Key economic indicators point to strength. Household finances tell a different story. Stock prices are rising, consumer spending remains firm, and business investment is solid. Layoffs remain subdued overall. Yet many Americans report that their finances are under strain, and consumer sentiment is weaker than during the pandemic or the 2008 financial crisis. Several forces explain the gap: a cumulative rise in prices, slowing real wage growth, a weak housing market, and an AI-driven investment boom that adds to costs.

Strong Headline Indicators

• The stock market is booming.
• Consumer spending is strong.
• Business investment is solid.
• Layoffs remain subdued on the whole.

Price Levels Compared With Pre-Pandemic Levels

Prices remain the central concern for households. Compared with levels before the pandemic:

Affordability has become a leading issue in the current election cycle. Both parties have adopted economic populist messaging. Candidates who focused on affordability helped several Democrats win elections last year. The Trump administration has also shifted its focus toward affordability and has engaged voters directly on how it can help.

Inflation: Origins and Current Readings

The Consumer Price Index, the gauge of inflation published by the Bureau of Labor Statistics, shows the trajectory:

1. Pandemic disruption: The pandemic disrupted global supply chains.
2. Demand surge: When the economy reopened, a large wave of consumer demand pushed prices up.
3. Peak and slowdown: Price increases peaked in 2022 and then began to slow.
4. Renewed pressure: The inflation rate was 2.4% in 2026, before the US-Israel war with Iran. More than six months into the conflict, inflation has risen. It reached 3.7% in September.

Several additional shocks have prevented prices from falling or giving consumers relief:

• The war between Russia and Ukraine raised fertilizer prices.
• Tariffs, including reciprocal tariffs, raised the prices of some goods.
• The war in Iran has pushed energy prices sharply higher.

Fuel Costs and Diesel

Diesel has become the most visible driver of inflation. The economy depends on diesel because trucks deliver most goods, including packages and groceries. Higher diesel costs therefore feed into consumer prices.

Independent truck driver Paul Ringold, who is also a church pastor, reports the effect on his business. His weekly fuel spending has risen from $800 to$1,200 before the Iran war to about $1,700 to$1,800 now. He uses fuel-saving practices, such as driving at set speeds and monitoring tire pressure, but these measures do not fully offset the increase. He states that he would prefer to keep $500 in his pocket rather than spend it on fuel.

Higher freight costs also affect consumers in two roles. Business owners pass transport costs to customers at the store, and the same individuals pay higher prices at the pump.

Wages, Sentiment, and Household Strategies

Wages rose sharply as businesses competed to meet demand after pandemic restrictions eased. Inflation then eroded those gains. As inflation subsided, households began to recover their purchasing power. Over the last few months, inflation-adjusted wages have started to decline again.

Consumer sentiment is lower than during the pandemic and the financial crisis, based on survey data back to 2008. Households have adopted several strategies to maintain spending:

• Taking on side gigs and side hustles
• Drawing on stock market gains
• Using buy now, pay later financing
• Making trade-offs in household budgets

Hard spending data show that consumers continue to spend. Survey measures of how people feel show markedly weaker sentiment. The gap between the two measures is a central feature of the current economy.

Labor Market

The unemployment rate is low. In normal conditions, a low rate typically means that anyone who wants a job can find one. That condition does not apply to all groups:

• Young workers: Their job prospects are weaker.
• New college graduates: Finding a first job is significantly harder.
• Employed workers who are dissatisfied: Many feel unable to leave their jobs because of limited opportunities elsewhere.
• Laid-off workers: The average duration of unemployment has risen to about six months. Historically, long unemployment durations of this kind have coincided with recessions. The economy is still growing.

Housing

Housing affordability divides owners and non-owners. Homeowners who bought in 2020, when interest rates were low, are in a strong position. Prospective buyers face a sharply higher cost:

• The median US home price has risen by about 50%.
• Mortgage rates have increased from below 4% to above 7%.
• The typical monthly payment is roughly double its 2019 level.

Residential construction is weak. One economist has told the reporter that residential construction is effectively in recession.

AI Investment and Its Costs

Non-residential construction is growing, driven by the AI build-out. A Bloomberg economics analysis of government data indicates that AI-related investment added roughly one percentage point to GDP growth in 2025. That amount equals about half of total economic growth that year.

The boom carries costs:

• Communities often resist data centers located near residences.
• Workers are concerned that AI will replace their jobs.
• Demand for AI and the billions of dollars invested in it have raised the prices of software and computers. These increases have also raised overall inflation.

AI has supported Wall Street and economic growth. It has also created a resource shortage that pushes up prices.

Policy Responses

Legislation passed last year provided a cushion. Larger-than-usual tax refunds supported consumer finances this year and partly offset higher gasoline and energy costs. That support is largely exhausted.

The administration has taken limited measures:

• Negotiating with Russia to increase diesel supply on the market
• Launching initiatives to address prescription drug prices

Analysts do not expect these measures to materially change inflation.

Monetary Policy Outlook

Inflation has exceeded the Federal Reserve's target for more than five years. The Fed has signaled a gradual approach to policy and has not disclosed its intentions in detail.

Interest rates have limited influence over AI-related costs and energy prices. Reducing inflation from these sources requires slowing demand elsewhere in the economy. Higher interest rates would reduce consumer spending and business investment. That slowdown would impose significant hardship on Americans across income groups.