The Great Decoupling: Macroeconomic Perceptions 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-six years of surveys on the state of the U.S. economy. The effect of inflation on these perceptions did not change during the pandemic, but the effect of unemployment fell significantly. The temporary provision of large income stabilizers generated an unusually mild response to increased unemployment in 2020, then negative real wage growth caused unusual pessimism in 2021-22, despite a tight labor market.

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

JEL Classification: E32, E27, E01