Clayton Wiles, a truck driver in North Carolina, earns about 20% more than three years ago. Kristine Funck, a nurse in Ohio, has won steady pay raises, built retirement savings and owns her home. Alfredo Arguello, who opened a restaurant outside Nashville when the pandemic hit, now owns a second one and employs close to 50 people. But ask any of them about the state of the American economy, and the same gloominess surfaces. “Unstable” is how Arguello describes it.
Said Funck: “Even though I’m OK right now, there’s a sense it could all go away in a second.”
There’s a striking disconnect between the widely shared pessimism among Americans and measures that show the economy is actually robust. Consumers are spending briskly —behaviour that suggests optimism, not retrenchment. Inflation has tempered . Unemployment has been below 4% for 24 straight months, the longest such stretch since the 1960s. The disconnect has puzzled economists, investors and business owners. But press Americans harder, and the immediate economy emerges as only one factor in the gloomy outlook.
Americans feel sour about the economy, many say, because their long-term financial security feels fragile and vulnerable to wide-ranging social and political threats. Reliable steps up the economic ladder, such as a college degree, no longer look like a good investment. War overseas, and an emboldened set of hostile nations, have made the world feel dangerous. Uninspiring leaders at home, running a government widely seen as dysfunctional, have left people without hope that America is up to the challenge of fixing its problems. The broad reasons for America’s dim outlook suggest that even further improvement in the economy might not be enough to lift the nation’s mood.
In an election year, that is shaping up as one of President Biden’s biggest impediments to winning a second term. He has received little credit so far for an economy that has foiled predictions of a recession and instead grew 3.1% in the past year, far ahead of the pace in 2022. By some metrics, that improvement is starting to give way to slightly rosier views of the economy. Consumer sentiment, as measured by the University of Michigan, recently posted the biggest two-month increase since 1991 . Yet it remains about 20% lower than during the robust economy of early 2020, just before the Covid-19 pandemic started, and it stands at about levels typically seen at the end of a recession rather than in an economy posting solid growth. Interviews with Americans across the country—some affluent, some just scraping by; some with advanced degrees and others with blue-collar jobs; some Republican, some Democrat—show they are weighed down by fears of an unpredictable world in which no one in government or business is competent to steer the nation through precarious times.
“You could argue unemployment is 3.7%, but who cares with this level of uncertainty?” said Arguello. “Because that’s what people are feeling. They’re not feeling hope. They’re not feeling one country. They’re feeling a divisive, divided United States of America.”
No ‘coherent plan’
Theresa Foster estimates her family’s net worth is up because the value of their home in suburban Albany, N.Y., has risen around 20% since the pandemic started.
“But every time I go to the store I am shocked by the prices,” said Foster, who earns more than $200,000 combined with her husband’s income. “I feel like we’re on really thin ice, that it’s really fragile, that neither political party has any theoretical foundation for what they want to do with the economy.”
Foster, 57, earned a master’s degree on GI Bill benefits and works part time at a nonprofit, while her husband works full time in human resources. To her, the notion that cooling inflation should ease her financial worries is akin to telling a person who is bleeding out that the flow of blood has slowed. What upsets her, she said, is that the government continues to spend money while racking up blunders, such as the botched withdrawal of U.S. forces from Afghanistan. None of that instills confidence in leaders’ ability to handle other complex issues.
“I feel like no matter what they tell me about the economy, they don’t really know, because they don’t have a coherent plan,” she said. The coming election has left her dispirited about the likely nominees, President Biden and Donald Trump , whom she calls “Loser 1 and Loser 2.” Foster voted libertarian in the last two presidential elections in protest and was registered independent until she recently registered as a Republican to vote against Trump in New York’s presidential primary in April. Funck, the nurse in Milford, Ohio, said she sees the country’s decline in the high number of uninsured and unhoused patients whom she cares for at a large Cincinnati medical centre. “
The politicians seem to be making out really good and then everybody else is struggling,” said Funck, who is 52 and an independent voter who backed Biden in 2020. She earns about $90,000 a year, had her student loans forgiven after two decades, and has no children to support. Still, she constantly fears she’ll be derailed by an unexpected expense, and worries that the wars in Gaza and Ukraine could push up the prices of oil and grain. After her mortgage and car payments, groceries and utility bills, there’s very little left over, she said. She’s prioritised saving for retirement “because I’m not expecting Social Security to be around, and I have to be able to support myself.”
While many groups of Americans have made gains during the pandemic recovery, some cracks have emerged. Americans in lower-paying industries saw some of the strongest pay raises in recent years, but wage growth is now slowing overall, and more so for these workers . Research from the Federal Reserve Bank of Dallas found that low-income households disproportionately bear the brunt of inflation , in part because of the high share of their income that goes toward food, gas and rent. While inflation has cooled substantially from its peak in 2022, wage growth only began to outpace price increases in mid-2023 , meaning many Americans are still reeling from a long stretch in which it felt like their earnings couldn’t go far enough. The unemployment rate remains at near-record lows, but layoffs have hit some sectors of the economy with force, including technology and some other white-collar fields, such as accounting and media.
James Welch, a married father of two, moved his family from Atlanta to Plano, Texas, to take a job as a manager at an online fitness company after he was laid off early in the pandemic from a hotel company. Last July, he was laid off again. Welch, 49, said he’s depleted close to $450,000 in retirement and emergency savings in recent years to fund the move, medical expenses and costs for two children in college. His wife’s salary of roughly $72,000 annually as an operations manager is keeping the family afloat. Welch said he thinks he was the victim of cost-cutting moves at the company. He said shortly after he was laid off, he saw his job reposted for lower pay.
To many economists, the negative outlook doesn’t reflect the current economic life of most Americans.
“There’s some justification for some negativity about the economy, but nothing resembling the amount of negativity seen in some of the survey data,” said Jason Furman , a top economic adviser to President Barack Obama . Furman said that, historically, inflation and unemployment levels have been predictors of consumer sentiment, and that the recent spate of rising prices had unsettled consumers. “It’s just not a good enough reason for them to be as down on the economy as they say they are,” he said.
Many Americans point to structural changes in the economy that have left them anxious about the future. The decline of company pensions has shifted more of the risk of funding retirement from employers to workers. And many who once thought they could count on a college degree as a ticket into the middle class now question its value. Amy Bos, 44, a married mother of three in Jackson, Mich., said she wouldn’t necessarily recommend college for her 18-year-old daughter. Bos herself returned to college in her 30s to help her upgrade from a job as a pharmacy technician to higher-paying work in human resources, which roughly doubled her pay to $30 an hour. But she said she sacrificed immensely to pay off $41,000 in student loans, which she did only recently.
“A lot of people go to college and either don’t work in their degree field or get a lot of debt for a job that doesn’t have the ability to make very much money,” Bos said.
Some 78% of Americans said they aren’t confident their children’s lives will be better than their own, a Journal-NORC survey found last year. That’s a record in surveys dating to 1990. Only 36% said the American dream— the idea that anyone can get ahead with hard work —still holds true, down from 53% who had said so about a decade earlier, another Journal-NORC poll found. In Wilmington, N.C., the Wiles family feels like they’re sliding backward financially despite pay raises and frugal habits. Clayton, 44 years old, makes $10,000 more than he did three years ago in his job as a tow-truck driver, bringing the family’s annual income to $58,000. But the Wiles can’t afford to fix their broken-down truck and plan to draw from modest retirement savings to pay for health insurance for their two children when they lose Medicaid eligibility this year.
Haleigh, 30, is in school to become a teacher, but worries that even the addition of an extra salary won’t enable them to start saving for a down payment on a house. The combination of higher borrowing costs and higher home prices has made buying a home much less affordable. New 30-year fixed-rate mortgages, though down about a percentage point from last fall, are close to 7%, compared with under 3% three years ago. The increase in rates means a borrower typically has to pay hundreds of dollars more a month for a house that costs the same.
“I don’t think the American dream still exists,’’ said Haleigh. “I don’t think it’s attainable anymore. Because you need money to make money, and I think you either start out ahead or you’re constantly playing catch-up now.”
One factor in the downbeat outlook is that many Americans view the economy through a political lens. Their opinion is more optimistic when the party of their choice holds the White House. In the weeks before the 2016 election, only 11% of Republicans rated the economy as excellent or good, CNBC polling found. That jumped to 26% right after the election, even before Donald Trump was sworn in as president, and rose to 73% within a year. By contrast, Democratic views of the economy turned more negative over the same period.
Some analysts find signs that the partisan skew in views of the economy is particularly powerful now, with Biden in the White House, because Republicans are more likely than Democrats to adopt a negative view when their party is out of power.
“We find that Republicans cheer louder when their party is in control and boo louder when their party is out of control,’’ wrote Stanford University economics professor Neale Mahoney, who held White House positions under Biden and Obama, and Ryan Cummings, a Ph.D. student, in a November Substack posting. By statistically “adjusting the decibel level’’ so that the two parties cheer equally, they found that about 30% of the gap between consumer sentiment and what would be predicted by the economic data could be explained by what they called “asymmetric amplification” of consumer sentiment according to a person’s political party.
In a complementary study, two Brookings Institution analysts found that news about the economy reported in legacy news media—big-city papers such as the Atlanta Journal-Constitution, the Washington Post and The Wall Street Journal—has been more negative than what would be predicted by actual measures of the economy. The San Francisco Fed’s index of daily news sentiment, which measures the positive or negative outlook of economic stories in news publications, had correlated well for several decades with measures of unemployment, gross domestic product, inflation and stock prices, according to research by Ben Harris, who was the top economist in the Biden administration’s Treasury Department, and Aaron Sojourner.
But in 2018, news sentiment turned more negative than the economic fundamentals, and the negativity gap has widened during the Biden administration. The study didn’t include broadcast media, such as Fox News or MSNBC, that are widely seen as tilted toward one party or the other. Nor did it prove that negative news caused lower consumer sentiment. Michael Strain , director of economic policy studies at the right-leaning American Enterprise Institute, said that the economy as people experience it in their daily lives explains most of the disconnect. While he sees some mismatch between sentiment and economic fundamentals, he believes that the corrosive impact of inflation accounts for much of it given its broad reach and because people became accustomed to very small price increases in recent years.
“When people say they don’t feel good about the economy, we should believe them,” Strain said.
Arguello, the Nashville-area restaurant owner, got into the food-service industry in May 2020, early in the pandemic. After ending a 30-year career at General Electric , where he was most recently a senior executive, the 65-year-old decided to buy and operate a burger franchise with his son, a recent college graduate, as a way to teach him how to run a business while deepening his own roots in his community after years of travel.
The Mooyah burger franchise they opened was successful enough that they opened a second location. Fourth-quarter revenues in 2023 were 15% higher than in the prior year, Arguello said. Despite his personal success, Arguello said he believes that “the light at the end of the tunnel is not there yet” for a nation emerging from the pandemic and its high-inflation trauma. Many other nearby restaurants have recently closed, he said, and more broadly, he’s concerned that America is suffering because political leaders are putting their party’s needs above the country’s.
“You have this political instability, a world that is very unstable, with this economic uncertainty,’’ said Arguello, who is originally from Nicaragua. He considers himself right-of-centre politically and would vote reluctantly for Trump this year if he is the GOP nominee. “What people are sensing is not whether the inflation is becoming moderate,” he said. “It’s that the dark clouds remain.”
Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’
Few of the U.S.’s philanthropic foundations invest their endowment assets—totalling an estimated US$1.1 trillion—to create positive social and environmental change in addition to high returns, potentially limiting or even counteracting the good such organisations do.
Exactly how few isn’t precisely known. But Bridgespan Social Impact, a subsidiary of the New York-based Bridgespan Group along with the Capricorn Investment Group, a Palo Alto, Calif.-based investment firm founded by Jeff Skoll , the first president of eBay, and the Skoll Foundation, also in Palo Alto, attempted to “get the conservation started,” with a study of 65 foundations with a total of about US$89 billion in assets, according to Mandira Reddy, director at Capricorn Investment Group.
The top-line conclusion: 5% of the primarily U.S.-based foundations surveyed invest their assets for impact. Most surprising is that 92% of these organisations, which have assets ranging from US$11 million to US$16 billion, are active members of impact investing groups, such as the Global Impact Investing Network and Mission Investors Exchange.
“If there’s any pool of capital that is best suited for impact investing, it would be this pool of capital along with family office money,” Reddy says.
The study was also conducted “to draw attention to the opportunity,” she said.
“We want to redefine what philanthropy can achieve. There is massive potential here just given the scale of capital.”
Foundations are required by the U.S. Internal Revenue Service to grant 5% of their assets each year to charity; in practice they have granted slightly more in the last 10 years—an average of 7% of their assets, according to Delaware-based FoundationMark, which tracks the investment performance of about 97% of all foundation assets.
The remaining assets of these foundations are invested with the intention of earning the “highest-possible risk-adjusted financial returns,” the report said. Those investments allow these organizations to grant funds often in perpetuity.
Capricorn and Bridgespan argue that more foundations, however, need to “align their capital with their missions,” and that they can do so while still achieving high returns.
“Why wait to distribute resources far into the future when there are numerous urgent issues facing the planet and communities today,” argue the authors of a report on the research, which is titled, “Can Foundation Endowments Achieve Greater Impact.”
The fact most of the foundations surveyed are very familiar with impact investing and yet haven’t taken the leap “highlights the persistently untapped opportunity,” the report said. It details some of the barriers foundations can face in shifting to impact, and how and why to overcome them.
Hurdles to making a shift can include “beginner’s dilemma”—simply not knowing where to start—and a misperception on the part of large foundations that impact investing is “too niche,” offering opportunities that are too small for the amount of capital they need to allocate. Other foundations are too stretched and don’t have the resources to add capabilities for making impact investments, the report said.
One of the biggest concerns is financial performance. Some foundation leaders, for instance, worry impact investments lead to so-called concessionary returns, where a market rate of return is sacrificed to achieve a social or environmental benefit. Those investments exist, but there are also plenty of options that offer financial returns.
The authors make a case for foundations to “go big,” into impact to realize the best outcomes, and to take a portfolio approach, meaning integrating impact principles into how they approach all investments. To make this happen, foundations need to incorporate impact into their investment policy statements, which determine how they allocate assets.
It will be difficult for foundations that want to shift their assets to impact to pull out of investments such as private-equity or venture-capital funds that can have holdings periods of a decade. But with a policy statement in place, a foundation’s investment team can reinvest this long-term capital once it is returned into impact investing options, she says.
“The transition doesn’t happen overnight,” Reddy says. “Even if there is a commitment for an established foundation that is already fully invested, it takes several years to get there.”
The Skoll Foundation, established in 1999, revised its investment policy statement in 2006 to incorporate impact. According to the report, the foundation initially divested of investments that were not in sync with its values, and then gradually, working with Capricorn Investment, began exploring impact opportunities mostly in early-stage companies developing solutions to climate change.
“As the team gained more knowledge and experience in this work, and as more investment opportunities arose, the impact-aligned portfolio expanded across different asset classes, issue areas, and fund managers,” the report said.
As of 2022, 70% of the Skoll Foundation’s assets are in impact investments addressing climate change, inclusive capitalism, health and wellness, and sustainable markets.
Capricorn, which manages US$9 billion for foundations and institutional investors through impact investments, constructs portfolios across asset classes. In private markets, this can include venture, private equity, private credit, real estate, and infrastructure. There are also impact options in the public markets, in both stocks and bonds.
“Across the spectrum there are opportunities available now to do this in an authentic manner while preserving financial goals,” Reddy says.
Of the foundations surveyed, about 15, including Skoll, have 50% or more of their assets invested for impact. Others include the Lora & Martin Kelley Foundation, the Nathan Cummings Foundation, the Russell Family Foundation, and the Winthrop Rockefeller Foundation.
Though not part of the study, the California Endowment just announced it was going “all in” on impact. The organisation has US$4 billion in assets under management, which likely makes it the largest foundation to undergo the shift, according to Mission Investors Exchange.
Although the researchers looked at a fairly small sample set of foundations, Reddy says it provides data “that is indicative of what the foundation universe” might look like.
“We cannot tell foundations how to invest and that’s not the intent, but we do want to spread the message that it is quite possible to align their assets to impact,” she says. “The idea is that this becomes a boardroom conversation.”
Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’