Inflation has created a dark cloud over how everyday Americans view the economy

When
Kyle
Connolly
looks
back
at
2023,
she
sees
it
as
a
year
defined
by
changes
and
challenges.

The
newly
single
parent
reentered
the
workforce,
only
to
be
laid
off
from
her
job
at
a
custom
home-building
company
in
November.
At
the
same
time,
Connolly
has
seen
prices
climb
for
everything
from
her
Aldi’s
grocery
basket
to
her
condo’s
utility
costs.

In
turn,
she’s
cut
back
on
everyday
luxuries
like
eating
out
or
going
to
the
movies.
Christmas
will
look
pared
down
for
her
three
kids
compared
to
years
prior.

“I’ve
trimmed
everything
that
I
possibly
can,”
said
the
41-year-old.
“It
sucks
having
to
tell
my
kids
no.
It
sucks
when
they
ask
for
a
little
something
extra
when
we’re
checking
out
at
the
grocery
store
and
having
to
tell
them,
‘No,
I’m
sorry,
we
can’t.'”

Economic
woes
have
seemed
more
apparent
within
her
community
in
Florida’s
panhandle.
Connolly
has
noticed
fewer
2022


Chevy
Suburbans
on
the
road,
replaced
by
older


Toyota
Camry
models.
The
waters
typically
filled
with
boats
have
been
eerily
quiet
as
owners
either
sold
them
or
tried
to
cut
back
on
gas
costs.
Fellow
parents
have
taken
to
Facebook
groups
to
discuss
ways
to
better
conserve
money
or
rake
in
extra
income.

The
struggles
among
Connolly
and
her
neighbors
highlight
a
key
conundrum
puzzling
economists:
Why
does
the
average
American
feel
so
bad
about
an
economy
that’s
otherwise
considered
strong?

By
many
accounts,
it
has
been
a
good
year
on
this
front.
The
annualized
rate
of
price
growth
is

sliding
closer
to
a
level
preferred
by
the
Federal
Reserve,
while

the
labor
market
has
remained
strong.
There’s

rising
hope
that
monetary
policymakers
have
successfully
cooled
inflation
without
tipping
the
economy
into
a
recession. 

Yet
closely
watched
survey
data
from
the
University
of
Michigan
shows
consumer
sentiment,
while
improving,
is
a
far
cry
from
pre-pandemic
levels.
December’s
index
reading
showed
sentiment
improved
by
almost
17%
from
a
year
prior,
but
was
still
nearly
30%
off
from
where
it
sat
during
the
same
month
in
2019.

“The
main
issue
is
that
high
prices
really
hurt,”
said
Joanne
Hsu,
Michigan’s
director
of
consumer
surveys.
“Americans
are
still
trying
to
come
to
grips
with
the
idea
that
we’re
not
going
back
to
the
extended
period
of
low
inflation,
low
interest
rates
that
we
had
in
the
2010s.
And
that
reality
is
not
the
current
reality.”

Still,
Hsu
sees
reason
for
optimism
when
zooming
in.
Sentiment
has
largely
improved
from
its
all-time
low
seen
in
June
2022
—
the
same
month
the

consumer
price
index
rose
9.1%
from
a
year
earlier
—
as
people
started
noticing
inflationary
pressures
recede,
she
said.

One
notable
caveat
was
the
drop
in
sentiment
this
past
May,
which
she
tied
to
the

U.S.
debt
ceiling
negotiations.
The
2024
presidential
election
has
added
to
feelings
of
economic
uncertainty
for
some,
Hsu
said.

Continued
strength
in
the
labor
market
is
something
economists
expected
to
sweeten
everyday
Americans’
views
of
the
economy.
But
because
consumers
independently
decide
how
they
feel,
jobs
may
hold
less
importance
in
their
mental
calculations
than
inflation.

There
are

still
more
job
openings
than
there
are
unemployed
people,
according
to
the
latest
data
from
the
Bureau
of
Labor
Statistics.
Average
hourly
pay
has

continued
rising
—
albeit
at
a
slower
rate
than
during
the
pandemic
—
and
was
about
20%
higher
in
November
than
it
was
in
the
same
month
four
years
ago,
seasonally
adjusted
Labor
Department

figures
show.

That’s
helped
boost
another
widely
followed
indicator
of
vibes:
the
Conference
Board’s
consumer
confidence
index.
Its
preliminary
December
reading
was
around
14%
lower
than
the
same
month
in
2019,
meaning
it
has
rebounded
far
more
than
the
Michigan
index.

While
the
Michigan
index
compiles
questions
focused
on
financial
conditions
and
purchasing
power,
the
Conference
Board’s
more
closely
gauges
one’s
feelings
about
the
job
market.
That
puts
the
latter
more
in
line
with
data
painting
a
rosier
picture
of
the
economy,
according
to
Camelia
Kuhnen,
a
finance
professor
at
the
University
of
North
Carolina.

“You
think
that
they’re
talking
about
different
countries,”
Kuhnen
said
of
the
two
measures.
“They
look
different
because
they
focus
on
different
aspects
of
what
people
would
consider
as
part
of
their
economic
reality.”

A
hot
job
market
can
be
a
double-edged
sword
for
sentiment,
Michigan’s
Hsu
noted.
Yes,
it
allows
workers
to
clinch
better
roles
or
higher
pay,
she
said.
But
when
those
same
workers
put
on
their
consumer
hats,
a
tight
market
means
shorter
hours
or
limited
availability
at
their
repair
company
or
veterinarian’s
office.

Other
reasons
why
consumers
feel
positively
about
the
economy
this
year
can
only
be
true
for
certain
—
and
often
wealthier
—
groups,
economists
say.

UNC’s
Kuhnen
said
Americans
would
be
pleased
if
they
are
homeowners
seeing

price
appreciation.
Another
reason
for
optimism:
If
they
had
investments
during
2023’s
stock
market
rebound.

Without
those
cushions,
people
on
the
lower
end
of
the
income
spectrum
may
feel
more
of
a
pinch
as
higher
costs
bite
into
any
leftover
savings
from

pandemic
stimulus,
Kuhnen
said.
Elsewhere,
the

resumption
of
student
loan
payments
this
year
likely
also
caused
discontent
for
those
with
outstanding
dues,
according
to
Karen
Dynan,
a
Harvard
professor
and
former
chief
economist
for
the
U.S.
Treasury
Department.

Marissa
Lyda
moved
with
her
husband
and
two
kids
to
Phoenix
from
Portland
earlier
this
year,
in
part
due
to
lower
housing
costs.
With
profits
from
the
value
gained
on
the
property
she
bought
in
2019,
her
family
was
able
to
get
a
nicer
house
in
the
Grand
Canyon
state.

Yet
she’s
had
to
contend
with
an
interest
rate
that’s
more
than
double
what
she
was
paying
on
her
old
home.
Though
Arizona’s
lower
income
tax
has
fattened
her
family’s
wallet,
Lyda
has
found
herself
allocating
a
sizable
chunk
of
that
money
to
her
rising
grocery
bill.

The
stay-at-home
mom
has
switched
her
go-to
grocer
from


Kroger
to


Walmart
as
value
became
increasingly
important.
She’s
also
found
herself
searching
harder
in
the
aisles
for
store-brand
food
and
hunting
for
recipes
with
fewer
ingredients.

Her
family’s
financial
situation
certainly
doesn’t
feel
like
it
reflects
the
economy
she
hears
experts
talking
about,
Lyda
said.
It’s
more
akin
to
the
videos
she
sees
on
TikTok
and
chatter
among
friends
about
how
inflation
is
still
pinching
pocketbooks.

“I
look
at
the
news
and
see
how
they’re
like,
‘Oh,
best
earnings,
there’s
been
great
growth,'”
the
29-year-old
said.
“And
I’m
like,
‘Where’s
that
been?'”

Economists
wonder
if
social
media
discourse
and
discussion
about
a
potential
recession
have
made
Americans
think
they
should
feel
worse
about
the
economy
than
they
actually
do.
That
would
help
explain
why
consumer
spending

remains
strong,
despite
the
fact
that
people
typically
tighten
their
belts
when
they
foresee
financial
turmoil.

There’s
also
a
feeling
of
whiplash
from
the
runaway
inflation
that
snapped
a
long
period
of
low-to-normal
price
growth,
said
Harvard’s
Dynan.
Now,
even
as
the
annual
rate
of
inflation
has
cooled
to
more
acceptable
levels,
consumers
remain
on
edge
as
prices
continue
to
creep
higher.

“People
are
still
angry
about
the
inflation
we
saw
in
2021
and,
in
particular,
2022,”
Dynan
said.
“There’s
something
about
the
salience
of
…
the
bill
for
lunch
that
you
see
every
single
day
that
just
maybe
resonates
in
your
brain,
relative
to
the
pay
increase
you
get
once
a
year.”

Another
potential
problem:
The
average
person
may
not
completely
understand
that
some
inflation
is
considered
normal.
In
fact,
the
Federal
Reserve,
which
sets
U.S.
monetary
policy,

aims
for
a
2%
increase
in
prices
each
year.

Deflation,
which
is
when
prices
decrease,
is
actually
seen
as
bad
for
the
economy.

Despite
these
quandaries,
economists
are
optimistic
for
the
new
year
as
it
appears
increasingly
likely
that
a
recession
has
been
avoided
and
the
Fed
can
lower
the
cost
of
borrowing
money.
For
everyday
Americans
like
Connolly
and
Lyda,
inflation
and
their
financial
standing
will
remain
top
of
mind.

Lyda
has
cut
treats
like
weekly


Starbucks
lattes
out
of
the
budget
to
ensure
her
family
can
afford
a
memorable
first
holiday
season
in
their
new
home.
In
2024,
she’ll
be
watching
to
see
if
the
Fed
cuts
interest
rates,
potentially
creating
an
opportunity
to
refinance
the
loan
on
that
house.

“You
just
have
to
realize
that
every
season
of
life
may
not
be
this
huge
financial
season,”
Lyda
said.
“Sometimes
you’re
in
a
season
where
you’re
just
trying
to
hold
on.
And
I
feel
like
that’s
what
it’s
been
like
for
most
Americans.”