Voters are not as mixed on the state of the economy as it sometimes appears. It’s just that they don’t always base their opinions on the factors one believes.
Whenever we address the question of the importance of economic issues during major electoral events in the United States, we inevitably end up – and generally sooner rather than later – by quoting this now famous expression attributed to an organizer of Former US President Bill Clinton: “ It’s the economy, stupid. »
If this were true, economists say, the re-election of President Joe Biden should be assured next fall, as the American economy is doing remarkably well compared to most other developed countries, starting with its rate of unemployment of only 3.9% in February. Even inflation has declined and was only 3.2% year-over-year in February.
And yet, Americans have low economic morale and blame their Democratic president for his poor conduct of the country’s affairs. This is not without repercussions on his support in the polls, with an approval rate of barely 30%.
For its supporters, as well as for several experts, this phenomenon is a real mystery which can only be due to a form of disconnection from reality attributable to a terrible misunderstanding as well as to the extreme division of American partisan politics and to the distorting mirror of social media.
According to some, it is also due to a sort of collective depression coupled with a growing distrust of institutions in general and politics in particular, noted TD Bank economist Shernette McLeod in a brief analysis at the start of this year. week. It must be admitted that the Americans have seen all the colors over the past fifteen years. We only have to cite the bursting of a real estate bubble which caused a global financial crisis, a pandemic followed by galloping inflation and a world that climatic and technological upheavals are making increasingly uncertain.
Question of perspective
But there are also much more down to earth and very rational reasons which can explain this household gloom, continues the TD economist. The first one that comes to mind is obviously inflation.
It is fair to point out that the rate of increase in the cost of living has slowed in recent months as a result of the US Federal Reserve’s increase in interest rates. But it remains, even today, higher than the average before the pandemic and, above all, it comes on top of the price increases of previous years. Since the pandemic, the cost of living has increased by 20% in the United States, twice as much as during the previous four-year period (9%).
Well, it is also true that wages have increased even more since the pandemic (+22%), but it is not the same thing, economist Justin Wolfers explained on Tuesday in the New York Times. Science has shown that “ordinary people”, “like professional economists”, do not receive these increases in the same way, the first being perceived as an unfair external shock while the second is seen as a due which rewards hard work.
And then, the measurement of inflation in the United States strangely does not take into account the impact that the rise in interest rates also had on mortgage costs, recalled the economist and former American Secretary of the Treasury Larry Summers in a study. However, the costs of real estate ownership have more than doubled since the pandemic in the United States.
Thus, American voters’ perception of the state of their economy is not based only on impressions, it is also anchored in objective data, summarized in the New York Times in February the American pollster and analyst Nate Silver. They understand that their economy is doing quite well, especially when compared to other countries. Their bad mood stems from the fact that they choose to place more importance on their loss of purchasing power, at least as perceived.
Canadians not so different
In Canada, there is less mystery surrounding consumer mood. The federal government is not popular here either. If the satisfaction rate with Joe Biden only stood at 31% in February in the United States, it was 29% for Justin Trudeau’s government, according to the polling firm Léger Marketing.
It must be said that, unlike the United States, the Canadian economy has been in serious decline for several months, even though it started the year on a much better footing than expected. As for unemployment rates, they remain relatively low, but have increased in one year from 5% to 5.8%.
Three out of five Canadians believe that their country is currently in an economic recession, another Léger Marketing survey reported last week. However, fewer than two in five say they are very concerned (12%) or somewhat concerned (26%) about losing their job in the next 12 months.
It is for their standard of living and their purchasing power that Canadians worry the most. Nearly half (48%) report living paycheck to paycheck.
Again, the main concern is inflation, and again, perceptions can be misleading. At least if we rely on Statistics Canada averages, which report that the total increase in prices has been 17.3% since March 2019 while the increase in average hourly wages has been 23.7%. in the country.
But, failing to know all the statistics by heart, Canadians do not present an excessively pessimistic vision of the major trends currently observed, if the results of the latest quarterly survey on consumer expectations of the Bank of Canada revealed earlier this week.
In particular, they realized that the pace of price increases has slowed down, even if they overestimate the level by imagining it at 5.25% while inflation has been below 3% since the start. of the year. They expect that inflation will, over time, return to what they perceive to be its long-term historical trend, and perhaps even slightly below, which experts say , would even be optimistic.
In the meantime, nearly two-thirds say they are reducing or postponing their spending to offset “the negative effects of inflation and high interest rates on their budget.” This does not prevent them, notes the Bank of Canada, from “continuing to view labor market conditions favorably” and from anticipating “further above-average wage growth.”
But, as with President Biden, it’s still probably not the ideal time to try to get re-elected.