ARI SHAPIRO, HOST:
There's a big gap between how the economy is doing in the U.S. and how Americans are feeling about it. Paddy Hirsch and Darian Woods with The Indicator From Planet Money have some reasons behind that disparity.
PADDY HIRSCH, BYLINE: Stephanie Larscheid sees the improving economy and the pain that Americans are feeling all at once. She's the executive director of the Prairie Family Business Association. She's based in Sioux Falls, S.D., and her clients are located all over the Great Plains.
STEPHANIE LARSCHEID: My father, who's a farmer in Iowa - when he's been traveling across Iowa, across South Dakota, across Minnesota, he's noticed more vehicles on the side of the road. He thinks people are putting off repairs. People are putting off what they need to do to take care of their basic needs.
DARIAN WOODS, BYLINE: At the same time, though, Stephanie says the economy in her part of the world is running pretty hot right now.
LARSCHEID: In South Dakota, we have 35 workers available for every 100 jobs that are open, and that puts a lot of pressure on what the pay is.
HIRSCH: Rising pay and improving conditions but matched with economic hardship. It's kind of a conundrum, and it's something that we're seeing all over the U.S. right now. Unemployment is low. Inflation is falling. Gross domestic product is up. Wages are up. And yet we're all feeling down.
WOODS: Michael Strain is a director of economic policy studies at the American Enterprise Institute. That's a think tank that you might say leans gently to the right.
MICHAEL STRAIN: People don't really care about some index that economists have put together to try and get a handle on the economy at the macro level. People care about the stuff they're buying, and it turns out that people really hate inflation.
HIRSCH: Turns out you can throw the whole can of alphabet soup of GDP, CPI, PCE and whatever at the average American, but what they're really focused on and what we get really mad about is how much pain we have to take at the pump or the checkout or when a waiter brings us our bill.
WOODS: Inflation, it seems, beats out almost every other economic ailment when it comes to our feelings because it affects so many of us.
HIRSCH: Now, of course, pay has gone up at the same time as inflation. But in the same way that unemployment only affects a relatively small number of Americans, the same goes for pay hikes. Betsey Stevenson is professor of public policy and economics at the University of Michigan.
BETSEY STEVENSON: We know that the incomes of younger people went up disproportionately to older people, and that's because the incomes of people who are willing to switch jobs went up by much more than the rate of inflation compared to people who stayed in the same job.
HIRSCH: But it's not just the virus of inflation that's making their temperatures rise, Michael Strain says. It's also the antidote to the disease - rising interest rates.
STRAIN: Interest rates on credit cards are much higher than they used to be as a consequence of actions the Fed is taking to fight inflation.
WOODS: And it's not just credit cards that are seeing higher rates. It's home loans. It's car loans, student loans, personal loans.
STEVENSON: The reason the Fed was raising interest rates was so people would spend less, and they haven't really done that. And one reason they haven't done that is because they had excess savings built up during the pandemic.
HIRSCH: Yeah, those excess savings, which were, of course, boosted by government handouts to some degree. But Michael Strain says that that power is pretty much all used up now.
STRAIN: Now you're starting to see households have trouble keeping current on their debt obligations.
HIRSCH: Both Betsey Stevenson at the University of Michigan and Michael Strain at the AEI agree that if inflation continues to fall and unemployment stays low, Americans should gradually begin to feel less miserable about the economy. Now, whether or not we'll admit that is another story.
WOODS: Darian Woods.
HIRSCH: Paddy Hirsch, NPR News. Transcript provided by NPR, Copyright NPR.
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