Despite a relatively strong economy, Americans are more pessimistic than the data suggests they should be. Inflation and negative news may be to blame.
If America had a national mood, it would be gloom.
Various economic indicators show things aren’t actually so terrible: inflation is cooling, unemployment is low at 3.7%, GDP grew 2.9% last quarter, and jobs are still being added at a rapid clip. The economy is clearly not in a recession, despite recessionary consumer sentiment.
Yet the University of Michigan’s closely watched sentiment survey sank to depths on par with the 2008 financial crisis. And President Biden’s approval is lingering below 45%, even though he rightly points out this is the strongest job growth under any president.
So why the disconnect? Economists have puzzled over why consumers are so dour when spending remains healthy. Here’s one compelling explanation: the firehose of negative news in the internet era.
Information Overload Driving Negative Sentiment
In a new analysis, Moody’s economist Matt Colyar argues today’s pessimism comes from more people encountering more news, much of it negative. He highlights a growing divergence over the past 20 years between hard economic data and soft survey data on consumer attitudes.
As the digital revolution enabled the 24/7 news cycle, psychology decoupled from reality. Outlets emphasize the bad because it grabs attention, while good news gets buried.
For example, 38% of Michigan survey respondents in 2022 said they heard negative news on inflation, nearly double the 20% who said that in 1980, even though inflation hit a higher peak back then.
And though hiring has been strong under President Biden, just 11% say they’ve heard good job market news lately – down from 34% early in his term.
The small business optimism index, manufacturing gauges, and more show similar patterns of soft data skewing negative compared to hard data like job numbers.
Psychologists note people have a built-in negativity bias. News outlets leverage this because fear, anxiety, anger and outrage drive more clicks, shares, and profits than feel-good stories. Thus ordinary consumers end up disproportionately exposed to alarming inflation coverage rather than positive job market stories.
Over time, this compounds to fuel a pervasive sense of gloom bordering on mass hysteria – despite an economy that keeps chugging along.
A Vicious Cycle of Bad News and Gloom
The pessimism itself becomes another bad news story, feeding the vicious cycle. Ninety-percent of news coverage about consumer sentiment focuses on the negatives like falling confidence indicators.
This overriding gloom spans the political spectrum, showing up equally among Democrats and Republicans according to Gallup. That challenges the notion it’s just people upset with Biden or Democrats.
Instead the relentless firehose of negative news itself – through digital feeds, social media, and around the clock cable news – whips Americans into a psychological frenzy. Eventually perception overrides reality, likely explaining today’s profound gloom amid a decent economy.
Battling Back Against the Tsunami of Bad News
With negativity bias deeply rooted in human psychology, and the business models of digital media centering on doom scrolling, this phenomenon won’t fix itself anytime soon.
President Biden leans heavily on showcasing numbers about strong growth, low unemployment, and declining gas prices to counteract inflation coverage. But as an 81-year old from another era, even Biden may struggle to cut through the tsunami of digital bad news warping consumer psychology.
Escaping the cycle lies first in awareness – realizing much coverage emphasizes outlandish anecdotes that stoke anger. Consume news judiciously. Avoid rage bait headlines. Seek balance across multiple sources – including some local outlets.
Second, discuss what’s going well too, not just venting frustrations. Social reinforcement shapes mindsets over time.
It may also help checking in directly with real humans in your community, not just the screaming hordes on social media. Neighbors could be doing alright even as national surveys plummet.
With effort, we can mitigate some effects directly and exert pressure on media. But filling today’s negativity void requires confronting some ingrained human biases. Moving beyond gloom to a balanced perspective presents an immense challenge. Still, the payoff – for mental health and democratic discourse – makes it well worth undertaking.