Big TakeBloomberg reporters Shawn Donnan and Claire Ballentine join this episode to discuss the results of a new Harris Poll for Bloomberg News, which found that the US Federal Reserve’s rapid increase in interest rates—aimed at fighting inflation—have more middle-class Americans worried about the economy than a year ago, even amid near-record employment.
Read more: Middle-Class Americans Are Rattled by Fed’s Fight Against Inflation
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A report from Goldman Sachs says the odds of a US recession over the next twelve months are now down to fifteen percent, which falls in line with the historical average for any year. Goldman's SAX officials are calling this a soft landing, which means bringing down inflation without an economic collapse.
If you look at the data about the US economy right now, it's not looking so bad. Inflation appears to be easy, Unemployment is at a record low, and forecasters now say the chance of a recession in the next year is much lower than before.
We are an incredibly unpredictable economy, so many of the rules have gone out the window. One of the dominant economic theory is that to bring inflation down you have to have a huge number of people lose their jobs. That just hasn't happened. Unemployment rates still near record lows. We're still adding jobs in the US economy.
But when it comes to how people actually feel about the economy, it's a very different picture.
What they see is that things are getting more expensive, and then now at the same time they're also seeing interest rates go up, so for their debt, for their car loans. If they're trying to buy a home, so it's sort of a double whammie right now, and a lot of people expressed a lot of stress and frustration and just feeling like it's harder than ever to make their budget and to say for the future.
Bloomberg Senior economics writer Sean Donnan and Bloomberg Personal Finance reporter Claire Ballentine are back to tell us how the middle class is feeling about the economy, according to data from their new poll with Harris. I'm Nancy Cook today on the Big Take. The economy is looking up, so why is the middle class so down? Thanks so much for joining us, Sean and Claire. I appreciate it.
Thanks for having us. Yeah, excited to talk.
The last time we checked in with you, it was about how a frustrated middle class will play a huge role in the twenty twenty four presidential election. What have you uncovered in your recent reporting, Sean.
Yeah, So we've been using the Harris Poll and they've been very kindly running some questions tracking the kind of economic mood of the American middle class. And we've been doing that for a year now, and what we see is two things. One a persistent stress and anxiety in the middle class. In fact, we've seen a growing number of middle class Americans saying they're stressed about the economy. And the second thing that we're seeing is a little bit of a rotation in terms of the things that they're stressed about. So we know that a lot of American households have been hit hard by inflation that at one point hit forty year highs in the last couple of years. But now we're starting to see people get stressed about the higher interest rates have been brought in by the Federal Reserve and that are starting to affect their household budgets in a much bigger way. And our latest polls showed a majority, actually fifty seven percent of Americans said those interest rates, those higher interest rates were having a negative impact on their household finances.
You're right that the spring of twenty twenty two was a turning point with the wealth held by the middle class. What happened at that particular time.
Well in March twenty twenty two, is when the Federal Reserve starts raising interest rates to combat inflation. And what we had seen in the decade and slightly more than that ahead of time was this amazing wealth accumulation by the American middle class. It's really a pretty unique decade in American economic history. And in March of twenty twenty two, as interest rates went up, stock markets reacted. We've seen that flow through into the housing market, and we've actually seen the wealth of the middle class go down since then.
And Claire, can you tell us about the people you spoke with for the story. What did you learn about their level of stress about the economy?
Yeah, so, I think the big takeaway from talking with some real people on the ground dealing with these issues is that despite measures of inflation decreasing, the picture is getting better. People on the ground don't really see that and feel that what they see is that things are getting more expensive. And then now at the same time, they're also seeing interest rates go up, so for their debt, for their car loans, if they're trying to buy a home. So it's sort of a double whammie right now. And a lot of people expressed a lot of stress and frustration and just feeling like it's harder than ever to make their budget and to save for the future.
And can you tell us about who some of these people are? Are they young? People, old people. Where do they live? Claire?
Yeah.
So, one woman that I talked to is a mom main. She's a family law attorney, forty seven years old. She talks about just how hard it is to buy enough food for her growing family without breaking the budget. She talks a lot about how difficult it is to save for the future and just to make all of the ends meet. You know, she sees rise and costs for nearly everything happening right now. And at the same time, she works in a small business and is worried about the ability of other people to pay her for her services and how that will affect her livelihood moving forward. I also talked to Rebecca Acuna. She's a twenty eight year old mom who's living in Indianapolis. She works as a paralegal. She estimates that she's spending two hundred dollars more per month on groceries than she did a few years ago. Also has a higher utility bill and wants to replace her car that's super old, but with higher interest rates, she's going to put that off for longer.
Economists are feeling pretty upbeat about the economy at this point, are more upbeat, you know, they're saying that we've avoided a recession, which you know historically we're sort of on track to have had by this point or have next year. But the people that you talk to for this story are feeling really down in the dumps about the economy. Sean, can you talk to us about why there is this disconnect?
Yeah, and there's this huge disconnect, and that has to do with what economists look at in terms of the aggregate economy. We've seen growth hit four point nine percent in the third quarter of this year, which incredibly fast historically for the US economy. We've seen inflation coming down, but there's a big gap between what economists look at and what you and I or anyone really looks at when it comes to their own personal economies and their household budgets every month. And the reality is inflation has come down, but that's just the rate of increase of prices that has come down. Prices haven't come down at all. And the middle class really feels that you are paying more today to do the things you need to do as a middle class family than you were just a couple of years ago, and that is consequential. You see the impact of interest rates, you know, if you're sending a kid off to college today, you are paying higher interest rates on student loans. As Claire said, if you want to go buy a car, you're going to be paying seven to eight percent, maybe even higher depending on your credit score for a loan. If you want to get a mortgage, if you want to move, if you want to take advantage of a job opportunity, you again have this kind of barrier of Okay, well, I may have to give up my low interest rate mortgage to go pursue this great job opportunity. Claire and I have been talking to people over the past year, and we're going to be tracking them through the election next year. And I think of a guy called Tom Mayley, who's a retired optometrist lives outside of Columbus, Ohio, and we spoke to a year ago for this actual podcast.
I'm not sure that even though my sons and spouses are well educated and earning a good living, I'm not really quite sure they can afford to put their children through advanced degrees like I was able to do with my own children. That is a concern that weighs heavily on me, and I have certainly put money aside for them, but with the escalating college costs, I do have great concerns that my grandchildren won't be able to maintain the standard of living that I have and my sons have.
And he had a son who just got a promotion and had to move as a result. Tom will tell you, look, I'm proud of my son. He got a promotion, but economically actually ended up going backwards because he's paying more for a smaller house today than he was when he had the lower job. And you know, you have this grind that's there, that's really been amplified in the last couple of years, and people feel like that grind just isn't going away. And that's not something economists necessarily measure. They're looking at aggregate statistics that all look pretty.
Rosy after the break, how Democrats and Republicans, boomers and millennials differ on the state of the economy. So let's walk through some of the data you've collected along partisan lines. Half of Republicans and a third of Democrats say they're stressed. Claire, why are Democrats more likely to be satisfied with their personal finance than Republicans or independents? That's a great question.
I think some of it comes back to who's in office right now. President Biden has made a lot of his agenda based around the economy by nomics, as we know, the president doesn't have a super direct connection to the economy, but some of the policies he or she puts in place definitely a tribute to it. It does have a lot of implications for this year's election as well. I think in general we found is that Republicans in some of this polling were more likely to sort of be dissatisfied with rising prices. And all people are affected by the rising prices and they're affected the same way. But I think it sort of goes back to the lens in which you view the world.
Yeah. Look, I think the reason we are tracking this middle class, which is roughly one hundred million adults in America for two reasons. One, they are the core consumers in a consumption led economy here in the US. They are hugely important in terms of the economy. The second thing is that's one hundred million adults who tend to vote at a higher rate than others in elections. We think how they feel is going to be pretty important in next year's election. There is absolutely a partisan gap. There are also some generational gaps that are interesting, right. So if you break down our poll findings, we ran a question asking people whether they felt the US economy worked for them. Overall, just thirty percent of Americans said they thought the American economy worked for them. That went up to forty four percent for the middle class. And then it gets really interested when you start looking at it by generations. Almost sixty percent of millennials think the US economy is working for them, Millennials in the American middle class, and just thirty percent of Baby boomers in the American middle class think the economy is working for them. And then you translate that through to Democrats and Republicans and independents, and you find sixty percent of Democrats think the economy is working for them, and just thirty two percent of Republicans think the economy is working for them, and it's roughly thirty seven percent of independence. The point is there are a lot of views of the economy that are informed by personal circumstance, and yes, politics gets into it.
I think it's really interesting too when we think about perception versus reality, and that's always an issue when we look at the polling, and so basically what we're measuring is the perception, the feelings, and it just gets into some really interesting questions about why people feel the way they do and what contributes to it. But I think, like Sean said, one of the big goals of this project is to look at how this influences how people will vote in the upcoming election, and we know that perception plays such a big role in voting.
That's interesting what you said about generations. I'm curious what the polling looks like if you break it down by race and esthenicity. What does it look like there.
Yeah, Unfortunately, the race numbers that we have, it's not the most robust in terms of attitudes. But what we find broadly is that almost sixty percent of people of color, for example, in the middle class, say that the economy is working for them, and it's a lower level actually for white middle class Americans, just forty two percent said the economy is working for them.
Why is it, Sean, that people of color are expressing more satisfaction in this polling with the estate of the economy.
It's a really hard question answer and we need to dig into that more. And one of the things we're going to be doing in this project is really diving into the Latino and Black middle classes in America and how they're doing. What we have seen in the last couple of years coming out of the pandemic is a remarkable reduction in black unemployment levels, for example, and broad unemployment levels for people of color. By some measures, they have recovered better than the white middle class. This has been a feature since the twenty sixteen election of white middle class anxiety about their own personal economies. And you know, if you talk to Republicans, the issues of diversity and inclusion have benefited people of color in recent years. These are incredibly complicated questions, and one of the things you can't do with polling is always get to the bottom of them and so on. But what we're trying very hard to do with this middle Class project is to take this polling and to go out and talk to people and to just listen to people. You know, I spend a lot of time talking to economists and watching economists, and sometimes I wish I could just get those economists who complain about these polls that show a grumpy middle class or grumpy voters out there about the economy. Sometimes I wish I could just get them to sit down with some real people and have that conversation, because if you talk to real people, you just run into very quickly, just this tiredness, right, this feeling that we have been weathering an incredible economic storm over the last few years, and it doesn't matter what the aggregate numbers look like. Yes I'm doing okay, but it still feels damn hard.
When the big take is back. What the negative economic mood means for President Biden's reelection bid.
They said millions would lose their job and the economy would collapse, but this president refused to let that happen. Instead, he got to work.
That clip was from a campaign at the Biden administration debut during the NFL season opener this year. Claire, if the Biden administration feels like he's doing such a good job for the economy, what should be his concern when it comes to middle class voters today.
I think for so many people, finances are a major reason why they vote for one candidate or another. When you look at someone's financial situation, that affects every day of their lives and their future and their plans, and it really influences how they vote, and if they think a certain candidate can help improve their finances, that means less worry, that means more opportunity, that means a better quality of life. That's why it's really important to look at not just people's actual financial state, but their perceptions about it as well, because that influences where they vote and how they're thinking about their political stances.
And what do you think the Biden administration can do to ease this burden for the middle class before the end of his first term? Is there anything they can do?
President Biden, in a pretty unique way among presidents, has staked his legacy on the middle class. He talks constantly about building the economy from the bottom up and the middle out, and he has really turned economic policy in the United States towards a focus on things like industrial policy, which are meant to bring back manufacturing jobs, on a real focus of rebuilding the ranks of unions and kind of enabling unions to get better deals. We saw that in the recent United Auto Workers strike. The problem that Joe Biden has, though, is a lot of what he is doing for the middle class is only going to pay off in the longer term, and in the short term, that middle class is still riding out these kind of stormy waters that we have left behind from the pandemic and our kind of road out of it. And you know, we may still get a recession between now and the November twenty twenty four election, and that would be a huge hit. That doesn't mean that manufacturing jobs aren't going to come back in the longer term, or that the American middle class may be better off five or ten years from now than it is today, and that Joe Biden has some responsibility for that. But there is just that short term grind that he has to get through, and I'm not sure there is very much that Joe Biden can do. In some ways, there's a real risk for him politically if he goes out there and keeps talking about how great the economy is and all of those middle class voters are looking at him and going, well, it just doesn't feel great from where I'm sitting. So it's a really hard road for Joe Biden on the economy. And we have poll after poll showing that in fact, people trust Donald Trump more and that maybe because simply the economy for a time there was more stable. It was most of Donald Trump's tenure came before the pandemic and the recession that that prompted. There. It may also be that they just have had very different personal experiences in recent years, maybe that their kids are older, maybe that their car has died and suddenly they have to go out there and buy a car and pay those higher interest rates. What may save Joe Biden politically is that economy is not the only issue. You know this, Nancy is a political reporter, that abortion, for example, has been a huge issue for a lot of suburban women, for example, a lot of middle class women, and that that may play out more so. It's a really hard road for Joe Biden, but he may be saved by other things.
Yeah, and I think too in terms of the economic messaging, it really is a fraud line for him to walk, just because so many people have different lived experiences than maybe the polls suggest. I do think one area where he has made some progress is in a student loan forgiveness. You know, the big headlines this summer we're all about how his freeiveness plan has been struck down. But his administration, through adjustments to some of the forgiveness programs already in place. They've actually erased one hundred and twenty seven billion in student loan debt, which I think is also significant to the middle class because so many people in the middle class have student loans, and that's been one sort of thing that he's done that's maybe gone a little bit unacknowledged, is some of those policies. And you know, we know without student loan debt, so many people have more economic opportunities as well, So that maybe is one area where things are looking up for him a bit.
And Sean, how much of this depends on what the Federal Reserve does over the next year in terms of cutting or raising rates a huge amount.
And this is a little bit where Joe Biden does have much agency, right because the Federal Reserve is the independent central bank and it's the one that sets interest rates. A lot of economists are starting to think that starting in twenty twenty four, it may start cutting those interest rates that have been stressing out the middle class so much that obviously would be good. Mortgage rates would come down, car loan rates would come down all of a sudden. All of these things might help boost optimism in the middle class. There's a flip side to that as well. Though. One of the reasons the FED could start cutting rates rapidly is that the US looks like it's going into a recession or is going into a recession, which would not be good for the American middle class. Look, this is another example of one of those bits of the economy that Joe Biden just doesn't control and yet could really determine his fate.
Yeah, it's such a wild card, I feel like, Sean, I don't know if your sense of it is the same as mine, but I totally see different predictions, even from some of the big bank strateg Just even today, there's a lot of disagreement about when the FED might start cutting rates. That could be as soon as early to mid twenty twenty four or later twenty twenty four, and that you know, would impact a lot of the economy and the attitudes toward it, potentially benefiting Joe Biden, potentially not. So I'm really interested to see how that plays out.
You know, one of the big stories in this kind of debate among economists is that over the last couple of years, many economists have just gotten their wrong right. So, you know, the forecasts were that we were going to be in a recession at some point this year. That hasn't happened. The US economy has been much more resilient. A lot of people are forecasting a recession next year that may not happen. A lot of people are forecasting that the Fed will start cutting interest rates. That may not happen. The lesson to the last couple of years is get ready for some surprises.
Well, thank you so much, Sean, Thank you so much, Claire. I appreciate it.
Always great to be here.
Yeah, thank you, it's really fun.
Thanks for listening to us here at The Big Take, a daily podcast from Bloomberg and iHeartRadio. For more shows from iHeartRadio, visit the iHeartRadio app, Apple Podcasts, Bloomberg CarPlay, or wherever you listen, and we'd love to hear from you. Email us with questions or comments to Big Take at Bloomberg dot net. Our supervising producer is Vicky Vergalina. Our senior producer is Katherine Fink. Our producers are Moe Barrow and Michael Falero. Raphael I'm see Lee is our engineer. Original music by Leo Sidron and I'm Nancy Cook. We'll be back tomorrow with another big take.
