How the U.S. economy can look pretty good but feel pretty bad

The piece explains why headline U.S. macro data can look healthy while many households still feel squeezed. Inflation surged after the pandemic and, despite sharp Fed rate hikes that pushed inflation down, progress has repeatedly slowed - tariffs in 2025 and the U.S.-Israeli conflict with Iran pushed goods, fuel and food prices back up - leaving inflation above target for more than five years and keeping borrowing costs, notably mortgages, high. Unemployment sits near 4.1%, and consumer spending jumped at a 3.2% annualized pace in Q2 while the S&P 500 is up about 12% year-to-date, but average hourly earnings have lost ground against prices, consumer sentiment has weakened and retail sales fell in July for the first time in nine months. Households are relying more on credit cards even as delinquencies remain stable.

Labor-market measures conflict: low unemployment pairs with low hiring rates, falling labor-force participation and employer caution amid tariffs, geopolitical risk and AI uncertainty. Business investment in software and computers - an AI proxy - has surged, productivity rose about 2.5% annualized over the past year, and data-center buildout could reach roughly 3.1% of GDP. Those tech gains could boost long-term living standards, but they also concentrate risk if AI investment disappoints, leaving growth and job prospects uneven despite upbeat aggregate indicators.