Inflation has created a dark cloud over how Americans view the economy on a daily basis.

When Kyle Connolly looks back on 2023, she sees it as a year marked by change and challenges.

The new single mother re-entered the workforce, only to be laid off from her job at a custom home construction company in November. At the same time, Connolly has seen prices rise for everything from her Aldi’s grocery cart to her condo’s utility costs.

In turn, she cut back on everyday luxuries like eating out or going to the movies. Christmas will seem stripped down for her three children compared to previous years.

“I cut everything I could,” the 41-year-old said. “It sucks having to say no to my kids. It sucks when they ask for a little something extra at the checkout at the grocery store and have to say, ‘No, I’m sorry, we can not.’ “

Economic hardship seems most evident in his community in the Florida panhandle. Connolly noticed less than 2022 Chevrolet Commuters on the road, replaced by older ones Toyota Camry models. Waters usually filled with boats have remained eerily calm as owners have sold them or tried to cut their gas costs. Fellow parents took to Facebook groups to discuss ways to better save money or bring in extra income.

The struggles between Connolly and his neighbors highlight a key puzzle that puzzles economists: Why does the average American feel so bad about an economy that is otherwise considered strong?

In many ways, it was a good year on that front. The annualized rate of price growth is to get closer at a level preferred by the Federal Reserve, while the work market remained strong. There is growing hope that monetary policymakers managed to curb inflation without tipping the economy into recession.

Yet data from a closely watched University of Michigan survey shows that consumer confidence, while improving, is far from pre-pandemic levels. The December index showed an improvement of almost 17% from the previous year, but it is still almost 30% below its level in the same month in 2019.

“The main problem is that high prices really hurt,” said Joanne Hsu, director of Michigan consumer surveys. “Americans are still trying to come to terms with the idea that we will not return to the long period of low inflation and low interest rates that we experienced in the 2010s. And that reality is not the current reality.”

Still, Hsu sees reason to be optimistic when he zooms. Sentiment has largely improved from its all-time low seen in June 2022 – the same month when the consumer price index increased by 9.1% compared to a year earlier – as people began to notice a decline in inflationary pressures, she said.

One notable caveat was the decline in sentiment last May, which she linked to Negotiations on the US debt ceiling. The 2024 presidential election has added to the sense of economic uncertainty for some, Hsu said.

There is even more job offers that there are unemployed people, according to the latest data from the Bureau of Labor Statistics. The average hourly wage continued to increase — although at a slower pace than during the pandemic — and was about 20% higher in November than it was the same month four years ago, according to the seasonally adjusted Department of Labor. The figures to show.

That helped bolster another widely followed sentiment indicator: the Conference Board’s consumer confidence index. Its preliminary December figure was about 14% lower than the same month in 2019, meaning it rebounded much more than Michigan’s index.

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

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

A sharply rising job market can be a double-edged sword for sentiment, Michigan’s Mr. Hsu noted. Yes, it allows workers to get better roles or higher salaries, 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.

UNC’s Kuhnen said Americans would be thrilled if they owned and saw price appreciation. Another reason to be optimistic: if they had invested during the 2023 stock market rebound.

Without these safety cushions, those at the lower end of the income scale may feel more affected as higher costs eat into their remaining savings. pandemic recovery, Kuhnen said. Elsewhere, the resumption of student loan payments This year likely also caused discontent among those who had yet to pay their dues, according to Karen Dynan, a Harvard professor and former chief economist of the U.S. Treasury Department.

Marissa Lyda moved from Portland with her husband and two children earlier this year, in part because of falling housing costs. With profits from the value gained on the property she purchased in 2019, her family was able to purchase a nicer home in the Grand Canyon State.

Yet she faced an interest rate that is more than double what she was paying on her old home. Even though Arizona’s lower income taxes fattened her family’s wallet, Lyda found herself putting a significant portion of that money toward her growing grocery bill.

The stay-at-home mom changed her favorite grocer from Kroger has Walmart as the value became more and more important. She also found herself searching the store brand food aisles more intensely and looking for recipes with fewer ingredients.

Her family’s financial situation certainly doesn’t seem to reflect the economy she hears experts talk about, Lyda said. It’s more like the videos she sees on TikTok and discussions among friends about how inflation continues to weigh on wallets.

“I look at the news and I see they’re saying, ‘Oh, better profits, there’s been a lot of growth,'” the 29-year-old said. “And I’m like, ‘Where was that?'”

Economists wonder whether social media rhetoric and talk of a potential recession have led Americans to think they should feel worse about the economy than they actually do. This would help explain why consumer spending stay strongalthough people generally tighten their belts when they anticipate financial turmoil.

There is also a sense of whiplash from runaway inflation that ended a long period of low to normal price growth, said Harvard’s Dynan. Today, even though the annual inflation rate has cooled to more acceptable levels, consumers remain nervous as prices continue to rise.

“People are still angry about the inflation we saw in 2021 and, especially, in 2022,” Dynan said. “There’s something about the importance of…the lunch bill you see every day that maybe resonates in your brain, compared to the pay raise 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 American monetary policy, aims for a 2% increase in price each year. Deflationthat is, when prices decrease, is actually considered bad for the economy.

Despite these dilemmas, economists are optimistic about the new year as it appears increasingly likely that a recession has been avoided and that the Fed can reduce the cost of borrowing. For ordinary Americans like Connolly and Lyda, inflation and their financial situation will remain a priority.

Lyda cut out treats every week Starbucks slats out of budget so his family could afford a memorable first vacation in their new home. In 2024, she will be watching to see if the Fed cuts interest rates, potentially creating an opportunity to refinance that home’s loan.

“You just have to realize that every season of life may not be a 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.”