A recent poll concerning the state of the US economy revealed that most Americans have a rather downcast view of how things are going. According to the Guardian/Harris poll,1 which surveyed more than 2,000 adults over 2 days in May 2024, significant numbers of Americans believe that:2
- The US is currently experiencing a recession.
- The stock market is suffering.
- Inflation is increasing.
- Unemployment is at a 50-year high.
"When I look at the results of the poll, I find them surprising," says Naveen Malwal, institutional portfolio manager with Strategic Advisers, LLC. "I closely follow economic data and markets, and I'm not seeing many signs of weakness. But I can also appreciate where investors are coming from. Looking at the news, it's easy to hold on to some of the negative stories that we've seen."
In fact, the data tells another story:
- While the criteria for determining when a recession occurs is complex, there is no indication that one has arrived. The gross domestic product of the US has actually grown over the last 2 quarters: by 3.3% in Q4 2023 and 1.6% in Q1 2024.2
- Stocks are doing well. The S&P 500® Index rose by 24% in 2023 and has continued on its upward trajectory in 2024, rising more than 10% in Q1 2024.2
- Though still elevated from its pre-pandemic levels, the rate of inflation most recently dropped to 3.4% in April, down significantly from its peak of 9.1% in June 2022.2 Furthermore, wages have generally been rising faster than inflation since February 2023, which in theory should lessen the impact of rising costs on consumers.3
- The unemployment rate is actually near a 50-year low. In May 2024, it rose slightly to 4%, which is well below the average reading of 5.7% since 1950.4
Why is there such a gap between perception and reality about the economy?
It may be hard to pinpoint exactly why there's a substantial gap between Americans' perception of the economy and the reality of the data. It's possible that the situation could be influenced by the lingering sting of inflation. This has paradoxically emerged as a greater concern among poll respondents over the last 3 years, even as the rate of inflation has declined back toward more typical levels.5
Beyond that, it's common for the 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 due to the fact that readers and viewers appear to engage more with negative news, a psychological phenomenon known as "negativity bias."6 This can lead to a skewed understanding of what's going on in the economy.
"For example, investors may have seen headlines about layoffs, and sometimes those numbers feel big and can give the impression that the whole US job market is struggling," says Malwal. "What's not covered as much, however, is the more gradual hiring that's happening throughout the country. Sometimes even the 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 may be met 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 a harbinger of an imminent collapse. Perennial concerns, such as fear of a rising national debt or volatility as a result of the upcoming presidential election continue to influence investment decisions, perhaps negatively.
As an investor, however, it's critical that you reconcile your beliefs about the present 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 reach your goals.
Signs of strength are visible—just look around
While many Americans may believe that the economy is in rough shape, they aren't necessarily acting like it. "The majority of Americans are spending more than they did a year ago, even while they are unhappy about inflation," says Malwal. "They're traveling, they're dining out, and spending money on experiences. That behavior has a positive effect on the economy."
Consumer spending—a major driver of the US economy—appears to be resistant to the gloomy consensus. Americans are traveling in record numbers. According to the TSA, 5 of the top 10 travel days in the agency's 22-year history were in 2024, with the highest volume of all time on May 24.7 The National Restaurant Association estimates that 2024 will be their industry's biggest year ever, projecting total spending at US restaurants to reach $1.106 trillion, a 5.6% increase over 2023.8
On some level, people seem to recognize this. For example, if you survey Americans about their personal financial situation, they generally report satisfaction. A recent Wall Street Journal poll of swing state voters found that 45% of respondents believed their own finances were "good" or "excellent"; however, 68% said they believed that the average person was struggling to get ahead.9
What should investors do?
Though markets themselves may not be experiencing much volatility right now, attitudes about the markets certainly are. As a result, the techniques that investors use to avoid making bad decisions when navigating market turbulence can be applied in this situation, as well, with a few slight adaptations.
- Look less frequently. Spend less time watching financial news or following market developments on social media. Consuming more information does not necessarily make you more informed—it may actually increase the likelihood that you become misinformed or get caught up "doomscrolling," endlessly consuming negative stories in a way that affects your mood, judgment, and decision-making. When seeking information, think quality over quantity. "Because it's an election year, people are likely going to be paying more attention to the news," says Malwal. "Investors should remember that when they encounter a catchy headline or campaign slogan, they should put in the effort to go beyond that and see how what's being said lines up with the data."
- Consider the sources. Think about where you get your information and evaluate whether what you're reading or hearing is grounded in data. Don't rely on pundits to interpret the data for you—do your own research and go straight to the source. "While it may be informative and interesting to hear a variety of opinions on a topic, I have found that looking at the actual data on earnings and the economy is most relevant when it comes to making investment decisions. Relying on a gut feeling or trading on someone’s political opinions may lead to some undisciplined investing," says Malwal.
- Don't go it alone. Working with a trusted advisor or investing in a professionally managed account may help you avoid overreacting to one-off economic and market news headlines. This can help you stick to your long-term investment plan even in the face of uncertainty. "A financial advisor can act as an impartial coach," says Malwal. "Their focus is on helping you get to your long-term financial goals. They should know you and your financial situation well enough to be able to provide you with the right context for what you're hearing and help you avoid making a costly mistake in the short term."
Consider the potential benefits
If you're making investment decisions based on an understanding of the economy that's not aligned to the underlying data, you may miss out on an important opportunity for growth potential. "If you feel that the economy and the market aren't doing well, even as things are actually OK, you may decide to invest more conservatively," says Malwal. "In that case, it may take longer to reach your financial goals. Or if you stay away from the markets for too long, it can potentially put certain goals practically out of reach."