This is easy to explain with charts and ideas.
An Imagined Paradox
The Brookings Institute measured the macro conditions and wonders why sentiment is so poor.
Please consider The Paradox Between the Macroeconomy and Household Sentiment
Despite recent concerns over a slowdown, the U.S. economy is performing well according to most objective metrics. The top-line unemployment rate was 4.1% as of September 2024, well below its 21st-century average of 5.7%. GDP growth has been substantial, with real (inflation-adjusted) GDP growth of 3.0% over the past four quarters. Wages have outpaced inflation by 0.9% and the stock market has risen by 23% over a similar period. Investment, a key driver of the business cycle, fell very little as a share of GDP following the pandemic, outperforming the recoveries from every recession since 1980.
Judged over a longer time horizon, U.S. economic performance is similarly impressive, especially given the wrenching shock from the COVID-19 shutdowns of 2020 and 2021. Between Q1 2020 and Q2 2024, gains in housing equity and the stock market led to a remarkable $50 trillion expansion in household wealth—$28 trillion in inflation-adjusted terms. Despite the 2021–2023 inflation surge, wages have outpaced price increases since Q4 2019, with real median weekly earnings up 0.3%—with the highest gains for lower-wage workers. Indeed, despite COVID-19, real U.S. GDP is now $130 billion higher than the Congressional Budget Office (CBO) projected it would be in its pre-COVID-19 forecast.
Actual sentiment versus predicted sentiment
Before the pandemic, variation in sentiment could be largely explained using standard macroeconomic variables. In particular, a model that predicted sentiment using the unemployment rate, the inflation rate, aggregate consumption, and the performance of the stock market can explain 77.4% of the variation in sentiment over 2005–2019 (see Figure 2). However, over the last few years, this relationship has broken down, with a wide gap emerging between observed sentiment and predicted sentiment based on the state of the economy.
In simple terms, the puzzle we are examining is as follows: At most points in time over the past four decades, if consumers lived under an identical macroeconomy as they have now, their feelings about the economy would have been largely positive. But now this is no longer true; consumer attitudes about the economy are instead near all-time lows.
In sum, several trends suggest that consumer sentiment is not wholly driven by rational and accurate perceptions.
Real spending on international travel and the volume of travelers going through Transportation Security Administration (TSA) checkpoints have rebounded back to their pre-pandemic levels. Real spending on air transportation has skyrocketed more than 40% above its pre-pandemic level.
CEO confidence itself remains above its pre-pandemic level. By this metric, businesses have been optimistic about the growth of the U.S. economy.
Possible explanations
If economic conditions are strong, and people are behaving in a way that reveals some optimism about the economic environment, why is sentiment so weak? Analysts have advanced an array of possible explanations. One possible explanation, offered by Greg Ip of the Wall Street Journal, is that peoples’ views about the general state of the world and country spill over into their views about the economy. Ip refers to this as “referred pain,” and notes that events like “intensifying political and cultural conflict and intolerance, the pandemic, the border, mass shootings, crime, war in Ukraine, and now the war in the Middle East” may be negatively affecting views of the economy, even if national aggregates tell a brighter story.
Such an explanation is certainly possible, although difficult to test since the non-economic factors that may be causing referred pain are difficult to identify. Moreover, several of the factors identified by Ip are actually improving over the period of interest. For example, in the first half of 2024 most violent crimes occurred at or below pre-pandemic levels, with less frequency than in the preceding 4 years, and the U.S. withdrawal from Afghanistan in 2021 means our nation is not at war for the first time in two decades.
Another plausible explanation, advanced by economist Jason Furman at a Brookings Institution event in January 2024, is that the pace of cumulative wage gains in the post-pandemic era is markedly slower than the years immediately preceding the pandemic (i.e., 2014–2019). Indeed, relatively slower real wage gains could plausibly be a factor behind the sentiment puzzle. However, several caveats are warranted. One, discrepancies in cumulative real wage gains are highly sensitive to the measure of wages, the inflation deflator, and the periods of comparisons. Three, if cumulative real wages drove sentiment, it is not clear why older households—with sharply lower rates of employment—would have reported a concomitant drop in sentiment.
Another proposed explanation for the disconnect between sentiment and fundamentals is that people are receiving more negative news about the economy despite the underlying fundamentals.
Ivory Tower Thinking
Wow what an amazing consortium of ivory tower thinking.
For starters, crime is high. Please note The Committee on Oversight and Accountability is investigating the Federal Bureau of Investigation’s failure to compile and report accurate, complete national crime data.
In 2023, the FBI initially reported an estimated 1.7 percent decrease in violent crime in 2022 but later quietly revised the report to show a 4.5 percent increase––a staggering 6.2 percent change.
The Biden-Harris Administration championed the purported decrease, but there was no decrease. The FBI failed to include in its initial count “an additional 1,699 murders, 7,780 rapes, 33,459 robberies, and 37,091 aggravated assaults,” resulting in not a decrease but an increase in violent crime of 4.5 percent in 2022. The FBI quietly revised the report to reflect this increase in violent crime but did not publicize it.
And CEO confidence is up. What a hoot. It’s shocking, shocking I say, that people are not thrilled about the number of billionaires the US has created to balance out those worried about being evicted.
Brookings also blamed politics. On this theory, Republicans are upset at Biden more than they should be, despite the fact that Biden is heavily despised by those not living in an ivory tower.
Let’s leave the ivory tower for a moment and live in the real world.
A Breakdown, by Sector, of the Negative 818,000 BLS Job Revisions
On August 22, 2024 I gave A Breakdown, by Sector, of the Negative 818,000 BLS Job Revisions
Those negative revisions are a direct result of the BLS Birth-Death model gone haywire.
Job Openings Drying Up
November 1, 2024: Nonfarm Payrolls Rise a Mere 12,000 with Government Jobs Up 40,000
Job openings and quits, not impacted by hurricanes, put an additional spotlight on the poor October jobs report.
Nonfarm Payrolls Rise a Mere 12,000
Blame hurricanes if you like, but the impact is debatable. Only Hurricane Milton was in the reference period.
November 1, 2024: Nonfarm Payrolls Rise a Mere 12,000 with Government Jobs Up 40,000
Job Stats vs One Year Ago
- Nonfarm Payrolls: +2,173,000
- Employment: +216,000
- Full Time Employment: -1,000,600
Employment is up 216,000 in the past year? But how?
Change in Employment Excluding Government
Please consider Excluding Government, Year-Over-Year Employment Is Negative 9 Straight Months
I created the above chart by subtracting the year-over-year change in government employment from the year-over-year change in employment.
Non-Ag Employment Excluding Government
Non-agricultural employment excluding government peaked in August of 2023 at 138.026 million and is now 137.240 million, down 786,000 since the peak.
Unemployment Rate
The unemployment rate hit a 50-year low in January and April of 2023 at 3.4 percent. It’s now 4.1 percent.
“The unemployment rate has bottomed this cycle and will generally head higher.”
I first made that comment many months ago. If there was any doubt, it’s now erased.
The Housing Boom Economists Expected in 2024, Was a Bust
On October 26, I commented The Housing Boom Economists Expected in 2024, Was a Bust
The widespread theory (not in this corner) was the Fed would cut rates, mortgage rates would tumble, and that would stimulate existing home sales. What Happened?
Record High Home Prices
On September 28, I reported Yet Another Record High for Case-Shiller Home Prices
The pre-pandemic Case-Shiller national index was 370.9. Now it’s 553.1.
Home prices are up 49 percent in less than five years. And thanks to Fed QE wizardry, people could have and did refinance their mortgage at 3.0 percent or even less.
Phoenix Leads the Nation in Evictions
It’s not just Phoenix, or Arizona. Evictions are soaring in Texas and Nevada as well.
On October 30, I noted Phoenix Leads the Nation in Evictions, It’s a Yes-No Question
The question is: Did you pay the rent? It doesn’t matter why.
The Fed has destroyed housing with its boom-bust interest rate and QE manipulations.
A $150,000 House in 1988 Now Costs $707,500
August 10, 2024: A $150,000 House in 1988 Now Costs $707,500 Thank You Fed
The above chart represents the mortgage payment of the same $150,000 house reflecting the changing price and interest rate over time.
Case-Shiller Home Prices
September 28, 2024: Yet Another Record High for Case-Shiller Home Prices
Mortgage Rates Hit 7.0 Percent Again
October 28, 2024: Mortgage Rates Hit 7.0 Percent Again, Where to from Here?
With record home prices and mortgage rates back above seven percent, who can afford to buy a home?
Fed Beige Book Shows Only 3 of 12 Regions Growing, 3 Declining
October 23, 2024: Fed Beige Book Shows Only 3 of 12 Regions Growing, 3 Declining
The Fed Beige book shows a mostly steady economy in 6 of 12 regional reports. “Steady” is in context of the the worst Beige Book in years.
The Immigrant Crime Spree is Real
October 21, 2024: The Immigrant Crime Spree is Real, Not Imaginary, Thank Harris and Biden
Four years of open borders and sanctuary policies have brought criminal drug networks, human trafficking, and an epidemic of sexual assault.
Living Paycheck to Paycheck
Bank of America has an interesting report on who’s living paycheck to paycheck (PTP). It’s not just the poor. Blame the Fed.
Please note 20 Percent of Households Making Over $150,000 Live Paycheck to Paycheck
And that’s by a strict definition that only includes rent, food, insurance and other necessities. Over 40 percent live paycheck to paycheck.
Dear Brookings, Here’s Your Paradox
- Negative 818,000 job revisions
- Job openings crash
- Full Time Employment: -1,000,600 from a year ago
- Total employment: only +216,000 from a year ago
- Excluding government, year-over-year employment is negative for the last 9 consecutive months
- Non-agricultural employment excluding government peaked in August of 2023 at 138.026 million and is now 137.240 million, down 786,000 since the peak.
- The unemployment rate is up 0.7 percent from the low at a pace that strongly suggests recession.
- Home prices are up 49 percent in less than five years to new record highs.
- A $150,000 house in 1988 now costs $707,500.
- The mortgage rate is back above 7 percent.
- The share of first-time buyers of existing homes is at a record low.
- Even if you have a home, what about flood insurance, fire insurance, and car insurance.
- The Fed’s Beige Book looks very recessionary
- The immigrant crime spree is real. The FBI lied about the crime rate dropping.
- Evictions are at record highs in many states and might be everywhere were it not for eviction moratoriums.
- Tens of millions of people want to buy a home but can’t afford one and a different set of tens of millions of people are trapped in their homes but won’t because of mortgage rates.
- A Bank of America survey shows over 40 percent of the nation is living paycheck to paycheck.
And the Brookings Institute cannot figure out why sentiment is in the gutter.
Then again, the stock market is at an all time high. And CEOs are traveling more. That’s quite the paradox.
It must be Trump.
The entire brookings post as an LLM discussion. Listening to it after the election makes you laugh at brookings.
Hilarious
Brookings Institute is the think-tank for Fed monetary policy. Brookings doesn’t understand why their new way forward zero-rate strategy is a public failure. Brookings’ researchers had dug up the archaic 1938 theory of Secular Stagnation to justify ZIRP. Janet Yellen conducted the monetary policy the first year she became Fed Chairman in 2014, she drove 10-year Treasury rates to 2 percent. The same low rate Ben Bernanke had used for the mortgage crisis. (Except, when Yellen lowered rates, home prices had inflated back to their pre-crisis value.) Larry Summers had presented secular stagnation theory to the IMF in 2013. Obama intended for Summers to lead the Fed, but was denied by congress and they chose Yellen. The day after Yellen departed the Fed, she was hired at Brookings, where she was greeted by Bernanke. She remained at Brookings for a year before she entered the revolving door to the Treasury, as she continues to fund the components of the theory. Though, it’s become expensive since rates are far from 2 percent and costs have inflated more than 2 percent per year.
“You can fool some of the people all of the time, and all of the people some of the time, but you can not fool all of the people all of the time.”― Abraham Lincoln
Apparently the Brookings Institute can’t handle the truth or admit their model is wrong.
Mish, you left out the Federal debt and the perception in people’s gut of a loss of control by our government.
After defeating Hamas, reducing Hezbollah and deflating Iran it’s time for peace. Israel Katz, a diplomat, replaced Gallant. In the next 60 days Biden/Bibi will sow the seeds for a ME peace. Tel Aviv elite protest in the streets.
Blah, blah, blah….
The real creator of all the negativity is unrelenting “Debbie Downer” Trump who is always whining nd complaining about something. This negativity flows to the clueless public, both Dems & Pubs and poisons everyone.
The sooner Trump is put into a jail cell, the better for the world in general.
his followers are professional victims. It’s pathetic.
And you? The loyal lapdog of a demented president.
Imagine thinking one demagogue complaining is shifting the fabric of reality so drastically. Talk about deluded. Trump is a manifestation of disaster, not the cause of it.
In Oct bears forage, looking for berries, before hibernation. During hibernation airline tickets will be cheaper.
Always fun to follow thy logic 🙂
SPY is depressed since Oct 31, but tomorrow it might be happy if the loser will accepts results. If the loser rejects we will be divided. Israel is divided after Bibi fired Gallant ==> that’s an invitation to Iran.
chances of that from either side?!
Yes. In 2016 the dems rejected results and terrorized Trump for 4 years. In 2020 Trump rejected result, but the reps accepted Biden. Early this morning long lines in the polls before they opened. More zoomers and millennials
Mish,
That article’s conclusion says inflation is probably a primary culprit. And I agree with that premise. COVID – and our response to it – changed the US and the world.
Because of COVID and our responses, inflation had not reached this height – and so quickly – since the early 80s. When inflation rates are ‘normal’ or ‘expected’ within a certain range – like most of the past 45 years (although some of us may think they varied quite a bit over this period), the model has worked well. But many of the current survey respondents have NEVER experienced this level of inflation in their lives so they are understandably unhappy and even nervous for the future, even if they think their pay raises during this time were due them regardless. And of course, that inflation impacted housing prices as well.
Anecdotally as well, for me COVID changed my perception of everything and I believe it has for others’ sentiments.
My mortgage payment – after refinancing – is considerably lower. And even though I’ve not had a raise in two years, with higher interest on savings, I’m about the same off financially day to day. And way better off with the rise in the stock market.
But I had friends that died from COVID. And with the shutdowns, I was able to spend much more time and travel with my kids since I was not at work and they weren’t at school. Not any more. So I am at least a little better off financially now – as the article noted – but I’ve also ‘seen’ how else life could be different. So I’d probably answer a survey differently and maybe more negatively now than in 2019. And it’s due to the once-in-a-lifetime (hopefully) COVID phenomenon.
With all the money poured into keeping world economies afloat against the draconian Covid lockdows that too many embraced and which caused the supply chain issues, it was inevitable that inflation would rear its ugly head.
This should have been obvious to all the economists getting paid the big bucks and to Jerome Powell, all of which should have informed the politicians in no uncertain terms.
Then, the failure to act appropriately to quash inflation, instead saying it was going to be “tranistonary” should have gotten everyone making this claim permanently fired form whatever positions they held, whether they were an economist or a newspaper columnist like Krugman.
Why? Affordability.
Many would consider me well-off.
But now there are purchases that before never gave me pause.
This is not going to get better soon.
Agree with “pause” … and airline tickets … seems like they near doubled in past 5 years especially less traveled routes (the fun niches; not big cities).
People are depressed bc the food they eat.
Debt based economic growth model is busted. It does not work for regular people.
Only those first in line for the credit handouts prosper from Federal Reserve leverage rigging.
Not the end of line as people do have choice to use Debt sparingly and do more for yourself which the Government is unable to tax as of yet.
What a person does for themselves yields at least a 50% reduction in cost. Since using money means earning two dollars or more to be able and spend the one dollar you get to keep. This is how those who pioneered America lived, without debt. Things have come full circle since those days.
That said, what I saw this morning at election ballot casting suggests to me Dems were missing in action as they are having difficulty pulling the go lever for Harris.
So will be waiting to see what Trump has up his sleeve to reinvigorate debt based growth or going back to an equity based system to get economic growth humming.
About that housing crash so predicted, house by me went on market got sold in three weeks for more then listed price.
Real estate prices are notoriously sticky on the downside. Plus, this time around, there are vastly-greater interests vested in keeping prices high–all those banks, pension funds etc. holding mortgage-backed paper with interest rates locked in. As bad as 2007-8 was, it will pale once this recession gathers steam:
1) greatly overpriced homes as collateral
2) portfolios of low-interest, long-term loans will plummet in value if rates rise–present value at near-zero rates.
3) efforts to stabilize housing prices and lower interest rates will send inflation soaring again
The Fed is now in lose-lose mode.
I seriously doubt you will see the Fed stay quietly on the sidelines watching a housing crisis unfold (like the GFC). It seems these days the Fed is more anxious than ever to take action. Remember the so-called inflationary target of 2% that never appeared yet the Fed is already cutting? Although I’d like to see true price discovery by letting the housing market crash I think the lessons learned from nearly 20 yrs ago are going to prevent that from happening again. I’m much more concerned with the federal deficit that will need to be resolved to keep inflation at bay.
I have no idea if you have tried to build something recently but cost of construction spins my head around.
Between land, materials, finding any labor that can cut a straight line or read a ruler it has become quite tough.
No way forward to lower costs and shutting things down via interest rate hikes only exasperates the rebuilding of the construction industry.
Few old geezers out there have run out of steam and the trades knowledge base slips further away with every year.
Someone intelligent recently observed that when 5% of the population owns 95% of the wealth a revolution always ensues. Always.
We are not quite there yet, but getting close.
I believe this to be likely
Every election is a revolution. Free and fair is the tricky part. If not free and fair then an old fashioned revolution ensues.
“Every election is a revolution.”
It’s not. Not even close.
Which is why the last competent person elected President of the US, advised a real evolution every 5 elections/20 years/1 generation.
If you look through the list of presidents, quite a lot of them were completely uneducated. There are very few intelligent or educated presidents in US history, and the outcomes aren’t really mapped to that anyway.
Yanks historically love this rags-to-riches underdog story, where you can go and visit the barn that some president whose name everyone has forgotten, grew up in. After 1896, presidents tend to be from wealthy elite class.
Doesn’t seem to apply to places like China, Iran, Russia, North Korea, etc. I wonder what all of these have in common?
Under-reported inflation explains a lot of the pain.
PS – Greg Ip is a tool of the machine ask is Klugman, etc
Little coverage is given to inflation (too much Math for uneducated populace), of note:
Over the past 25 years (1995-2020, the period when hedonic adjustments were introduced), the CPI for new vehicles has risen cumulatively by 4.9% compared with 70% for all items in the CPI. Even though the price of a Honda Accord, with all its new features, more than doubled in price, its quality adjusted price has risen by far less than other items in the economy.
From:
https://thedailyeconomy.org/article/the-fed-targets-a-crafted-measure-of-inflation-a-cautionary-tale/
Over this time period this ‘study’ was conducted, observed consumer sentiment matched predicted sentiment – per the first graph Mish produced. “Under-reported inflation” over the past 30 years has not affected the previous model, only the last 4 years
I give you +1 sir, but note that the divergence between model and sentiment yawed open at same time that inflation ripped. So there may be a kernel of truth that the model is underestimating the divergent effects of inflation across the wide distribution of personal situations.
Agree – inflation is only one factor … Mish lists others. Inflation is my favorite because of COLA and the general manipulation of it.
Excerpt: Model used unemployment rate, the inflation rate, aggregate consumption, and the performance of the stock market (explain 77.4% of the variation in sentiment over 2005–2019).
If Brookings added Interest Rate changes into their model, they might have better success. Inflation reporting errors are not fixed; they vary with time (the reported CPI vs actual/average)… interest expense is explicitly not counted so rising rates on any variable or new loan reduces disposible income (and living standards) … but this isn’t accounted for it in the CPI. Model divergence also occurred just after 2008.
Closing with..do we really care about models? … people feel the pain of massive gov’t spending/overreach….how much pain is answered tonight.
Then, let’s “End the Fed”.
Our 3rd world scenes of migrants and homeless cast a pall on optimism.
Sentiment went to shit after the good old Covid Days…
when people were happy just to be alive…
and receiving big government checks.
Now we are back to reality…
A Tale of Two Cities…
same as it ever was.
If Trump was so great, why was he not elected to a 2nd term?
Comment didn’t age well. Stolen elections have consequences.
It’s the Fourth Turning. It hasn’t been the late 90’s since the late 90’s.
While the number of employed is on a plateau near 20 million jobs were taken by illegal invaders.
You nailed it Mish
Just buy “cheep stocs” and you will be fine.
Macro Economics is a rear-view mirror. Trying to use it to guide policy decisions or to assess road ahead for the individuals who make economic decisions in the present is only coincidentally useful…on long straight stretches where what lies ahead and is behind are similar.
Economic projections within one year are infallible. People have just lost religion. All you had to do was use required reserve numbers.
See Dr. Richard G. Anderson, leading guru on reserves:
“Spencer, this is an interesting idea. Since no one in the Fed tracks reserves”
I predicted both the flash crash in stocks 6 months in advance and within one day and the flash crash in bonds. It was done using legal reserves.
Monetarism has never been tried.
Whenever I see the name Greg Ip I don’t even. Have to read any further. That fraud is nothing but a boot licker of the leftists in govt
https://www.pewresearch.org/short-reads/2024/04/24/what-the-data-says-about-crime-in-the-us/
I mean, it bounces around some, but everyone is WAY safer than they were 30 years ago, FWIW.
They have stopped reporting many crimes. So no
walk down 31st st in manhattan by penn station
Thanks for your source of actual researched data. People are entitled to their opinions, but crime is definitely WAY down compared to 20-30 years ago – from actual data, not squishy X-filled social media feeds
Adrenaline junkies crave fear… don’t rob them of their fix.
I give you -1 here for not noting that the safety data from 30 years ago are not what’s relevant. (Just as you pointed out to someone else above…).
The question is, what changed in 2022 when sentiment plunged unexpectedly, and has not gotten fixed?
lies, damn lies, and statistics.
It must be tough being innumerate, I guess.
As I near retirement I try to keep track of spending. I have a small two bed one bath home in Eastern, Washington…above sea level, away from hurricanes and wildfire potential. I’ve never submitted a claim. I believe the Insurance industry has a better take on the pulse of the economy than these Brookings folks!
Home owners insurance:
2021 $534
2022 $601
2023 $807
2024 $1013
2025 $1320
Based on your numbers here’s the extrapolation:
2026 $1450
2027 $1649
2028 $1847
2029 $2045
2030 $2243
2031 $2442
2032 $2640
2033 $2839
2034 $3037
2035 $3235
2036 $3434
What’s your breaking point?
Good question! A properly funded 55/40/5 s/b/c portfolio used to seem to be a safe, reasonable winner to me. Guess I gotta reach for the brass ring /s.
I suspect MikeB would be happy to see $200 annual increases for the next 10 years versus annual increases of 20% and a bill of nearly 10k in 2036.
Insurance companies, by the nature of their continued existence, have to manage risk at the highest levels so it’s very telling that they keep raising premiums to cover losses. People that think there is a climate hoax need look no further than insurance premium growth. That’s the free market telling you something.
Insurance and Climate Change…and “new tech”
Nearly 3 miles of dead fish found in Fredericktown after battery plant fire, official says (msn.com)
And what needs to happen is regions need to be decoupled.
Why should I be paying for rebuilding homes along the coast which are devastated annually by hurricanes.
Actually, what needs to happen is insurance rates need to be based on what county you live in. This way people who live in Tampa pay their true fair share and are forced to make an economic decision on whether or not they can afford to live in the path of hurricanes.
Instead, everyone is getting lumped together in a big risk pot, where policy owners like me are paying for fires out west & hurricanes in FL.
But if that happens then everyone will want to live in a county with low insurance rates which would cause the houses in those counties to rise in prices. As prices rise so too will property taxes and insurance for those homes.
In contrast, those disaster prone houses would decline in value and no one would want to build there.
So you would solve one problem but create another resulting in the same thing.
No, the situation where people live in safe houses in safe places, and are financially discouraged from building or living in disaster-prone regions … is exactly what we need.
many things become cheaper when lots of people live in the same vicinity… or have you never lived anywhere remote and seen costs rise? Bermuda for example; or Australia. Infrastructure is expensive.
Is there a not-well-known reason why they are coupled? Why are Chicago residents having their premiums jacked (like me) to pay for McMansions — “houses have been in family for 100 years” that are wiped out in Tampa?
You living in Chicago are not paying for people living in Florida. They are 2 separate insurance markets.
Not sure who you use, but it’s quite possible that company has no insurance presence in Florida at all.
You are paying a lot more because inflation is running rampant. The labor costs and material costs are WAY higher than they were 4 years ago (probably close to double) so rates have doubled to pay for claims.
At least one person understands. Insurance is about the probability of a loss, spread over a similar population at risk of loss. It is NOT, and should NOT be about subsidizing certain locations, social groups, etc.
Not the gun violence risk premium?
collectivism
Or maybe insurance companies, like banks, are sitting on a half trillion in unrealized losses on longer-term bonds in their portfolio, and are jacking up prices en masse in order not to go bankrupt?
Has risk increased (because of global climate change) or has the average payout increased because of the increasing cost of repair/replacement. I’m betting the latter.
in how many countries?
why don’t premiums rise the same everywhere?
perhaps because temperatures don’t rise the same everywhere…?
Run the numbers for health insurance premiums 10 years out:
Blue Cross Blue Shield Family Plan
2023 $20,000
2024 $22,000
2025 $26,000
2027 $31,000
2028 $37,000
2029 $44,000
2030 $59,000
2031 $82,000
2032 $98,000
What’s your breaking point?
You do want access to medical care, right? You do want to protect your assets from unexpected $300,000 medical bills, right?
Obama permanently destroyed cost-effective health insurance.
It stopped being insurance based on risk, and became income socialization without risk as a pricing factor.
like the British NHS – now imploding due to a lack of reality about the true cost of a “free” service.
I have millions and I’ve already reached my breaking point because I am forward looking. As I’ve stated many times, I’m leaving the USA as a peasant to live like a king elsewhere. Don’t ask where I’m going because I don’t want the locusts following me.
LOL – even that terrifying extrapolation is too optimistic! His numbers show insurance cost doubling every 3 years. The extrapolation only doubles every 7 years.
At that growth rate he’ll be paying $3434 in 2029 or 2030, not ‘36.
Maybe you need to shop for a new insurance company. I have a million+ house in Western, WA close to the water and my home owners insurance is $550
I agree I probably need to shop around. I may be paying too much. The same company covers my vehicles. I think the state minimum on required automobile liability coverage is quite low ($25k). I’m covered at $500k…a necessary step on the way to umbrella coverage.
Have a small commercial building in Southern California. Property insurance 2023 $3500. New quote for 2024 $5500. Checked with broker, still a good deal. Ugh. That is the real world.
Great post! I’m in NW ATL, and over three policy periods mine has gone from $700 to $1000 or 43% / 14% per year. It’s ridiculous. I’ve lived in GA for all my adult life and have owned homes since I was 27 years old. So over that 50 years, I’ve never once submitted a homeowners claim. It’s just a racket.
Also in Eastern WA, rural area, $800 per year.
Look at the resale prices over the same time period. There’s is the cause of your premium increase.
I think nearly every bad sentiment and all bad policy comes from what I perceive as a perpetual undercounting/underreporting of true inflation. Insurance companies know–their premiums and payouts for losses are significantly higher than reported inflation, because inflation is much higher. When consumers have to have 2 jobs or take on extra gigs or hours just to live paycheckS to paycheckS (plural) it isn’t simply due to poor fiscal choices, though they are numerous, but rather that everything they consume, live in, drive, insure, and maintain is significantly more expensive than the official numbers and has been for a very long time.
Inflation is a large uncertainty driver. Uncertainty brings discontent.
I recall Japan having nearly no inflation for decades, happy population.
I liken it to being in a long stretch of pleasant weather..you can still have variability, risk taking or complacency in your life but the weather isn’t the driver of uncertainty and (un)happiness but rather your choices. Currently this overvalued environment we live in creates situations where folks aren’t sure what to do and have enormous fiscal pressure while making those decisions, where most of it is also ironically out of their control as they are priced out of choice.
And what really torques me is when central planners and elitists tell me I should be happier. Look you pompous toads, if you owned a house since 2012 and equities since 2009 you are nearly immune to the uncertainty and hopelessness many folks feel and what is most ingratiating is their denial that they have benefitted at the less fortunate’s or simply the younger generation’s expense.
It’s a battle between elites and common folks, evil vs good, high-browed overeducation vs common sense. Telling me I should be happier as a common sense, common folk good person while the evil elites run roughshod over our political, economic and social fabric is enraging….but I’m too busy trying to make ends meet and too encumbered by what THEY’ve created that I also live PTP.
And to Papa Dave and MPO45, we’re not whining or victims…..you’ve lost sight of the fact that the environment in general has really stacked the deck this time. What’s the 10 year return in the market look like now that we’re at ATHs? How about buying a house with little prospect of having a down payment or affording an 8% mortgage. Folks living now don’t foresee a 3% mortgage in their future or an S&P at 668 (2009). You wanna convince those that can barely pay the overinflated cost of living to miraculously have any funds to invest or save. And with a backrop of political uncertainty and antagonism, burdened by 36 trillion in debt to service… No, it’s difficult for a large swath of the population to have a rosy view.
Spot on…”perpetual undercounting/underreporting of true inflation”. I don’t begin to believe the reported inflation numbers. Even if they were correct, it’s an average of discretionary/non discretionary goods & services. Inflation of discretionary vastly exceeds that of non discretionary. The FED’s 2% target is too high; it should be at most 2% of non discretionary goods & services. Powell beats his chest saying they are mindful of the inflation pain inflicted on middle and lower income constituents. They don’t want to go the discretionary/non discretionary route because the numbers wouldn’t fit their supposed concern of inflation pain. What ever happened to inflation averaging 2% over a period of time? Even more recently how often is “super-core” inflation mentioned? They don’t want inflation to go below 2% for a short period of time or even allow it to reach the 2% number.
You are correct inflation is a key problem – I write “It’s turtles all the way down and inflation all the way up” in most of my comments.
You are correct that mortgage rates are high but they’ve been higher before. I bought my first home at 7.5% interest rates. The real issue with housing is supply/demand, after the GFC home builders slowed their home building so as not to lose their shirt like they did last time. It will eventually catch up, some say it’s catching up now.
But the key point you missed in your comment is the fact that inflation is largely being created by huge handouts in the form of social security and medicare to the tune of $2 trillion PER YEAR and growing.
The largest problem moving forward is the socialism of social security and medicare. I know large portions of the U.S. population are dependent on these systems and cutting/eliminating will cause havoc but we’re going to experience havoc until it breaks completely so which poison would you rather have? Cut now or cut later?
I can tell you having looked at the numbers myself and done my own projections there is no fix that isn’t extremely painful for one group of people. Neither Trump, Harris, Santa Claus or anyone else is going to fix this issue. NOT.GOING.TO.HAPPEN.
My solution is to leave the country and live a better quality of life elsewhere and that’s what I’m going to do. It’s what smart people have done for thousands of years – migrate for a better life. I’ll keep my investments in the U.S. because the one thing the U.S. is good for it’s making money; it’s not good at taking care of it’s citizens or people. You’ve finally discovered that everyone is a “slave” to the system, if you didn’t notice it before it’s because you were a comfortable slave but now you’re not because there are 80m people and growing asking for handouts.
We live overseas in a Latin country part time. It is hands down better there for SOCIAL FABRIC reasons and the food is more organic and delish. Wine is cheap there. BETTER WINE for less money. The Scenery is first rate with blue/turquoise waters and crystal clear….the fish is unreal and caught daily and cheap.
I propose a new index that indicates the robustness of the economy based on the rate of freeway offramps and street corners being worked by panhandlers.
funny, but would be very easy to game the numbers for political reasons. like it isn’t already.
These people hate you.
“In sum, several trends suggest that consumer sentiment is not wholly driven by rational and accurate perceptions.”
In other words: My pre-conceived notions aren’t wrong, other people are irrational because they don’t agree with me.
I don’t know Brookings but while you were busy attending elitist cocktail parties where you bragged about your stock portfolios and all the equity in your house, the actual people who fuel the economy are being priced out of the American dream.
Maybe the fact that mortgage payments have more than doubled since Trump left office might explain why some of us are not impressed by your view of the economy.