Americans Feel Bleak Despite Strong Economy ? Here's Why

American consumers are seriously depressed, even as key economic data looks solid. A surprisingly deep gloom now dominates U.S. households, even as unemployment, inflation and wage trends suggest households should feel stronger than they have in years.

Consumer Confidence Collapses With No Recession In Sight

The disconnect is stark and runs through every major sentiment survey.

The downturn in U.S. consumer sentiment, as captured by the Conference Board and University of Michigan Survey Research Center, may look worrying ? but the broader economic data suggest Americans are, on paper, better off than ever.

Veteran Wall Street analyst?Ed Yardeni?said that consumer gloom is puzzling as unemployment, inflation, and wages point to healthier fundamentals.

In November, the composite Consumer Optimism Index (COI) dropped to 69.5, a level typically seen in recessions. That weakness extends to both the current conditions and expectations components of the Consumer Confidence Index (CCI) and the Consumer Sentiment Index (CSI).

According to Yardeni, the macro data suggest consumers should feel good.

The Misery Index, which totals the unemployment and inflation rates, sat at a relatively low 7.4% in September. This is well below its 9.0% average since the late 1940s.

Historically, a low Misery Index means higher consumer optimism. But sentiment surveys show low optimism despite the reduced misery.

Are Real Wages The Missing Story?

Inflation has dropped sharply from its 9.0% peak in 2022 to 3.0% currently, and wages have quietly outpaced prices.

Real hourly earnings hit a record $28.74 in August. Low-wage workers reached $24.71, also a record.

Real disposable income per household climbed to $136,400 in the second quarter, excluding the pandemic's stimulus distortions. Real consumption reached $124,000.

These indicate that consumers have significant purchasing power.

Furthermore, stock prices ? as tracked by the Vanguard S&P 500 ETF ? have recently surged to record highs. They are up thanks to strong earnings and elevated valuation multiples.

“Hence our conclusion that Americans, on average, have never been better off than they are today,” Yardeni said.

Why The Gap Between Feelings And Reality?

Economists point to several explanations for the puzzling gap between sentiment and fundamentals.

One of the main problems lies precisely with the average.

These averages mask distributional pain, Yardeni stated.

Not all workers kept pace with inflation, and households remember pre-pandemic price levels more than year-over-year improvements. The psychological anchor sits below today's prices.

According to Brookings’ economist Ryan Cummings, many consumers focus on absolute prices rather than price growth or inflation rates.

Even if inflation has cooled from its 2022 peak of 9% to roughly 3%, prices remain far higher than pre?pandemic levels ? giving a persistent sense of low affordability when they go to the stores.

“While prices have only increased by 2.6% in the last year, consumers may be reacting to the fact that prices have cumulatively increased by 22% since 2020 and are still facing sticker shock when they go into the store,” Cummings said.

Who Feels The Affordability Squeeze Most?

The affordability crisis concentrates on younger and single Americans. Singles make up 51.3% of the adult population, up from 38% in the late 1970s. The number of never-married adults reached 91.6 million.

Thirty percent of adults aged 25 to 34 now live with parents. These groups face higher housing costs, slower wage growth and inconsistent financial support.

Generational inequality complicates the picture. Baby Boomers accumulated wealth over decades of rising asset values. Younger households face high entry prices in housing, insurance and essentials.

Many depend on parental help. Many expect inheritances far into the future, not spending power today.

Inflation's Scars Are Visible In Essentials

Since March 2020, headline inflation jumped 22.1%. Wages rose 27.6% overall, 31.4% for low-wage workers and 18.9% for high-wage workers.

However, prices for essential goods and services outpaced those gains in nine of fifteen tracked categories. Gasoline surged 32.1%. Services rose 30.2%. Insurance costs climbed roughly 25%?29% across home, auto and life products.

The increases remain visible. Consumers absorb them in rent, food, transportation and premiums.

Even if wages kept pace on average, many individuals sit on the wrong side of the arithmetic.

So why the gloom?

Sentiment is low not because macro?data are weak but because perception has lagged behind reality.

For many Americans, sticker shock, memory of past price levels, income inequality and social factors shape views more than headline wage or employment numbers.

Until those subjective impressions shift, consumer gloom may persist even in a healthy economy.

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Image created using artificial intelligence via Midjourney.