Unemployment has been below 4% for 22 months, a 50-year record. After hitting a 40-year high last year, inflation has fallen from 9.1% to 3.2%. As of the end of November, the S&P 500 has posted a total return of about 21% this year, the Nasdaq is up 37%, and the Dow Jones Industrial Average is up about 11%. 

Gross domestic product grew at 5.2% in the third quarter, and the latest jobs report, which showed an addition of 199,000 jobs in November, has President Joe Biden touting an economic “sweet spot.”

“The economy’s in good shape,” says Bob Triest, professor and chair of the economics department at Northeastern University. “It’s remarkable how inflation has come down without, so far at least, there being a recession that accompanies it.”

However, prices are up, especially for food and housing. According to the U.S. Bureau of Labor Statistics, $100 in November 2021 has the same purchasing power as $110.47 today. Over the last year alone, the Consumer Price Index has climbed 3.1%.

Across the country, just 33% of the public approves of Biden’s handling of the economy, and only 16% of American adults said in an October AP-NORC poll that the economy was even “somewhat good.” More than 7 in 10 Americans in the poll labeled the economy as some level of poor, with 31% calling it ‘very poor.’”

“Almost all economists have a view similar to mine; much of the public does not,” Triest says. “Despite the fact that, objectively, the economy’s in very good shape, the public continues to view economic conditions as not very good.”

Labor economist Alicia Modestino agreed there was a “disconnect” between the data and the public’s perception.

“In aggregate, the number looks good and strong and where we should be,” says Modestino, an associate professor with appointments in the School of Public Policy and Urban Affairs and the Department of Economics at Northeastern. “But underneath that, there is some unevenness, which is why there’s this disconnect.”

So, what explains this?

First off, Modestino noted that inflation and prices, while related, are different. Inflation is the pace at which prices go up; prices are the cost of goods and services. 

“Prices are going up, but they are not going up as fast as they were, so we say, ‘Yay! The Fed’s doing a good job,’” Modestino says. “However, that doesn’t mean at all that the price level has gone down — if you look back at what things cost two or three years ago, those prices are up.”

Triest adds that these cost increases are also among some of the most salient items.

“Food prices, for example, we see that increase every time we go food shopping,” Triest says. “Rent increases have been substantial, and the cost of financing a home has gone up along with the mortgage interest rates.”

Modestino — who noted that housing costs are still rising 6.7% per year — agreed.

“If you look at how much your paycheck can buy — the cost of housing is up, eggs are up, restaurant meals are up,” Modestino says. “When real workers start matching up their paychecks with what headline numbers are, they’re saying ‘Hold on, I’m still paying more than what I was a year ago.’”

In addition, Modestino noted that while workers have gained in terms of wages over the course of the pandemic — particularly in the Great Resignation — that still doesn’t feel like much of a raise when it comes with higher inflation. 

“Many workers feel like they’re just treading water because their wage increases are just matching inflation,” Modestino says, noting the latest job report had wage growth decelerating to 4%, while inflation is at 3.2%.

Modestino also points out that not all sectors of the economy are doing as well as others. 

High-profile tech companies and financial institutions have cut thousands of jobs, for instance.

Triest speculates that Biden’s approval numbers may also have something to do with the disconnect. 

“Some of the polls suggest that voters who are Republican or lean Republican evaluate economic conditions much less favorably than those who are Democrats or lean Democratic,” Triest said. “It might be, to some extent, that because of President Biden’s unpopularity, people view economic conditions less favorably — rather than having unfavorable economic conditions leading to President Biden’s unpopularity.”

As for what it takes for this disconnect to resolve, Modestino and Triest both said to give things time. 

“A lot of this is driven by unevenness and uncertainty coming out of the pandemic,” Modestino says. “As the Federal Reserve hopefully achieves its soft landing and wages and inflation stabilize, then people should start feeling better about the state of the economy.

Triest concurs.

“I do think that if we continue to get favorable economic news, if the inflation rate continues to fall as expected, then people will start to view the economy more favorably,” Triest says. “Another thing that could turn around public perception is that some of the provisions in the  Inflation Reduction Act and the Bipartisan Infrastructure Bill will have a positive impact on the local economies in the near future. As people start to see that, that may improve perceptions of Biden’s handling of the economy as well as economic conditions overall.”

Cyrus Moulton is a Northeastern Global News reporter. Email him at c.moulton@northeastern.edu. Follow him on X/Twitter @MoultonCyrus.