The Manic Economy: Jobs Are Great! Wages Stink! Inflation Is Terrible!

The U.S. economy is acting strangely these days, and Americans are highly conflicted about the state of their financial prospects.

Take the job market. Employers added 531,000 jobs in October, while the August and September labor market reports were revised higher by a combined total of 235,000 jobs. The unemployment rate dropped to 4.6%, and there were nearly 10.5 million job openings available at the end of September. That’s more than were available immediately before the Covid-19 pandemic.

These unambiguously positive employment trends are reflected in the most recent Forbes Advisor-Ipsos Consumer Confidence Weekly Tracker: The job index rose to 67.9 (out of 100), up 3.8 points over two weeks ago.

Meanwhile, consumers continue to grapple with substantially higher inflation. As measured by the Consumer Price Index (CPI), prices are up 6.2% compared to last year, the largest increase in more than 30 years. Meanwhile, inflation-adjusted wages are falling.

The negative impacts of inflation can also be seen in the Forbes Advisor-Ipsos survey: consumer confidence stands at 50.5 points, up 2.8 points over the last reading fortnight, but down nearly 3 points from March 2020, before the Covid-19 pandemic.

Good Jobs, Lousy Pay and High Inflation

The survey suggest that U.S. consumers are highly conflicted by the confluence of good jobs, lousy pay and high inflation.

Other polls bear this out, too. Nearly three quarters of respondents in a recent Gallup poll agreed that now was a good time to look for a job. That’s higher than at any other time during the 21st century.

It’s no wonder then to see a record number of U.S workers quitting their jobs: 4.3 million Americans quit in August, and another 4.4 million quit in September. Participants in the so-called Great Resignation may feel confident about jumping back into the labor market and finding a better paying gig.

They’re not wrong: The median wage grew by 4.9% in October 2021 compared to a year earlier, an advance that dwarfs gains seen in the years before the pandemic. Those dollars, meanwhile, aren’t going unused: Consumer spending jumped 1.7% in October compared to a month earlier, more than double the prior reading.

In the background, Covid-19 deaths have dropped substantially from their most recent peak, according to the CDC, while the stock market is flirting with all-time highs.

So Americans are very optimistic about their job prospects, which has translated both into more pay and increased consumption. Why are they so gloomy about the economy?

One possible explanation is inflation. No matter which gauge or metric you use—the prominent ones are laid out clearly by the Atlanta Federal Reserve—prices are high and consumers have noticed.

Elevated prices have more than cancelled out wage gains, with median pay declining by an inflation-adjusted 1.2% over the past year. And while industry experts anticipate record retail sales in the lead up to Christmas, shoppers know that many of the items they want may not actually be available or arrive before Santa needs them.

That’s caused some pessimism. The University of Michigan index of consumer sentiment, for instance, was down 13% in November 2021 compared to the same period last year, and off nearly 7% from a month ago.

In the Forbes Advisor-Ipsos Consumer Confidence Weekly Tracker, just 17% of adults have been able to invest or save money more than they typically do, compared to three-in-ten who have invested or saved less. (Everyone else’s behavior was basically unchanged.)

You’d think that in a hot jobs market, those figures would be reversed.

Consumer Confidence Is Still Gaining

Overall consumer confidence (which factors in consumer sentiment about investing, expectations about the economy and their own finances, and jobs) gained in the Weekly Tracker, rising to 57.7, up 2.3 points from two weeks prior.

Unsurprisingly, jobs were the most robust sub-index. But expectations—how consumers viewed the outlook of their personal finances, as well as the economic environment around them—were a close second. In fact, the expectations sub-index is 0.8 point higher than before the pandemic, the only sub-index to improve over early March 2020 levels.

That forward-looking gauge may reflect the improvement in the nation’s Covid-19 situation, as well as the belief that this inflationary moment will return to more normal levels relatively soon, as the Federal Reserve has predicted.

Investor confidence, while increasing in recent weeks, remains 1.5 points lower than before the pandemic. This is somewhat surprising given that the S&P 500 continues to flirt with all-time highs and home prices are exploding.

Concerns about inflation are doubtlessly playing a part. “We believe inflation is more harmful to investors than a recession,” Nancy Davis, founder of Quadratic Capital Management. “Inflation harms investors slowly over time by reducing their purchasing power.”

That’s especially true for investors with lower risk tolerances, or trying to simply preserve their principal, through bond holdings. The Vanguard Total Bond Market ETF (BND), for instance, is down 2% so far this year.

More from Forbes Advisor