a wage growth in 2024 of one third to one half a percentage point below 2019 levels.

WOZNIAK: Yeah, and I would say that is the piece that surprised me and also the real wage growth for men not having reattained its 2019 level. So those two shortfalls were pretty surprising to me. I also actually wasn't surprised in the end about where things have shaken out for metro versus non metro areas.

This was another story that we heard a lot, I feel like in 2021 or so, are less populated, some of them rural, but really some of them just smaller metro areas. Are we really going to see a resurgence of these economies relative to the big metro areas that had been really the source of wage growth for a lot of workers for a while.

Those had been higher earning places. Are we going to see that inverted as people start to work remotely? And this kind of changes the geographic nature of our economy. I wasn't as convinced that was going to happen. And in fact, that's what we're seeing now, is that there was a catch up in real wage growth for non metro area workers.

Coming just right out of the pandemic, that's now reverted back to real wage growth is higher in metro areas. It's not quite as high as it was in 2019, but that ranking is back. And so that was a little bit less surprising again, just, I thought, really painted a picture of mostly the old patterns are settling back in.

CHAKRABARTI: ... Can I just jump in here with one more thing from what Felicia said, which I think is important to further enrich this analysis. Cause again, like my big thesis is, perhaps I should be scrutinizing us in the media. That we're like constantly trumpeting these monthly numbers, these monthly reports that come out and they're very much out of context.

Whereas people are actually living complex economic lives. And when, understanding the granularity of the differences in wage growth that the Minneapolis Fed found, Felicia also just told us, yeah inflation might, the rate of inflation growth might be, the rate of inflation might be going down, but because it was so high in 2022, she had to actually rely on her credit card a lot, which, so many people are carrying cards that have what, that 29.99% interest rate, and it's hard to get out from under that, even a couple of years later. And I'm seeing here, there's some evidence that delinquencies on credit card debt and auto loans, not that long ago reached a 10 year high. Meaning there may be a quiet crisis to come there, which is another reason why people are saying, Hey, it doesn't matter to me right now.

Great, inflation's down, but I do not feel terribly confident about my economic outlook for the next year or next two years.

WOZNIAK: Yeah, I think that often when we think about these headline numbers, it is really a case of a timeline that is a very short one, relative to, I think, how most people think about their economic situations.

They don't think about their economic situation even quarter to quarter, probably, let alone every month, which is when we get new employment numbers. Or there's a number of different inflation gauges, those come out frequently, so there's new stuff to talk about on those, at a high frequency. They give us a good read on where the economy is right now, not a perfect read, that's maybe a different part of the conversation, but they give us a good read on where the economy is right now today.

But people are really thinking, I think, much longer term than that. Honestly, an analogy I would use is if you have baseball fans among your listeners, I imagine you do, I feel like most baseball teams in the course of a season go through a hot streak. There's that five, six, seven game winning streak. And you're like, yeah, this is really fun.

Maybe this will go somewhere, but anyone who's a seasoned fan really knows what the fundamentals of their team are. And they know that's going to fade, and they're unlikely to make it into November. So they understand what the fundamentals are in that kind of environment. And I think what's just harder is that the economy is just a much more complex situation for folks, and they can see and understand the fundamentals they're experiencing, but they don't always see how those, like the kind of drip of statistics is necessarily going to add up to all of those. So it's not that either one is wrong. It's just that I think we're often talking about different time horizons that are important to people and policymakers, but it depends on what they're trying to accomplish in the moment.

CHAKRABARTI: Okay. So let me ask you, with the acknowledgement that you are not speaking for the Minneapolis Fed. But I'm going to go back to the question that I asked at the very beginning of the show. What is the point of an economy, if not to have a strong economy so that the citizens and residents of that country can live secure and happy lives?

So shouldn't we have economic policy that is more geared towards the fundamental interests, those long term complex ways that people look at their own lives, versus, I don't know, whatever the other levers are, that people, that policymakers can pull. It's getting back to the question you said that you've been looking at.

WOZNIAK: Yeah. So I think that this is a really deep big question of course. And I think one way to think about the levers that are available to us as a society, that time horizon example is a useful one. So the horizon that the Fed operates on, our major charge is stability, is to course correct when things are going too fast or too slow, very much keeping an eye on the underlying fundamental of full employment and aggregate participation in that way.

But overall, the charge is to keep the ship moving in a constant direction. The overall direction is really the product of longer term policies that feed economic growth, and that establish security, but that operate on pretty different time horizons.

That's not the purview of the Fed. But, for example, we've heard about the price of education. The price of education is in part a product of supply and demand, and creating educational institutions to meet that demand and move those prices around. That's a really long term project. It's one that economic historians write about in terms of the whole 20th century, and how education and investments in education unfolded over that period, and shaped prices and shaped who had that education.

The same with social security, that some of your listeners brought up. A very long term project and stabilizing and shoring that up is almost a multi generational project as well. And that policy arena belongs to other policy makers, but I think it's important for workers and families to start to try a little bit.

I know it's not always everyone's favorite thing, to tune into how we should think about the economy, although there was a lot of interest in this episode. But to try to think a little bit about which policy sector should be creating those opportunities for them.

CHAKRABARTI: Just another sort of snippet to add context to this conversation.

Cause we talked about the bottom quartile of American earners. Similarly, I saw a poll from the University of Michigan saying that half of older adults are feeling economic stress. That they've cut back on expenses in the last year. A fifth say they've had trouble in the past year paying for health related costs.

And 53% of those polled say they're stressed about their personal finances. So that's a huge part of the country. Abbie, we only have about a minute left. I'm just wondering if you had a final thought from the studies that you've done there at the local Fed. And what idea do you want people to leave people with who are living these personal economies every day?

WOZNIAK: I would, I think a kind of final thought, I want to connect to the older adults and maybe just give a small plug to the work of one of my colleagues, Mariacristina De Nardi. She has a wonderful overview of financial security for older adults. It is something that is incredibly important, that older age security is something we're all working toward.

It tends to shape less of the labor market. And so gets a little bit less attention when we're trying to think about where the labor market and inflation are headed, but I would point folks to that if they want to know more about what that security is looking like right now for Americans.