Read about the US through the lens of politics and everything is horrible.
Look only at the US economy and things aren’t so bad. And if you ask the most important US consumers, things are about to get better.
On Monday, the New York Federal Reserve released its latest survey of households, and two points that jumped out at Neil Dutta at Renaissance Macro were outlooks for household income growth of both low-education and high-education households.
Specifically: these views are essentially the same.
Educated households in February held a slightly more bearish view on their income prospects, but were still about where they have been throughout the brief history of this series. Those with a high school education or less, on the other hand, are increasingly bullish.
And taking low-education households as a proxy for lower-income households, Dutta argues that we’re seeing the positive impact from Fed policies aimed simply at reaching full employment.
(The idea is that consumers who make less money and are more likely to spend an additional dollar of income than higher-educated, higher-earning households. The economic principle is called the marginal propensity to consume.)
Here’s Dutta (emphasis ours):
If the political headlines are any indication, what we are seeing is a massive top-ticking from the electorate. When you top tick, it is all downhill from there. So, in this case, the electorate seems to be top ticking the “my life will never ever get better” theme… The point here is, the most powerful way for monetary policy makers to combat income inequality is to promote an economy that runs at or close to full employment. It is working.
The more subtle point we’re interested in is how this outlook captures the theme that has more or less defined the economy in 2016: main street doing better, Wall Street doing worse.
And if we think about Wall Street as analogous to the political establishment that has seen its power deteriorate (as recently outlined by my colleague Josh Barro), then these converging views on the US economy from consumers who are more likely to save money and consumers more likely to spend is the latest embodiment of where the economy and the country is headed.
People are winning, power is losing.
“Never in my lifetime will things get better” had become conventional wisdom for many Americans in the post-crisis world. And the more time that goes by, the less this looks like it will ultimately be true.
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