America's Economy Is Booming. So Why Does (Almost) Everybody Feel Broke?

On paper, the American economy looks pretty good. In American households, the reviews are considerably less enthusiastic.

Today, the Commerce Department reported that the economy expanded at an annualized rate of 3.4% in the third quarter, according to its advance estimate, accelerating from 2.2% in the second. Consumer spending remained strong, and businesses continued investing heavily in equipment and technology.

Encouraging news, for sure, but these figures do little to settle the concerns that have dominated the election. Inflation is accelerating, price increases are outpacing wage growth, and workers looking for better-paying opportunities face a sluggish hiring market. In September, average hourly earnings were up 3.0% from a year earlier, the slowest pace since May 2021, and employers added just 29,000 jobs. In fact, the University of Michigan's consumer sentiment index stood at 48.0 in October, more than 10% lower than a year earlier.

So, what's driving this “mismatch” at the heart of the U.S. economy? These three charts might help explain…

By January 2025, inflation had fallen to 3% from a peak of 9.1% in 2022. However, President Trump's tariffs began pushing up the cost of imported goods last year. An October study by New York Fed economists found that a one-percentage-point increase in average tariffs raises consumer goods prices by about a quarter of a percent after a year. The researchers also estimated that tariffs' contribution to annual goods inflation peaked in February and had largely faded by August, even though the higher prices themselves remained in place.

Then, the war with Iran, which began in late February, disrupted global energy supplies, sending fuel prices sharply higher. In September, the Consumer Price Index rose 3.7% from a year earlier. Gasoline prices were up 34.2%, and gasoline's 9.1% jump in September alone accounted for more than half of that month's increase in overall prices. The Federal Reserve has also identified rising prices for technology-related consumer goods as a consequence of the AI infrastructure boom.

Renewed inflation has already changed the Federal Reserve's policy. In September, the central bank raised its benchmark interest rate by a quarter-point, its first increase since 2023. It held rates steady on October 28, but most officials had projected in September that one more increase would come before the end of the year.

That leaves Americans facing not only higher prices for everyday purchases, but the prospect of prolonged high borrowing costs for homes, vehicles, and other major expenses.

Higher borrowing costs are slowing down the housing market.

In late October 2021, the average 30-year fixed mortgage rate was 3.09%, according to Freddie Mac. By October 22, 2026, it had climbed to 7.32%, up from 6.19% just a year earlier. For a $300,000 mortgage, the difference between 3.09% and 7.32% adds nearly $800 to the monthly payment, before taxes and insurance.

The result is that pending home sales fell 7.3% in September from the previous month and were down 11.3% from a year earlier, pushing the index to its lowest reading on record. (The measure tracks signed contracts rather than completed sales, offering an early indication of housing activity.)

But higher rates aren't just discouraging buyers. They're also discouraging homeowners from selling. Someone who secured a 3% mortgage several years ago has little incentive to move if doing so means replacing it with a loan costing more than twice as much.

That helps explain why the slowdown in transactions hasn't produced much relief for buyers. Higher rates are suppressing demand, but they're also keeping many existing homes off the market, limiting supply and keeping prices from falling much.

Altogether, the divide is growing between Americans who secured inexpensive financing years ago and those trying to borrow today. And while housing activity has weakened considerably, consumer spending across the broader economy has remained remarkably strong.

This is the chart I find most interesting because it gets to the central contradiction.

Americans keep spending money, even as their incomes struggle to keep up.

Between January 2024 and September 2026, inflation-adjusted consumer spending increased approximately 7.8%, while real disposable personal income rose just 3.9%, according to the Bureau of Economic Analysis. In September alone, real spending was virtually unchanged, while disposable income fell 0.3% after adjusting for inflation.

So, what's propping up household spending?

For one thing, it's not always optional. Third-quarter spending growth was led by health care and prescription drugs, though restaurants and hotels contributed too, a sign that not all of the spending is grudging. Not to mention, households are saving a relatively small share of their income, and the personal saving rate stood at 3.8% in September.

All said and done, the economy is running hot, but for most households it doesn’t feel that way.

Adam is also a devoted husband and dad. His wife Lauren and their boys, Arlo and Greer, are waiting for him at home in Kohler, Wisconsin. Now the family is facing major medical and recovery costs that insurance won’t cover.

It would mean a lot to me if you could contribute to Adam’s Help Hope Live campaign. Your donation is tax-deductible and goes directly toward the family’s uninsured expenses. Adam has shown up for so many of us in this industry. Now it’s our turn to show up for him.

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