Data this week showed that the American economy is growing at its fastest pace in two years — and yet polling shows the mood on Main Street is grim.
It’s almost hard to believe we’re talking about the same economy. But the metrics offer another reminder that two seemingly diverging trends can simultaneously be true. An economy that’s growing rapidly doesn’t necessarily mean everyone is feeling it.
Yes, gross domestic product, the broadest measure of the US economy, heated up this summer to a sizzling annualized pace of 4.3%, far outpacing economists’ expectations.
But the booming GDP did not translate to a hiring boom, nor was it accompanied by a return to normal inflation.
“GDP is an abstract concept. But people know jobs. They know they can’t find a job if they lose theirs,” Moody’s Analytics chief economist Mark Zandi told CNN in a phone interview on Tuesday. “And they know they are paying more for coffee, beef, electricity, child care and just about everything else.”
GDP is a kind of report card for the economy. But like any report card, it may not paint a full picture of what is happening.
For example, one of the biggest reasons GDP accelerated in the third quarter is that consumer spending heated up. This has been a recurring theme under both the Biden and Trump administrations: Resilient consumer spending in the face of a laundry list of economic headwinds.
However, the report doesn’t explain which consumers ramped up spending.
Economists say the third-quarter spending increase was likely driven by higher-income consumers, the ones benefiting the most from record-high real estate values and blockbuster stock returns.
Many lower- and middle-income Americans, on the other hand, are struggling to stay afloat. Some of them are cutting back on spending and falling behind on bills.
“Retirees and the top 10% continue to drive the economy. It’s still very much a K-shaped economy,” said Mike Reid, senior US economist at RBC Capital Markets.
While people may not feel high GDP, they do feel high prices.
Inflation hasn’t gone through the roof this year, as some feared it would because of President Donald Trump’s sweeping tariffs.
But inflation also hasn’t improved much since Trump took office in January, when prices were rising at a 3% annual rate compared to November’s 2.7% rate (according to government data that carries a lot of fine print because of shutdown-related distortions). Still, it’s higher than the 1.7% average annual inflation rate Americans experienced in the decade preceding the onset of the pandemic, according to Bureau of Labor Statistics data.
Prices on some essentials have gone down. For instance, eggs in November were 13% cheaper than a year earlier, according to the BLS. Milk was 1% cheaper.
Gasoline has been under control all year, with the national average falling in recent days to $2.86 per gallon, a fresh four-and-a-half-year low. That’s a far cry from $5-a-gallon gas in 2022 after Russia invaded Ukraine.
However, other essentials have gone up in price.
Consumers are paying on average 7% more for electricity, a hot topic during the November governor races in New Jersey and Virginia.
Natural gas, the most common way to heat homes in America, is 9% more expensive.
Ground beef surged 15% year-over-year in November, the biggest increase since 2020. And consumers are shelling out a lot more for car repair (10%) and coffee (19%), according to the BLS.
It’s true that paychecks are also up – but often not by enough to keep up with the cost of living.
Consider that Bank of America deposit data shows that paychecks beat prices in November only for high-income households. Middle-income household wage growth was just 2.3%, while lower-income households inched up by only 1.4%.
If the US economy were truly booming, consumers wouldn’t be worried about job security. That’s not what we’re seeing today.
The share of consumers who believe job openings will be more plentiful over the next six months fell to the lowest level in four years, according to consumer confidence figures The Conference Board published Tuesday. The share of consumers who believe it’s harder to get a job also rose.
It comes as the unemployment rate hit a four-year high of 4.6% last month, up from 4% in January. Earlier this year the number of job seekers exceeded the number of jobs available for the first time in four years.
That’s driving consumers to be more downbeat about the economy, the overarching consumer confidence data showed.
One reason hiring has slowed is because businesses are learning how to do more with fewer workers, thanks to advancements in artificial intelligence. At the same time, Trump’s erratic trade policy changes have left many businesses in a state of paralysis. With little certainty about his next tariff moves, many have paused hiring plans. Additionally, some businesses have resorted to staffing reductions to avoid having to pass along heftier price increases from tariffs to consumers.
Bottom line: GDP, no matter how high, won’t make Americans feel better about this economy. Paychecks that stretch further, more certainty about what lies ahead and better job security will.
