What's the biggest problem with the US economy right now? The vibes are off.
By almost any objective measure, Americans are doing much better economically than they were nearly three years ago, when President Joe Biden took office. Still, a majority — 58% — say Biden's policies have made economic conditions worse, according to a new CNN Poll conducted by SSRS.
That's up from 50% a year ago.
But the grim outlook is at odds with the hard data, which reveal an economy bursting with optimism.
"Has the economy improved under Joe Biden? There's literally no question," said Justin Wolfers, a professor of public policy and economics at the University of Michigan.
In January 2021, the start of Biden's term, "everything sucked," according to Wolfers. Unemployment was at 6.3% and the economy had yet to rebound from the shock of Covid-19. Wolfers described that time as "one of the worst economic moments of my life."
Two and a half years later, the US economy is in a much healthier spot.
Unemployment has been hovering near its lowest level in a half-century — roughly 3.5% — for the past 18 months. August marked the 32nd consecutive month of job growth. Real wages (meaning adjusted for inflation) are rising. That's helped everyone feel confident about continuing to spend money, which keeps the US economic engine humming.
Put another way: People are spending like they're in a good mood, even if they say they're not.
"There's this disjunction between reality and perception that's as large as I've ever seen in my career," Wolfers told CNN. "If you'd fallen asleep in 2019 and woke up in 2023, you would discover pretty much the sort of economy you would have expected."
So, why the sour mood?
In short: Inflation, housing and bitter national politics.
How the economy is thriving
Economists are practically stumbling over themselves to revise their growth forecasts higher. Many banks are drastically rolling back or even reversing their expectations for a 2023 recession.
On Wednesday, S&P Global Market Intelligence raised its third-quarter GDP estimate by nearly two percentage points to an annualized rate of 4%, citing surprisingly strong retail sales data. It moved its annual estimate up slightly to a historically strong 2.3%.
An even sunnier outlook comes from the Atlanta Fed's GDPNow model, which currently expects third-quarter GDP growth at a whopping annualized rate of 5.6%.
The economy is "growing much stronger than we anticipated," Morgan Stanley economists recently told clients in a research report. The bank now expects GDP for the year to clock in at a 1.9% pace — nearly double its previous projection.
Inflation hangover
Sharply higher prices in 2021 and 2022 marked a painful economic moment for households around the world. In the United States, inflation peaked at 9.1% in June 2022. The euro zone hit 10.6%, while the UK topped 11%.
Inflation has dramatically improved. The United States hit 3.2% in July, according to the latest Consumer Price Index. (The euro zone hit 5.3% in August, while the UK is at 6.8%.)
That means prices overall are still about 18% higher today than they were in late 2019, before the pandemic, according to the Bureau of Labor Statistics.
Despite all of that, real personal consumption expenditures are still growing at a strong pace, said Carola Binder, associate professor of economics at Haverford College. "So it seems that 'bad vibes' are not leading to a lot of precautionary saving."
Gas prices on the rise
Gas prices, which are notoriously volatile, tend to feel like a slap in the face because they are unavoidable — even if you don't drive, you see the prices on display outside every gas station.
Throughout 2022, gas prices were especially hard to predict as the Russian invasion of Ukraine jolted global commodities markets.
Earlier this summer, US drivers were enjoying big savings on gas compared with 2022. But by late August — around the time the CNN poll was conducted — prices had climbed back up to their highest level in months, just shy of $4 a gallon on average.
Unaffordable housing
The economy feels extra crummy for people looking to buy a home.
Housing affordability is at its lowest point in decades, with mortgage rates climbing above 7% to their highest level in more than 20 years. When Biden took office, mortgage rates were at a record low of 2.65%.
The Fed is partly to blame. Eleven interest rate hikes over the past year and a half have helped push mortgage rates higher, faster.
The median US home price has risen to $416,100 from $258,000 in 2019.
But the affordability issue isn't just because of higher financing costs. It's also because of historically low inventory, thanks to a pandemic-era buying spree combined with a lingering shortage rooted in the 2008 subprime mortgage crisis.
The partisan gap
CNN's latest poll shows that Republicans and Democrats are both souring on President Biden's handling of the economy.
Only 2% of Republicans and 48% of Democrats said economic conditions had improved under Biden. Nearly a quarter of Democrats said Biden's policies have worsened economic conditions. Ninety-one percent of Republicans agreed.
"People are no longer telling us how they feel about the economy — really, they're telling us how they feel about the president," Wolfers said.
Either way, that poses a political problem for President Biden, whose re-election campaign has sought to highlight the economy's strengths.
"You can't jawbone people into feeling better," said former White House senior adviser David Axelrod on CNN This Morning. "I think the president has to find a way to talk about the things that he's done in a context other than kind of asking for a report card from the American people."
— CNN's Matt Egan contributed to this article.