How good is the current economy? There’s no single variable that tells us and no single index that everyone agrees on. Depending on what they care about, different economists will put different weights on things like productivity growth, the trade deficit, the strength of the dollar, and so forth. However, if we only want to know how workers and consumers feel about the overall economy right now, things are a little easier. They care about the things that are visible to them: jobs, wages and debt. With that in mind, here’s how the US economy did in 2015 on the five big variables that households pay attention to:
Low and steady. Inflationary expectations are well anchored.
Generally very good, but a bit worse than it looks since it’s partly due to a decline in labor participation.
About average for the past few decades, but below average for an economic expansion.
Real Wage Growth
This is hourly wages for production and nonsupervisory workers. It’s well above the average of the past few decades.
This is debt service as a percent of disposable income. It’s currently at its lowest level since 1980.
This is pretty good. So why does everyone feel so lousy about the economy? We can’t ask them directly, since polls have long since showed that answers about the economy are almost entirely driven by partisan feelings these days. But it’s still pretty easy to intuit what’s going: people feel lousy partly because we really have gone through a long and grinding recovery, and partly because everyone keeps telling them the economy is lousy.
On one side of the aisle, conservatives have every incentive to insist that the economy is still in terrible shape. The party out of power always says that. In 2016, Republicans want voters to feel lousy about the economy so that they’ll kick the Democrats out of the White House.
On the other side of the aisle, liberals don’t want to admit that things are going well either. They have a broad structural critique of the economy, and they can only get traction for that critique if voters continue to feel a lot of pain. In 2016, liberals want a higher minimum wage; restraints on Wall Street; student debt relief; spending on infrastructure; continued monetary looseness; and more. All of this is less likely to happen if Democrats start praising how well the economy is doing.
This is an unusual situation. Usually one party wants to badmouth the economy and the other wants to celebrate it. This year, both parties are insisting that the economy is listless and stagnant, in spite of all the evidence to the contrary. The truth is that for the past year the economy has been in pretty good shape. We’re all just afraid to say so.