The Great Decoupling: Macroeconomic Perceptions, Real Wages, and Covid-19

Abstract

The American public’s perceptions of macroeconomic conditions changed dramatically during the Covid-19 pandemic, in seemingly-perplexing ways. To document this phenomenon and better understand it, this paper analyzes forty-seven years of surveys on the state of the U.S. economy. The effect of unemployment on these perceptions has moderated steadily over time, but the effect of inflation has changed little. Rather, nominal wages moved sluggishly during the pandemic despite low unemployment and rising prices, driving down optimism substantially. To a significant degree, the American public assesses the economy by the purchasing power it delivers to households; when that falls pessimism rises.

Keywords: economic sentiment; consumer perceptions; economic surveys; macroeconomic conditions

JEL Classification: E32, E27, E01