One upside to the degradation of American political discourse is that, with little risk of missing an important detail, the economic positions of our rival parties can be summed up with a handful of words. So here they are: Donald Trump’s position is that the economy is apocalyptically terrible in every respect. Kamala Harris says it is not, and then changes the subject. This should be an easy dispute to arbitrate. Is everything terrible or isn’t it?
The first point goes to Team Trump. If you ask Americans how the economy is going, they say it is going badly. Every month for decades, economists at the University of Michigan have been calling up people around the country and asking whether they are better or worse off than they were a year ago, and whether they expect to be better or worse off in a year’s time. On both counts, the proportion of respondents saying they are worse off, while lower than during the miserable days of 2022, remains at the levels seen during the 2008 global financial crisis. Americans are pissed off about the economy.
More tellingly, given that Americans are fundamentally people who buy things, the economists also ask whether now is a good moment to buy an expensive household item. A dishwasher, say, or a mattress. The number who say it is a bad time is now higher than in 2008 and right up against the highs of 2022. This is important. The difference between the prosperous top of an economic cycle and its parsimonious bottom is, mostly, the willingness of people to splash out on big items, from dishwashers to cars to houses to widget-making machines for their widget factory.
Economic sentiment is not electoral destiny. Hillary Clinton, representing the incumbent party, lost to Trump by a millimetre in 2016 when her fellow citizens were feeling pretty good about things. When George HW Bush passed the Oval Office to Bill Clinton after just one term, sentiment was middling. But it is hard not to think of the 1980 election when the vibes were bad — though not as bad as they are now — and Ronald Reagan took Jimmy Carter to the electoral woodshed in the shadow of high inflation and a correspondingly bleak view of the economy. This election might be about the constitution, culture, class or character. But the economic overlay on all this is going to matter.
That said, there is something funny going on in this cycle. If you look at what Americans do, rather than what they say, the picture changes. Spending on big household items never fell during the frightening early days of the pandemic and then rose massively in the couple of years that followed. Remarkably, there has been no giveback. Even after everyone splurged in 2021 and 2022, spending on durables has remained steady this year and last. Americans think it is a terrible time to buy dishwashers. They are buying them anyway.
Resolving this paradox is not easy, but there is really only one place to go to think about it: a really, really big mall.
Truth No 1: It wasn’t the economy that got me this job (aka a king among malls)
You cannot buy a dishwasher at the King of Prussia mall. The Sears outlet, where you could have bought one, closed in 2014, making space for Primark and Dick’s Sporting Goods. But you can buy a mattress, at Sleep Number (prices range from $999 to $8,500) or Tempur-Pedic ($1,200-$19,000). And you can make just about any other discretionary purchase you care to imagine.
The King is the third largest mall in the US by square footage, has three levels and is a kilometre long, not counting its wide moat of parking lots. It contains 450 stores. To give you a sense of that, here are the stores in the King that start with the letter “A”: Armani, Abercrombie Kids, Aerie, Aéropostale, Against All Odds, Akira, Aldo, All Star Elite, Allbirds, Allen Edmonds, Alo Yoga, Altar’d State, Amazing Toys, American Eagle, American Vision, Amiri, Amorino, Ann Taylor, Anthropologie, Apple, Arabian Oud, Arhaus, Aritzia and AT&T. This excludes restaurants and the kiosks that dot the halls.
The mall is 25km outside of Philadelphia, in the solidly Democratic south-eastern corner of one of the most hotly contested states in next month’s presidential election. The old joke is that Pennsylvania is Philadelphia at one end, Pittsburgh at the other and Kentucky in between. The state’s multitudes include the east coast establishment city where the constitution was written; the industrial capital of steel baron Andrew Carnegie, now a city of universities and hospitals; and rural Appalachia. The Appalachian bit isn’t far away. Drive 25 miles from the King on route 422 and you’re in Berks county, where Trump won in a walk. But I’m not here for the politics. I’m here for the mall.
The King is big enough that it contains several definable neighbourhoods. At one central crossroads, top-class European luxury brands cluster together like pioneers in circled wagons. Balenciaga, Dolce & Gabbana, Burberry, Dior, Hermès, Gucci, Vuitton. Moving outward, you come to middle-class neighbourhoods where, for example, the sensible, semi-outdoorsy clothing stalwart LL Bean glowers across the corridor at its competitor Eddie Bauer. At the periphery are neighbourhoods filled with what can only be described as hangers-on: a gift shop specialising in T-shirts printed with vigorous obscenities; a tiny, understocked bookstore specialising in young adult fiction; a pretzel shop.
Overall, the King is without a doubt a good mall. It feels spacious. Natural light filters softly down from the skylights on to all three levels. The floors are marble or something that looks very much like it. There are comfortable couches (leather? They feel like leather) scattered around conveniently. The plants are not, as they so often are at malls, overtly depressing. Most importantly of all, everything appears quite new. In the age of e-retail, any mall where things look even slightly dated is marking time before the bankruptcy auction.
Most of the stores at the King open at 10am on weekdays. I arrived after 10.30am. The parking lot was still mostly empty, but the mall was not. Even the smallest stores had one or two people working in them, and several had “Help Wanted” signs in the window. There were security people, uniformed and in plain clothes, keeping an eye on things. Cleaning people. Delivery men bringing boxes in, armoured car men delivering cash or taking it away. All of this labour was in support of, as far as I could tell, no morning commerce whatsoever. I didn’t witness an actual transaction until I was at Lilly Pulitzer, purveyor of preppy women’s leisurewear in loud prints. By then, I’d been walking the mall for an hour.
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I suppose the workers have to come in before the traffic gets heavy, to get the stock ready, so they might as well open the doors if a shopper should happen in. What struck me about the nearly customerless early hours of the mall day was the sheer number of workers involved: a thousand, perhaps. Whatever makes Americans angry about the economy, it’s not a weak labour market.
Montgomery county, where the mall is located, is not a well-to-do outlier. The national unemployment rate was 4.1 per cent last month. The longtime average, those who have been unemployed for 12 months or more, is 5.7 per cent. In the prosperous second half of the 1990s, when consumer sentiment hit its highest recorded levels, the average was 4.8 per cent. The state with the highest unemployment rate is Nevada at 5.5 per cent. That too is below the state’s long-term average of 6.6 per cent.
Here’s the thing, though. I’d bet that no one who works at the King, or anywhere else, thinks they have their job because of a strong economy. Less so do they think that government policy got them their gig. An American’s job, when they have one, is a product of their own skill and initiative. Certainly my job is. What about yours?
Truth No 2: Government deficits and corporate profits are almost the same thing (aka the mall is the new main street)
By early afternoon, the mall is filling up nicely, not quite crowded, but busy. If you look again, though, you can see a bit of strain on the King’s business model. Most malls have big multi-floor anchor stores. A normal-sized mall might have one at each end. The mighty ship that is the King is held in place by six anchors: Neiman Marcus, Nordstrom, Macy’s, Primark, Bloomingdale’s (all department stores) and Dick’s Sporting Goods. Driving along the King’s perimeter with a critical eye, you will notice two other anchor positions that are sitting empty. They were filled with department stores too. Lord & Taylor closed in 2020, when its parent company went bankrupt. The King’s JC Penney closed in 2017. (Its parent went bankrupt in 2020, as well.)
It wasn’t really Covid that killed these two stores. Back in the year 2000, US department store revenue was about $230bn a year. By the eve of the pandemic, the figure was $132bn. The industry that provides five of the King’s six anchors is growing weaker every passing year, as online retail and discounters such as TJ Maxx (no outpost at the King) take the low end and branded boutiques take the high. The department store is going the way of the small-town main street; it’s not totally clear what it is there for any more.
I spent my afternoon pretending to shop for men’s suits. The King offers everything from a $360 black polyester number at Macy’s, through a $800 worsted at Suit Supply, up to a $5,100 Tom Ford peak lapel number in indescribable cloth at Neiman Marcus. Lots of variety, but what struck me was the overlap. I counted 15 places willing to sell me a basic blue suit at every price level. Not only was there a Ralph Lauren store, but one could buy Ralph Lauren suits (of various grades) from at least three of the department stores, probably more if I had looked harder. At some point, the imperial scale of the King shades into redundancy, and you start to wonder which of the department stores — where the redundancy is concentrated — will be the next to go.
Yet it’s not quite right to say that department store revenues have been falling steadily for 25 years. Right now, they are at almost the same level as they were on the eve of the pandemic, over four years ago. There was a surge in sales from early 2021 to early 2023 that is only fading slightly now.
Did the pandemic rekindle our love of the department store? The stock market is not convinced. Macy’s shares have been flat since early 2020, amid a furious market rally; Nordstrom’s are off by a third. And there are a couple of easy explanations for the pause in the decline of department store revenue that has nothing to do with an industry turnaround: there was a brief period when leaving the house to shop seemed novel and then, more importantly, massive government deficit spending. The role of government largesse is usually thought of in terms of the $814bn in stimulus cheques sent out in 2020 and 2021. But the point is bigger than stimulus cheques.
Think of it this way: when the government runs a deficit, someone else must be running a surplus. All that money borrowed and spent has to show up somewhere: household current accounts, corporate balance sheets or in some other country. And, historically, where big US government deficits show up most often is as corporate profits. This is not an intuitive thought. Americans tend to associate deficit spending with the inefficiency of the public sector, not the productivity of the private sector. But, as it turns out, high government deficits and high corporate profits are often the very same thing. And corporate profits are strong right now.
You can see this in the share price of Simon Property, the company that owns the King and many other retail real estates. It’s been on a wild ride. It fell from $150 to less than $50 in 2020, when it looked like we’d never leave the house again. It roared back to $170 when the end of lockdowns released pent-up demand, then fell to $90 as inflation and the spectre of higher rates appeared. (Real estate owners hate high rates.) Now, it’s back to $170, revelling at the prospect of a rate-cut.
How does a business under structural pressure, that is extremely sensitive to interest rates, come through a period of rollercoaster shifts in demand and a huge jump in rates with its stock price up? Look no further than the government.
Which suggests a tidy, if not fully convincing, theory of why Americans think the economy is bad. They suspect that the prosperity they are experiencing is fake. At some point, global investors will refuse to buy expensive bonds from an increasingly indebted country, deficits will become impossible to maintain and the federal shopping spree will end. In an economist’s model, even semi-conscious awareness of economic unsustainability would lead to less consumption and more savings. Maybe not in America, though.
Truth No 3: Inflation is one thing, price is another (aka $9 ice cream)
Shopping is hungry work and by mid-afternoon refreshment is required. One scoop of mint ice cream, waffle cone, no topping, at Cold Stone Creamery rings up at $9.52, including 54 cents of sales tax. It’s a big scoop, but it’s the smallest size they had. The fact that I am on a reporting trip and will expense the scoop does not entirely remove the sting of a $10 ice cream. $10!
Here, then, is the simplest solution of all to the paradox: people just despise inflation. Pointing out that price increases are now close to a historically normal rate (which they are) is no good. Pointing out that wages rose right alongside inflation so buying power was maintained (which it was) is no good. Prices are a quarter higher, more or less, than they were five years ago. Any time anyone buys anything they are reminded of that fact, and that makes the world seem hostile and crazy every single time.
What is a candidate to do about it? Harris talks about banning price gouging by grocers, a logistically difficult and almost certainly ineffective solution to something that might not even have happened. Trump pins the inflation on the incumbent administration, and says he will cut energy prices by 50 per cent in his first year of office, which he won’t. Probably none of the rhetoric matters much. The facts alone will work against Harris and for Trump.
The correlation between peaks in inflation and troughs in consumer sentiment has been consistently tight since at least the 1950s. But every one of the inflationary spikes since then closely coincided, more or less, with a recession and big increase in unemployment. (We did have a two-month long recession in 2020, with a spike in unemployment. But that was four years ago; unemployment is historically low, growth is strong and sentiment is still terrible.) If the current moment is representative, it’s not the effects of inflation people hate. It’s the inflation itself.
This is hard for economists, who naturally think in terms of total welfare and equilibria and trade-offs to accept. I recently asked the noted economist Alan Blinder how his views have changed over his long career. He said that while he thinks unemployment does more harm than inflation, he’s had to give up expecting non-economists to agree. “People,” Blinder concluded, “really detest inflation.”
Truth No 4: The brands really have us (aka my $260 jeans)
Spending a day examining a mall has the surprising effect of deadening the appetite for consumption. Even if you have a sweet tooth, a day in a candy factory leaves a sickly feeling. But I have a strong stomach and, rather than leave empty-handed, I head for a store that sells something solid, practical and wholesomely American: Levi’s.
I am a clothes snob, and it does not take me long to find, and buy, one of the most expensive pairs in the shop: selvedge 501s, based on the 1980s pattern but made in Japan. They are lovely, but when I pay $260 for jeans, even the snob in me rebels a little. It’s like my mint ice cream but worse, because I know the mark-up is about 70 per cent and that I am paying for nostalgia (I wore 501s in the 1980s) and prestige (“Japanese selvedge” is a magic phrase for menswear nerds). But buy them, I do, and expense them to the FT, I cannot.
Here I’m reproving something that post-pandemic inflation revealed: brands have even more power than we imagined. In the face of a frightening pandemic, shocking inflation, spiralling government deficits, Americans may have been unhappy, but they were not going to change their buying patterns. It isn’t just clothes. Mondelez, which makes Oreos — our national cookie, if not edged out by chocolate chip — raised US prices by one-quarter between 2021 and 2024. Did shocked consumers switch to cheaper alternatives? Of course not. Mondelez’s US sales held steady.
Identifying the American character as consumerist is a worn cliché, but it has proven resilient as it captures an economic reality. Under stress, Americans will complain, but they will keep buying. And they will demand federal help to do so. Inflation is, in the popular mind, always and everywhere the government’s fault. Maybe. But there is no question our stalwart refusal to step away from the mall made it easy for prices to rise.
This leads me to a fifth and final truth that will certainly not be a factor in the coming vote. We Americans are unhappy with an economy that we have chosen, again and again and again.
Robert Armstrong is the FT’s US financial commentator
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