The ‘Pre-Disastered Economy’ and Consumer Expectations

The ‘Pre-Disastered Economy’ and Consumer Expectatins

In the 1982 film “The World According to Garp,” Robin Williams’ character and his on-screen wife are looking at a home to purchase when a small plane crashes into the side of the structure. Rather than walk away, Williams immediately buys the house saying, “It’s been pre-disastered. We’re going to be safe here.”

For a lot of consumers, the financial havoc brought by the Covid-19 pandemic seemed to be a bit of economic pre-disastering insulating the economy as the country searched for the elusive “new normal.” After living through lockdowns and social distancing and skyrocketing unemployment the worst had to be behind us. But it hasn’t lived up to the hype.

There’s been a lot of handwringing lately about the apparent disconnect between the state of the economy and peoples’ feelings about the economy. And it seems to be driving economists and commentators crazy.

Part of this is the age-old divide between perception and reality, in this case fueled by the incessant din of social media. In response to statistical data, beleaguered consumers fall back on anecdotal accounts of high prices, low wages and overall economic malaise. These are often punctuated by engagement farmers bringing literal receipts from grocery shopping in an effort to prove their experience is representative of the true state of the economy. But while most casual social media users scroll down to the total at the bottom of the receipt, only a few take a closer look at the items listed to discover the spending habits of the poster are anything but typical.

It’s not hard to see why.

Beyond the fundamental short attention span that social media exacerbates in users looking for the next shiny object or juicy bit of gossip, Americans seem to be predisposed to react negatively to any news about the economy. We‘d all prefer to make more and spend less, and somehow the tale of woe we read in idle moments resonates with our worst fears of financial doom and gloom.

But outside of the social media echo chamber, confronted with reasonable inquiries about the true state of their personal economics, a surprising number of Americans take a more sanguine approach to their thoughts on money.

According to the Federal Reserve Board’s latest report on the Economic Well-Being of U.S. Households for the year 2023, a third of respondents said they are living comfortably and another 38% said they are doing okay. That means more than three-quarters of Americans aren’t standing at the edge of a financial cliff. So where does the doom and gloom about the economy come from? It is rooted not in facts on the ground, but in expectations.

Not just the expectation that each generation will be more successful and financially secure than their parents’ generation, but a deeper conviction that having weathered the Covid-19 pandemic and its accompanying economic shocks everything is now coming up roses. But Covid and its effect on the economy changed the calculus for a lot of people.

The hope that the pandemic got the next financial meltdown out of the way and all would be right with the world has changed expectations, and the reality that economies ebb and flow through periods of boom and bust – with a lot of mixed signals in between – has contributed to the disconnect between economic reality and personal perspectives.

As it turns out, Covid hasn’t inoculated the economy from future shocks, because those shocks will come eventually. They always do. And then they go away.