2d:null 2e:["$","title",null,{"children":"If The Economy Is So Good, Why Do So Many Think It's Bad? | Shawn Strzepek | Observable"}] 33:T77a,While the US unemployment rate has remained [relatively low](https://fred.stlouisfed.org/series/UNRATE), most American's feel the economy is in [bad shape](https://www.cnn.com/2023/04/07/politics/cnn-poll-us-economy-biden/index.html). I kept reading this in various outlets and I would yell at my computer, "IT'S INFLATION." I was so annoyed by this seemingly obvious answer that I decided to just go prove it. So I started with [Gallup's Economic Survey](https://www.gallup.com/468833/indicator-economic-performance.aspx) and the unemployment data. The unemployment rate alone explained about half of the people's economic outlook, which seemed to make sense, but I was pretty sure I could do better. I added the year-to-year change of the [Consumer Price Index (CPI)](https://www.usinflationcalculator.com/inflation/consumer-price-index-and-annual-percent-changes-from-1913-to-2008/) into my model to see how much more that helped, and now it explained 62% of the survey responses. That's pretty good and I could have called it a day, but I had this nagging feeling that I could do even better. So instead of adding the CPI data I used the year-to-year change in [Real Disposable Income](https://fred.stlouisfed.org/series/DSPIC96#0). And when I did that it explained 80% of the survey responses. See, I knew I could do better. So why does real disposable income do a better job at explaining our view of the economy than CPI. First, I should probably explain what real disposable income is. It's the income we are left with after taxes and inflation. And why does it do a better job than the CPI alone in our view of economic health? Because it's a measure of our purchasing power. It's capturing just how far we feel our paycheck will go. And in 2022 it saw its largest decline, a drop of 6.2 percent, from the previous year. That's the largest year-to-year decline since they started collecting data in 1996.34:T650,Plot.plot({ width: width, marginRight: 40, x: { tickFormat: d3.format(".0f") }, y: { tickFormat: d3.format(".0%"), grid: true, label: "Year-To-Year Change" }, label: "Year", style: ("font-size", "16px"), marks: [ Plot.ruleY([0], { opacity: 0.5 }), Plot.line(line, { x: "year", y: "wages", stroke: "#4e79a7" }), Plot.line(line, { x: "year", y: "cpi", stroke: "#e15759" }), Plot.text( line, Plot.selectLast({ x: "year", y: "cpi", text: () => "CPI", textAnchor: "start", dx: 5 }) ), Plot.text( line, Plot.selectLast({ x: "year", y: "wages", text: () => "Wages", textAnchor: "start", dx: 5 }) ), Plot.ruleX( line, Plot.pointerX({ x: "year", py: "wages", stroke: "#888888" }) ), Plot.dot(line, Plot.pointerX({ x: "year", y: "wages", fill: "#4e79a7" })), Plot.dot(line, Plot.pointerX({ x: "year", y: "cpi", fill: "#e15759" })), Plot.text( line, Plot.pointerX({ px: "year", py: "wages", dy: -17, dx: 100, frameAnchor: "top-left", fontVariant: "tabular-nums", text: (d) => [`Year: ${d.year}`, `Wages: ${d3.format(".1%")(d.wages)}`].join(" ") }) ), Plot.text( line, Plot.pointerX({ px: "year", py: "cpi", dy: -17, dx: 240, frameAnchor: "top-left", fontVariant: "tabular-nums", text: (d) => [`CPI: ${d3.format(".1%")(d.cpi)}`].join(" ") }) ) ] })35:T865,The formula for inflation is simple - costs plus profits. Typically economists focus on the cost side of the equation, which are passed on to the consumer. During [WWI](https://www.nber.org/digest/jan05/economics-world-war-i) and [The Great Inflation](https://research.stlouisfed.org/publications/page1-econ/2012/10/01/the-great-inflation-a-historical-overview-and-lessons-learned/) (1965 - 1982), US economic policy drove down the unemployment rate which, in turn, starts the process of the wage-price spiral. With a tight labor market employees increase wages to attract talent. They then pass the cost on to the consumer and off we go. But World War II and today appear to be different. As the data shows there currently doesn't seem to be a wage-price spiral. Much like after World War II, this bout of inflation appears to be driven by supply chain disruptions and [corporate profits](https://www.npr.org/2023/05/19/1177180972/economists-are-reconsidering-how-much-corporate-profits-drive-inflation#:~:text=Economists%20are%20reconsidering%20how%20much%20corporate%20profits%20drive%20inflation%20In,was%20because%20of%20corporate%20profits.). After World War II supply chains were disrupted as companies shifted from producing for the war to producing domestics goods and services. Companies anticipated increased costs from their suppliers as supply chains were reconfigured. And in order to maintain profits margins they increased their costs in advance. According to a [study by the Federal Reserve of Kansas City](https://www.kansascityfed.org/research/economic-bulletin/corporate-profits-contributed-a-lot-to-inflation-in-2021-but-little-in-2022/), something similar happened after the Covid shutdowns, and sixty percent of inflation can be attributed to companies trying to maintain their profits. Luckily inflation is [cooling](https://www.cnbc.com/2023/06/13/cpi-inflation-report-may-2023-.html), just not as fast as we would like it. On the upside, I'll soon be yelling a lot less at my computer as American's go about their old habits of buying cheap goods, and waiting in inexplicably long lines for a table at the Olive Garden.36:T44c,{ const plot = { x: data.map((d) => d.wage), y: data.map((d) => d.unemployment), z: data.map((d) => d.outlook), mode: "markers", type: "scatter3d", marker: { size: 10 }, customdata: data.map((d) => d.year), hovertemplate: "Year: %{customdata}
Change Real Income: %{x}%
Unemployment Rate: %{y}%
Economic Index: %{z}" }; const regression = { x: plane.map((d) => d.wage), y: plane.map((d) => d.unemployment), z: plane.map((d) => d.outlook), type: "mesh3d", color: "rgb(100, 100, 100)", opacity: 0.7, hovertemplate: "Change Real Income: %{x: .1f}%
Unemployment Rate: %{y}%
Economic Index: %{z: .1f}" }; var layout = { width: width, height: width * 0.6, margin: { l: 0, r: 0, b: 0, t: 0 }, scene: { xaxis: { title: "Change Real Income (%)" }, yaxis: { title: "Unemployment Rate (%)" }, zaxis: { title: "Economic Confidence Index" } } }; var datadata = [plot, regression]; Plotly.newPlot("myDiv", datadata, layout); return plot; }37:[{"id":"893c01391b49987759ddb4f2e4740f9484df198cd0b11499c478e1ef2efd79bc439ca78aa0b855b06704c7ceca908b96efbd48de572ca95d81a467c78bc94e40","href":"https://static.observableusercontent.com/files/893c01391b49987759ddb4f2e4740f9484df198cd0b11499c478e1ef2efd79bc439ca78aa0b855b06704c7ceca908b96efbd48de572ca95d81a467c78bc94e40","name":"wageCpi@1.csv","type":"text/csv","lastModified":1686859631266.09,"size":285},{"id":"d3a0480c30efa11071d5863fd6152fbf45d11f6e2d51941169f4c65922b60902e1ad74c330f57d9fa2fa2c371ae438bba633ea60b209d92569b1434b1382ac60","href":"https://static.observableusercontent.com/files/d3a0480c30efa11071d5863fd6152fbf45d11f6e2d51941169f4c65922b60902e1ad74c330f57d9fa2fa2c371ae438bba633ea60b209d92569b1434b1382ac60","name":"cpi@1.csv","type":"text/csv","lastModified":1686859806032.532,"size":1329},{"id":"22ebe3fae2a5d2d1381304181ff85fefd63c6ceb32b0c60b5b7bf410741848422276bb5621a27a0c270ee4ab5980fc0acbee87da8c94978717635dab0f20a238","href":"https://static.observableusercontent.com/files/22ebe3fae2a5d2d1381304181ff85fefd63c6ceb32b0c60b5b7bf410741848422276bb5621a27a0c270ee4ab5980fc0acbee87da8c94978717635dab0f20a238","name":"economic.csv","type":"text/csv","lastModified":1686325385317.773,"size":552},{"id":"4ffccd8d1939363309071e2ce1ee64fcbf3f186a9f6a1bf1a055f90c3749cc02eccb42e72e740a1e84217e2025d26c890e89a8d5f48b4370d658b2f00fa6f850","href":"https://static.observableusercontent.com/files/4ffccd8d1939363309071e2ce1ee64fcbf3f186a9f6a1bf1a055f90c3749cc02eccb42e72e740a1e84217e2025d26c890e89a8d5f48b4370d658b2f00fa6f850","name":"regressionPlane.csv","type":"text/csv","lastModified":1686672096328.948,"size":4982}] 31:{"id":"17d71e07bd526f88","slug":"econ-outlook","title":"If The Economy Is So Good, Why Do So Many Think It's Bad?","thumbnail":"e3ae5efaa21cfa361d25821c72c59246f224f28f37cf2dc370cb4ae51fb77f43","access_level":"public","create_time":"$D2023-06-09T14:43:08.185Z","update_time":"$D2023-09-05T13:40:51.012Z","view_time":null,"first_public_time":"$D2023-06-09T14:43:08.185Z","has_unpublished_edits":null,"fork":false,"stars":1,"starred":false,"owner":{"type":"team","id":"07eba07d93407e8f","login":"strzepek","name":"Shawn Strzepek","avatar_url":"https://avatars-next.observableusercontent.com/7fdfd7a2304e085dff1c920b3e4d551dc720e25e503f9cfb596a2ec9d06f85f1","tier":"starter_2024"},"version":705,"publish_version":null,"role":null,"authored":false,"authors":[{"type":"individual","id":"2bbaa78263ea3fc6","login":"strzepek","name":"Shawn Strzepek","avatar_url":"https://avatars-next.observableusercontent.com/7fdfd7a2304e085dff1c920b3e4d551dc720e25e503f9cfb596a2ec9d06f85f1","tier":null}],"members":[{"type":"individual","id":"2bbaa78263ea3fc6","login":"strzepek","name":"Shawn Strzepek","avatar_url":"https://avatars-next.observableusercontent.com/7fdfd7a2304e085dff1c920b3e4d551dc720e25e503f9cfb596a2ec9d06f85f1","tier":null,"role":"editor"}],"comments":[],"custom_thumbnail":false,"trashed":false,"lapsed":null,"subscribed":null,"forks":1,"collection":null,"type":"notebook","body":{"title":"If The Economy Is So Good, Why Do So Many Think It's Bad?","cells":[{"id":0,"value":"# If The Economy Is So Good, Why Do So Many Think It's Bad?","pinned":false,"hidden":false,"mode":"md","author":"$undefined","summary":"$undefined","output":"","database":"$undefined"},{"id":613,"value":"$33","pinned":false,"hidden":false,"mode":"md","author":"$undefined","summary":"$undefined","output":"","database":"$undefined"},{"id":133,"value":"html`

`","pinned":false,"hidden":false,"mode":"ojs","author":"$undefined","summary":"$undefined","output":"$undefined","database":"$undefined"},{"id":640,"value":"The gray plane shows the impact the unemployment rate and real disposable income has on our view of the economy.","pinned":false,"hidden":false,"mode":"html","author":"$undefined","summary":"$undefined","output":"","database":"$undefined"},{"id":632,"value":"There are only two reason why real disposable income would decline - an increase in taxes and inflation. In this case the reason is inflation. But this can be offset if wages keep up pace. That, however, can be problematic. If employers have to increase wages, they will eventually pass the cost on with higher prices, which means employees will demand higher wages and the race is off - the start of a feedback loop known as the [wage-price spiral](https://en.wikipedia.org/wiki/Wage-price_spiral). Lucky for us, that is not happening. Since coming out of pandemic lockdowns inflation has outpaced wages. So I guess that's better than the alternative? ","pinned":false,"hidden":false,"mode":"md","author":"$undefined","summary":"$undefined","output":"","database":"$undefined"},{"id":274,"value":"$34","pinned":false,"hidden":false,"mode":"ojs","author":"$undefined","summary":"$undefined","output":"$undefined","database":"$undefined"},{"id":655,"value":"Inflation quickly outpaced wage gains","pinned":false,"hidden":false,"mode":"html","author":"$undefined","summary":"$undefined","output":"","database":"$undefined"},{"id":660,"value":"$35","pinned":false,"hidden":false,"mode":"md","author":"$undefined","summary":"$undefined","output":"","database":"$undefined"},{"id":456,"value":"Plot.plot({\n width: width,\n x: { tickFormat: d3.format(\".0f\") },\n y: {\n tickFormat: d3.format(\".0%\"),\n grid: true,\n label: \"Year-To-Year Change CPI\"\n },\n label: \"Year\",\n marks: [\n Plot.ruleY([0], { opacity: 0.5 }),\n Plot.line([0, 0], [width, 0], { stroke: \"red\" }),\n Plot.line(cpi, {\n x: \"year\",\n y: \"cpi\",\n stroke: \"steelblue\"\n }),\n Plot.dot(cpi, Plot.pointerX({ x: \"year\", y: \"cpi\", fill: \"steelblue\" })),\n Plot.text(\n cpi,\n Plot.pointerX({\n px: \"year\",\n py: \"cpi\",\n dy: -17,\n dx: 125,\n frameAnchor: \"top-left\",\n fontVariant: \"tabular-nums\",\n text: (d) =>\n [`Year: ${d.year}`, `CPI: ${d3.format(\".1%\")(d.cpi)}`].join(\" \")\n })\n )\n ]\n})","pinned":false,"hidden":false,"mode":"ojs","author":"$undefined","summary":"$undefined","output":"$undefined","database":"$undefined"},{"id":695,"value":"Can you imagine what toilet paper cost in 1918?","pinned":false,"hidden":false,"mode":"html","author":"$undefined","summary":"$undefined","output":"","database":"$undefined"},{"id":576,"value":"html`\n\n`","pinned":false,"hidden":false,"mode":"ojs","author":"$undefined","summary":"$undefined","output":"$undefined","database":"$undefined"},{"id":125,"value":"$36","pinned":false,"hidden":false,"mode":"ojs","author":"$undefined","summary":"$undefined","output":"$undefined","database":"$undefined"},{"id":8,"value":"data = d3.csvParse(\n await FileAttachment(\"economic.csv\").text(),\n ({ date, unemployment, wage, outlook }) => ({\n year: +date,\n unemployment: +unemployment,\n wage: +wage,\n outlook: +outlook\n })\n)","pinned":false,"hidden":false,"mode":"ojs","author":"$undefined","summary":"$undefined","output":"$undefined","database":"$undefined"},{"id":145,"value":"plane = d3.csvParse(\n await FileAttachment(\"regressionPlane.csv\").text(),\n ({ unemployment, wage, outlook }) => ({\n unemployment: +unemployment,\n wage: +wage,\n outlook: +outlook\n })\n)","pinned":false,"hidden":false,"mode":"ojs","author":"$undefined","summary":"$undefined","output":"$undefined","database":"$undefined"},{"id":245,"value":"line = d3.csvParse(\n await FileAttachment(\"wageCpi@1.csv\").text(),\n ({ year, cpi, wages }) => ({\n year: +year,\n cpi: +cpi,\n wages: +wages\n })\n)","pinned":false,"hidden":false,"mode":"ojs","author":"$undefined","summary":"$undefined","output":"$undefined","database":"$undefined"},{"id":453,"value":"cpi = d3.csvParse(\n await FileAttachment(\"cpi@1.csv\").text(),\n ({ year, cpi, wages }) => ({\n year: +year,\n cpi: +cpi\n })\n)","pinned":false,"hidden":false,"mode":"ojs","author":"$undefined","summary":"$undefined","output":"$undefined","database":"$undefined"},{"id":101,"value":"Plotly = require(\"https://cdn.plot.ly/plotly-latest.min.js\")","pinned":true,"hidden":false,"mode":"ojs","author":"$undefined","summary":"$undefined","output":"$undefined","database":"$undefined"}],"files":"$W37","stdlib":"1","titling":"auto"}} 32:"$31:body"