The U.S. economy is doing better than Americans think

President Joe Biden said earlier this year that the U.S. economy was “literally the envy of the world” after inheriting an economy he called “on the brink” from his predecessor Donald Trump.

“It takes time, but the American people are starting to feel it,” he said in his State of the Union address in March.

But despite the positive outlook, more than a third of Americans disagree. According to a poll conducted exclusively for Newsweek by Redfield & Wilton Strategies, 46% of Americans believe the economy is in worse shape than it was in January 2021, when Trump left the White House, compared with 33% who said it has improved. Fifteen percent of the 1,500 eligible voters surveyed on August 15 said they believe the economy is the same, while 6% said they don’t know.

The poll also found a significant partisan bias in beliefs about the economy, with 68% of those who said they would vote for Trump in the 2024 presidential election saying the economy is worse than it was in 2021, while only 25% of those planning to vote for Biden's replacement, Vice President Kamala Harris, believe the same.

When asked to describe the current state of the U.S. economy, 41% said it was bad or very bad, compared to 36% who said it was good or very good. Another 20% of respondents said it was neither good nor bad. Another partisan divide was observed here: 60% of likely Trump voters said the economy was in terrible shape, while only 26% of Harris supporters said the same.

Is the US economy really bad?

The health of an economy can be assessed using several measures, but the most commonly used is gross domestic product (GDP). GDP measures how much is produced, how much is spent, and how much is earned in an economy over a given period of time.

The St. Louis Federal Reserve has measured a 2.8% increase in U.S. GDP in the second quarter of 2024 compared to the same period in 2023. Since the third quarter of 2022, the national GDP has been increasing steadily compared to the previous year. Simply put, the U.S. economy has been improving steadily since then, despite what people may think.

According to the Bureau of Economic Analysis, in June 2024, Americans' personal income increased by $50.4 billion, or 0.2% on a monthly basis. Personal disposable income (DPI), which is personal income minus personal current taxes, increased by $37.7 billion, also an increase of 0.2%. Personal spending, which includes personal consumption expenditures (PCE), personal interest payments, and personal current transfer payments, increased by $59.3 billion, or 0.3%, while consumer spending increased by $57.6 billion, or 0.3%.

Composite image created by Newsweek. A poll shows that a significant percentage of Americans think the U.S. economy is doing poorly. Composite image created by Newsweek. A poll shows that a significant percentage of Americans think the U.S. economy is doing poorly. Photo illustration by Newsweek/Getty How does the U.S. economy compare?

Additionally, more than a third (36%) of respondents believe the US economy is not performing as well as other major global economies such as the UK, Japan, Germany and France.

The US, however, is doing better than all other G7 countries. While all G7 countries have faced high inflation after the pandemic, the US has still managed to generate growth thanks to an improving labor market.

“The enormous COVID-related labor market disruption of 2020-21 had the unexpected benefit of displacing millions of low-income workers into better jobs, greater income security, and/or starting their own businesses,” Adam Posen, president of the Peterson Institute for International Economics, told Axios. “We’re reaping the benefits of that now in terms of labor force participation, wage growth, and productivity improvements,” which Posen said is “very different from Europe and Japan, where most workers have remained tied to their pre-COVID jobs.”

The International Monetary Fund (IMF) has predicted relatively good performance for the US economy for the rest of the decade, through 2029, at least compared to other G7 countries, with an annual growth projection of 2.1%.

By comparison, neighbouring Canada is expected to see its GDP grow by 1.7% per year, the UK by 1.4% per year and France by 1.3% per year through 2029. Italy, Germany and Japan are even further behind, with real GDP expected to grow by 0.8%, 0.7% and 0.4% per year respectively for the remainder of the decade.

Why do people think the economy is bad?

Despite these positive trends, Americans are not convinced. In addition to thinking that the economic situation has worsened since Biden took office, a significant percentage (45%) think that things are still going in the wrong direction, compared to 35% who think that the economic situation in the United States is improving.

There is a marked difference in how the state of the national economy affects Americans of different economic backgrounds, John Min, chief economist at Monex USA, told Newsweek.

“When inflation is high and persistent, as it has been in the United States since 2021, it divides Americans into two camps: winners and losers,” he said.

“Households in the top two income quintiles hold most of the financial assets, such as stocks and real estate, that provide an effective hedge against the eroding effects of inflation. And when stock and home prices hit new highs this year, this camp was able to stay ahead of inflation in real financial terms and win.”

The same cannot be said for people with low incomes and fewer assets, who are struggling to keep up with rising prices.

“While household incomes have managed to keep pace, albeit with some lags, the situation remains precarious for many living paycheck to paycheck, often requiring second jobs and/or relying on credit with record financial costs,” Min said.

In the United States, median incomes have also declined since the pandemic and the current administration took office. In 2019, the median income for U.S. households was $78,250. In 2022, the latest year available as reported by the St. Louis Fed, the median income was $74,580, a decline of nearly 5%.

“Households in the last three categories are feeling increasing financial pressure,” Min said. “For them, the current economic situation is worse than in January 2021.”

Partisan differences

Those who believe the economy is on the road to recovery are again split along partisan lines: 69% of those planning to vote for Republican Trump believe the economy is on the road to ruin, while just 22% of Democrat Harris supporters believe the same, the Redfield & Wilton Strategies poll found.

“We expect that when the economy is doing well, the party in power will be ‘rewarded’ at the polls,” Ethan Struby, an assistant professor of economics at Carleton College in Minnesota, told Newsweek. “Our research suggests that at least some of the difference in polling can be explained by policy responses, and Republicans, who lost previous elections, may say inflation is a bad thing because it is consistent with the worldview that Biden is doing a bad job.”

Christina Farhart, an associate professor of political science and international relations at Carleton College, echoed Struby's comments. She told Newsweek that in her research, she found “a strong political impact on the interpretation of the state of the economy,” which is not surprising.

“You would expect this type of directional reasoning to occur not only with economic news, but also with any other information that becomes politicized, from policy proposals to conspiracy theories,” Farhart added.

During their campaigns, Trump and Harris waxed lyrical about their differences on the economy. A speech on Trump’s economic plans last August was, as usual, peppered with personal jokes about his Democratic opponent: “For four years, she’s been laughing while the economy has been burning,” Trump said. “That’s a crazy woman’s laugh, I tell you. She’s crazy.”

Trump's take on Harris' ability to manage the economy is not the least of the stories in the American political landscape, even though Trump is known for his personal remarks. While Harris is no stranger to attacking her opponents, her team has focused on publicizing their own commitments and the impact they believe Trump's fiscal policies will have on the country and its economy.

“While they pledge to provide more tax breaks to the wealthiest Americans and big corporations, their economic agenda will raise the cost of basic necessities, groceries, prescription drugs, housing and health care for everyone else,” Brian Nelson, Harris’ senior policy adviser, said in a statement to The Hill. “Their reckless and backward policies will wreak havoc on economic markets, raise costs for working families and send inflation soaring. Vice President Harris and Governor Walz are offering a stronger choice in this election: real plans to cut costs, create opportunity and protect freedoms for the middle class.”

Farhart added: “Most people are not well informed about the economy or the actions of the Federal Reserve, so they look to their favorite political elites to determine whether the news is positive or negative. This elitist attitude can mislead people when the numbers are objectively favorable – or not.”

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