Inflation has created a dark cloud over how everyday Americans view the economy

When Kyle Connolly looks back at 2023, she sees it as a year defined by changes and challenges.

The newly single parent reentered the workforce, only to be laid off from her job at a custom home-building company in November. At the same time, Connolly has seen prices climb for everything from her Aldi’s grocery basket to her condo’s utility costs.

In turn, she’s cut back on everyday luxuries like eating out or going to the movies. Christmas will look pared down for her three kids compared to years prior.

“I’ve trimmed everything that I possibly can,” said the 41-year-old. “It sucks having to tell my kids no. It sucks when they ask for a little something extra when we’re checking out at the grocery store and having to tell them, ‘No, I’m sorry, we can’t.'”

Economic woes have seemed more apparent within her community in Florida’s panhandle. Connolly has noticed fewer 2022 Chevy Suburbans on the road, replaced by older Toyota Camry models. The waters typically filled with boats have been eerily quiet as owners either sold them or tried to cut back on gas costs. Fellow parents have taken to Facebook groups to discuss ways to better conserve money or rake in extra income.

The struggles among Connolly and her neighbors highlight a key conundrum puzzling economists: Why does the average American feel so bad about an economy that’s otherwise considered strong?

By many accounts, it has been a good year on this front. The annualized rate of price growth is sliding closer to a level preferred by the Federal Reserve, while the labor market has remained strong. There’s rising hope that monetary policymakers have successfully cooled inflation without tipping the economy into a recession. 

Yet closely watched survey data from the University of Michigan shows consumer sentiment, while improving, is a far cry from pre-pandemic levels….