Why are Americans so unhappy with an economy that, by many traditional measures, isn't doing that badly?

It's a question economists have struggled to answer.

The economy grew 2.1% over the past year. Unemployment remains low. And the stock market has created enormous wealth.

Even inflation, while still a problem, is nowhere near its 2022 peak.

Yet Americans aren't buying the good news.

A recent Gallup survey found that 45% of Americans rate the economy as "poor." Just 19% call it "good" or "excellent." Other major surveys tell a similar story.

Share of People Who Rate Economy as "Good" or "Excellent" Minus "Poor"

Source: Gallup via The Wall Street Journal

So, who’s right… the people or the economists? I say both are.

The economic data isn’t necessarily wrong. Neither are all the Americans who say something still doesn't feel right.

Here’s one theory for why such a huge gap exists: The COVID economy never really ended.

There’s Before… and Then There’s After

It’s easy to forget how normal the economy felt immediately before COVID.

There were good years and bad years. Prices went up and down. But most of us had a basic idea of what things should cost.

Then, almost overnight, COVID blew up those expectations.

Businesses closed, factories shut down, and supply chains seized up. Suddenly, we couldn’t even get a hold of necessities like toilet paper.

And when people could find certain products, they often paid much more for them.

Economics 101 played out in real time. Supply disappeared while demand shifted wildly.

Eventually, the economy reemerged. Factories reopened, stores restocked their shelves, and supply chains started to improve.

By most measures, the economy began growing again. But something important didn’t return to normal...

Prices.

Check out the chart below showing how much consumer prices have climbed over the past decade.

Source: Federal Reserve Bank of St Louis

Consumer prices today are about 28% higher than they were just before the pandemic.

That’s a crucial point for understanding why Americans remain unhappy.

We hear that inflation has fallen from its 2022 peak. That’s true.

But lower inflation doesn’t mean lower prices. It just means already-high prices are rising more slowly.

If something that cost $100 rises to $128, slowing inflation doesn’t magically make it cost $100 again.

Americans still see the new price every time they walk into a grocery store, pay an insurance bill, or go out to dinner.

For older Americans, the inflation shock of the past few years may have brought back memories of the 1970s and early 1980s.

But for many Gen Xers, Millennials, and younger Americans, sustained inflation was something they had only read about in history books.

Then it became part of everyday life.

At the peak in June 2022, consumer inflation reached 9.1%.

It’s fallen sharply since, but the effects of that burst didn't disappear when inflation did. And not everybody’s paycheck kept up.

A recent study using payroll data found that 34% of workers saw their wages fail to keep pace with inflation between the end of 2020 and the end of 2025.

So the economy can grow while millions of individual households legitimately feel as though they’re falling behind.

Nowhere is this clearer than housing.

According to the Atlanta Fed, a household now needs about $124,674 a year to afford a median-priced home (assuming housing costs equal no more than 30% of income).

That’s about 45% more than the median household earns. At the end of 2019, payments on a median-priced home were actually about 3% below that affordability threshold.

Housing Affordability

Source: Atlanta Fed via The Wall Street Journal

Look at those two lines.

For years, household income and the income needed to buy a typical home weren’t terribly far apart.

Then came COVID.

Today, the gap is roughly $40,000.

And traditional inflation statistics don’t fully capture this problem because home prices and mortgage rates aren’t directly included in the Consumer Price Index.

The average 30-year mortgage rate recently stood at 6.71%, up from 3.51% in January 2020.

You don’t need an economics degree to feel that difference.

Then Washington Did Something Unprecedented

Prices and inflation tell only part of the COVID story. We also need to remember what happened during the pandemic.

Businesses were ordered closed or restricted. Schools and public facilities shut their doors. Travel collapsed. And millions of Americans suddenly found themselves working from home.

Faced with a historic crisis, Washington responded on a historic scale.

Six major COVID relief laws enacted in 2020 and 2021 provided roughly $4.6 trillion in federal pandemic relief, according to the Government Accountability Office. About $4.4 trillion was ultimately spent.

Here’s some perspective on just how enormous that number is.

In fiscal 2019, the last full year before COVID, the federal government spent about $4.45 trillion on everything.

Social Security. Medicare. Defense. Federal agencies. Interest on the debt. Everything.

In other words, Washington authorized more COVID relief than the federal government had spent during an entire pre-pandemic year.

Where did it go?

The IRS issued more than 476 million stimulus payments totaling over $814 billion through three rounds of checks.

The Paycheck Protection Program approved nearly $800 billion in loans, many of which were designed to be forgiven if businesses met the program’s rules.

Hundreds of billions more went toward enhanced unemployment benefits and aid to state and local governments.

And that was only the fiscal response.

The Federal Reserve slashed interest rates toward zero and bought enormous quantities of securities.

Its balance sheet grew from roughly $4.2 trillion before COVID to nearly $9 trillion by early 2022.

To be clear, this isn’t an argument over whether those policies were right or wrong.

The country faced an emergency, and policymakers under both the Trump and Biden administrations were trying to prevent a public-health crisis from turning into an economic depression.

But we shouldn’t forget what an extraordinary economic experiment it was.

Parts of the economy were effectively frozen while trillions of dollars flowed to households, businesses, and financial markets.

Then the country reopened while the supply of many goods, and even workers, remained constrained.

We are still living with some of the consequences.

Two Economies Can Both Be Real

This brings me back to the disconnect between economic data and public sentiment.

GDP can grow. Unemployment can remain low. Stocks can rise. And Americans can still feel lousy about the economy.

That’s because when people think about "the economy," they probably aren't thinking about quarterly GDP.

They’re thinking about their economy.

What does my paycheck buy?

Can I afford a home?

Why does everything cost so much more than I remember?

In other words, Americans aren’t necessarily comparing today's economy with last year's. They’re comparing it with the economy they remember before COVID.

That’s why both sides can be true.

The official numbers tell us how the economy is doing today.

Americans are telling us how far their buying power was knocked off course over the past six years.

Sentiment matters a great deal to us as investors.

After all, consumer spending drives roughly two-thirds of the U.S. economy.

If Americans still feel squeezed, it can shape where they spend, which companies win, and ultimately where the market goes next.

The pandemic may be behind us. But economically, we’re still living in its shadow.

What Americans are feeling — and how they are spending — might tell us more about what comes next than the headline numbers alone.