The Economy is Booming. Why Does it Feel Like a Bust?

Summary

Podcast Summary

The Journal. – "The Economy is Booming. Why Does it Feel Like a Bust?"
Hosts: Jessica Mendoza & Ryan Knutson
Guest/Main Contributor: Harriet Tory
Date: June 17, 2026

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Main Theme

This episode explores a “split-screen” reality in the U.S. economy: while economic indicators like job growth, productivity, and the stock market point to a booming economy, everyday Americans feel squeezed by high inflation and stagnant wages. The hosts and reporter Harriet Tory unpack the disconnect between positive economic data and the bleak mood among consumers, analyzing the causes and consequences of this economic paradox.

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Key Discussion Points & Insights

1. The Split-Screen Economy: Boom on Paper, Bust in Reality

• Strong Economic Metrics:

  • Unemployment is at a historic low (4.3%) and job creation is exceeding expectations.
  • Productivity has increased by over 2% in the past year—a sign of healthy economic growth, potentially aided by AI and changing work patterns.
  • The stock market is performing well, housing values are up, and GDP growth remains steady.

  "We have a boomy stock market, strong job creation, GDP growth that seems to be perfectly decent and yet people feel really terrible about the economy." — Harriet Tory [01:52]

• Consumers Feel the Pinch:

  • Despite these positive signals, Americans report profound financial anxiety and frustration with rising prices.
  • University of Michigan consumer sentiment polls are at their lowest point in over 70 years.
  • Everyday experiences—at the gas station, supermarket, and local shops—drive home the sense that money isn’t going as far.

  "I managed to spend $100 even though I only left the store with a pretty small bag of groceries ... it's pretty depressing." — Harriet Tory [01:12, 01:30]

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2. Inflation: The Pain and Its Origin

• Rapid Inflationary Spike:

  • Inflation jumped from 3.3% in March to 4.2% in May—a three-year high.
  • This spike is linked to the war in Iran, specifically the closure of the Strait of Hormuz, which disrupted global oil supplies.

  "Before the invasion, gas prices were around $3 a gallon ... they ramped up very quickly and then peaked in around ... $4.50 a gallon." — Harriet Tory [06:52–07:13]

• Broad Economic Impact:

  • Energy costs affect shipping, groceries, and goods across the board, amplifying cost-of-living pressures.

  "When fuel gets more expensive, it becomes more expensive to move everything from groceries to clothing." — Jessica Mendoza [07:22]

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3. Wages Stall: Purchasing Power Shrinks

• Wages Trail Behind Prices:

  • Inflation-adjusted wages are falling for the second month in a row.
  • Year-over-year, average hourly earnings have increased by only 3.4% while inflation rose 4.2%.

  "The average American's earnings are back to where they were in January 2025." — Harriet Tory [08:13]

• Impact on Sentiment:

  • The public feels their earning power is eroding, directly fueling record-low confidence and consumer sentiment.

  "People feel very bad about the fact that their dollars are not stretching ... people are very worried about prices." — Harriet Tory [08:45]

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4. Consumer Behavior: How Are People Still Spending?

• Spending Remains Resilient:

  • Despite inflation, spending hasn’t decreased substantially.
  • Luxury travel destinations like South Padre Island are booming, with packed beaches and busy restaurants.

  "The beaches were full of people, the restaurants were packed, everyone was out and about and having a great time." — Harriet Tory [11:36]

• K-Shaped Economy:

  • The gains and pain of this economy are unequally shared.
  • Upper-income households, buoyed by booming assets and stock market gains, continue to drive much of the spending.
  • Lower-income households face significant strain, with savings rates at multi-year lows, increased reliance on savings, and struggles to keep up with rising costs.

  "Upper income households have been the beneficiaries of a huge run up in asset values ... they feel very wealthy ... for lower income households, a lot of people are feeling the pain." — Harriet Tory [12:53]

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5. Policy Tools & Their Limits

• The Federal Reserve’s Dilemma:

  • Typically, the Fed hikes interest rates to curb inflation, but the current inflation is driven by a supply shock (energy) outside its control.

  "The Fed ... doesn't turn the oil on and off, so it can't really impact the external shocks that are causing this inflationary spike." — Harriet Tory [14:26]

• Leadership & Geopolitics:

  • New Fed Chair Kevin Warsh keeps rates steady, monitoring the Middle East situation.
  • A potential peace deal and reopening of the Strait of Hormuz bring hope for relief, but normalization of prices will be gradual.

  "You know, mines have to be cleared ... it's going to take a bit of time to ramp up oil flows, to rebuild inventories ... but definitely this is a good development for the economy." — Harriet Tory [15:39]

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6. Why Perception Matters

• Expectations Influence Reality:

  • How people feel about the economy can impact future inflation, wage demands, and actual economic performance.

  "If you think that inflation is going to keep going up, that does have an impact on your behavior ... it has a real world effect." — Harriet Tory [16:20]

• The Era of the “Vibecession” Returns:

  • The mood: the economy is objectively strong, yet consumers still report feeling negative—a “vibecession 2.0.”

  "It feels a little bit like vibe session 2.0 where the economy seems to be growing and yet we still find people reporting that they feel really, really bad about the economy." — Harriet Tory [17:02]

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Notable Quotes & Memorable Moments

• “Inflation goes up like a rocket and comes down like a feather.” — Harriet Tory [07:32]
• “People’s wages, adjusted for inflation, are going down for the second month in a row.” — Harriet Tory [07:51]
• When asked about spending $7 on chocolate:

  “Was it at least worth it?” — Jessica Mendoza
  “It was. It was so delicious.” — Harriet Tory [17:33]

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Key Timestamps

• 00:05–03:05: Introducing the split-screen economy and personal anecdotes about rising prices
• 04:14–06:09: Discussion of jobs, productivity, and economic growth metrics
• 06:09–08:45: Explaining inflation’s rapid rise, its causes, and wage stagnation
• 11:10–12:03: Reporting from South Padre Island; resilient consumer spending
• 12:18–13:50: K-shaped economy and disparity in pain/benefit
• 13:50–15:39: Fed’s limitations, new chair’s comments, geopolitical impacts
• 16:20–17:36: Importance of expectations; “vibecession 2.0” is back

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Conclusion

Despite booming economic data, many Americans are stuck in a "vibecession," feeling the sting of high prices and stagnant wages. The split is most dramatic between wealthy households (still spending) and lower-income families (stretching budgets and dipping into savings). Meanwhile, policymakers face limits on what they can do, as international events—not domestic policy—drive much of the inflation pain. The key takeaway: public perception of the economy can be just as important as macroeconomic reality.

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For listeners who want to understand how the American economy can statistically boom while so many feel broke, this episode offers timely explanations, on-the-ground reporting, and a candid discussion of why vibes matter as much as values.

Transcript

[Jessica Mendoza]

The US is living through an unusual economic situation right now. A kind of split screen reality.

[Harriet Tory]

I think for the average person. The economy feels weaker than it actually is.

[Jessica Mendoza]

The country is now in the throes of the highest inflation it's seen in three years and people are feeling it. Last month polling from the University of Michigan showed consumer sentiment is at its lowest point in more than 70 years.

[Harriet Tory]

So I think we all just feel that prices have risen a lot.

[Jessica Mendoza]

You know, our colleague Harriet Tory covers the economy and she's experienced for herself what she's been reporting on. Like when she's at the gas station.

[Harriet Tory]

It definitely cost me a lot more to fill up my Subaru than it did a few months ago. And.

[Jessica Mendoza]

Or at a local shop buying a $7 candy bar.

[Harriet Tory]

Hi, could I get a bar of the Dubai chocolate, please? Okay, thanks a lot.

[Jessica Mendoza]

Or when she was at the supermarket the other day picking up dinner.

[Harriet Tory]

Hi, could we get a large pepperoni pizza, please? Yeah, pepperoni as well. I don't like pepperoni at the grocery store. I personally just find myself looking for deals a lot more. And I managed to spend hundred dollars even though I only left the store with a pretty small bag of groceries.

[Jessica Mendoza]

Ouch. How did that feel?

[Harriet Tory]

Yeah, I mean it's, it's pretty depressing.

[Jessica Mendoza]

But then there's the other side of the split screen economic metrics that seem to tell a very different story. The US economy delivered a surprisingly strong jobs report in May.

[Commercial Announcer]

Wall Street's main indexes rallied on Monday.

[Harriet Tory]

The unemployment rate drum RO 4.3. That is a very, very nice, historically low rate. There was a disconnect between the very strong economy and the economy's growth and people's very negative perception of the economy. I think the central mystery of this economy is that we have a boomy stock market, strong job creation, GDP growth that seems to be perfectly decent and yet people feel really terrible about the economy. How is it that sentiment is so low when the economy by so many measures seems to be totally fine?

[Jessica Mendoza]

Welcome to the Journal, our show about money, business and power. I'm Jessica Mendoza. It's Wednesday, June 17th. Coming up on the show, the economic boom that feels like a bust.

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[Jessica Mendoza]

If you look at a lot of the data coming out about the economy, right now, the US Is on pretty solid ground. Take for example, the jobs report, the monthly report that tracks how many people are getting hired and how many people are out of work.

[Harriet Tory]

Yeah, so the jobs report for May was really strong, much stronger than expectations. Because a lot of what we saw in the past couple of years was that healthcare was really the only sector that was adding jobs at a steady pace.

[Jessica Mendoza]

But now more jobs are showing up in other industries, too.

[Harriet Tory]

So we saw very strong job gains in leisure and hospitality and also a big increase in hiring in local government. Some economists said that was probably due to the World Cup. But also, you know, just heading into the summer months, places seem to be staffing up, getting ready for higher demand. It seemed to be a sign that the economy is starting to recover.

[Jessica Mendoza]

Adding jobs is one way to grow the economy. Another way is to make workers more productive, as in produce goods and services more efficiently. And that's happening, too. The Labor Department reported that productivity increased by more than 2% last year.

[Harriet Tory]

We have seen this very encouraging pickup in productivity recently, and that could be AI. It could also be changes to the way that people work. Of course, we saw a big shift to remote work during the pandemic. There was a lot of job shuffling that might have sort of shuffled people into roles where they're more productive, roles that they enjoy more. The longer that you stay in a job, the more productive you tend to become. And now we're seeing with AI, that rather than necessarily depending on growing the labor force, the US Economy can grow purely thanks to increases in productivity.

[Jessica Mendoza]

The GDP is also holding steady. So if that's the case and jobs and productivity are up, why do Americans feel so strapped right now? Well, for one thing, there's inflation. Through the first part of this year, inflation has been climbing rapidly. In March, inflation jumped to 3.3%. In April, it was 3.8%.

[Harriet Tory]

And then in May, it jumped again. To 4.2%, which was a three year high.

[Jessica Mendoza]

4.2% inflation, a pretty rapid spike in just four months. This sudden increase can be traced back to one event, the war in Iran.

[Commercial Announcer]

The Strait of Hormuz is closed, a

[Harriet Tory]

crucial waterway south of Iran that about 20% of the world's oil squeezes through. Gas prices are rapidly rising and are showing no signs of letting up. Before the invasion, gas prices were around $3 a gallon, regular gas prices. And what we saw after the invasion was that they ramped up very quickly and then peaked in around the middle of May at $4.50 a gallon. So that's a very big increase and it caused a lot of pain for consumers.

[Jessica Mendoza]

The energy shock threatened to ripple through the rest of the economy because when fuel gets more expensive, it becomes more expensive to move everything from groceries to clothing.

[Harriet Tory]

So it was a very quick increase in inflation. They say that inflation goes up like a rocket and comes down like a feather.

[Jessica Mendoza]

So we're talking about inflation, we're talking about the price of goods. What about people's wages? How is that keeping pace with inflation, if at all?

[Harriet Tory]

It's not. So people's wages, adjusted for inflation, are going down for the second month in a row, year over year, average hourly earnings were negative.

[Jessica Mendoza]

While prices had risen 4.2% compared to a year ago, average hourly earnings had only increased by around 3.4%.

[Harriet Tory]

What that means is that if adjusted for inflation, the average American's earnings are back to where they were in January 2025. So, effectively, since President Trump returned to the White House, they haven't seen an increase in their purchasing power because inflation has picked up.

[Jessica Mendoza]

And is that why Americans are feeling the strain right now? Like, even if the metrics show the economy is technically strong, if wages aren't keeping pace with inflation, sort of. Is that the pain point?

[Harriet Tory]

Yeah. And that's a big reason why consumer sentiment measures are around near record lows, because people feel very bad about the fact that their dollars are not stretching in the way that they have been. So in many ways, the economy is looking very strong and very robust. But even though unemployment is pretty low and the stock market has been booming, people are very worried about prices.

[Jessica Mendoza]

A spokesperson for the White House said the Trump administration's agenda is to deliver economic relief to Americans and that President Trump has, quote, always been clear about the fact that oil and gas prices, and thus overall inflation, will rapidly drop as soon as the Iran situation is resolved. Normally, when consumer sentiment is down, the economy starts to see signs of slowing. But Harriet says that's not happening because even while many Americans complain about feeling broke, spending hasn't slowed. Why not? That's after the break.

[Kevin Warsh]

Foreign.

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[Jessica Mendoza]

On the sparkling beaches of South Padre island in Texas, where Harriet recently spent a long weekend, you can slurp down oysters on the half shell and gaze across the water at the multi billion dollar SpaceX rocket to it's this beach

[Harriet Tory]

resort very close to the border with Mexico, very popular for spring break.

[Jessica Mendoza]

America is in the grips of 4.2% inflation, but you wouldn't necessarily know it here.

[Harriet Tory]

Yeah, I mean it seemed to be booming. The beaches were full of people, the restaurants were packed, everyone was out and about and having a great time. And you know, this is a place that's full of nice hotels, great seafood restaurants, and there are a lot of Teslas on the road really enjoying a huge influx of people and spending.

[Jessica Mendoza]

South Padre island isn't the whole US economy, of course, but Harriet kept running into the same puzzle in her reporting for all the anxiety about inflation, for all the complaints about higher prices. Some people keep opening their wallets.

[Harriet Tory]

Yeah, so you hear economists talk a lot about the K shaped economy.

[Sponsor Representative (Mariner)]

What is a K shaped economy?

[Jessica Mendoza]

In a K shaped economy, America's K

[Harriet Tory]

shaped economy is here to stay.

[Jessica Mendoza]

Basically, the economy isn't treating everyone the same way. One arm in the K points up, the other line points down.

[Harriet Tory]

And what that means is that you have people at the upper end of the income spectrum and people at the lower income spectrum and their fortunes are increasingly divided and it's the households at

[Jessica Mendoza]

the top that are driving the economy.

[Harriet Tory]

So upper income households have been the beneficiaries of a huge run up in asset values like the stock market. But also, you know, housing valuations have increased a lot in many places in recent years. So they feel very wealthy. They have 401s that seem to be doing extremely well. And that has a wealth effect that allows many people to spend with abandon. But for lower income households, a lot of people are feeling the pain. We have seen that the savings rate, that's at a multi year low at this point, it's fallen. And that that is a sign that people are dipping into their savings in order to fuel their spending. And it's a sign that people are stretched. You know, we've got high gas prices, there's been this big run up in inflation. Food costs are very high, housing costs are high. So it's a real struggle.

[Jessica Mendoza]

Typically when prices are rising too fast, the Federal Reserve steps in and it reaches for its usual playbook, hiking interest rates. An important number the Fed usually looks at to make that decision is a stripped down metric called core inflation. That figure includes the cost of medication, housing, apparel, everything that isn't gas or food prices which tend to be more volatile. But right now, remember, we're in a situation where those gas prices are what's driving inflation in a foreign war. That's not the kind of problem the Fed can solve with a rate hike.

[Harriet Tory]

Well, the Fed, you know, doesn't turn the oil on and off, so it can't really impact the external shocks that are causing this inflationary spike.

[Kevin Warsh]

And with that, I appreciate your attention. I'm happy to take your questions today.

[Jessica Mendoza]

At his first press conference as the new Fed chair, Kevin Warsh stayed the course, keeping interest rates unchanged. He also acknowledged the impact of the war in Iran on what's happening in the US Economy.

[Kevin Warsh]

I won't be breaking any news here to suggest I'm quite interested in what's happening in the Middle east that does have some effect on our day job. It doesn't mean it's our responsibility, but I think we're going to keep a wide lens and my meetings are separated.

[Jessica Mendoza]

This comes just a few days after President Trump announced what he described as a peace deal with Iran. Markets reacted quickly. Oil prices fell on hopes the crisis might be over. While gas prices are still higher than before the war, they've started edging down. Consumer sentiment has also started to recover a little bit, though it's still low. If this deal holds and the strait does reopen, how quickly could relief show up for Americans?

[Harriet Tory]

These things of course, do take time. You know, even with an agreement to reopen the strait, there are various things that have to happen. You know, mines have to be cleared and so on. It's going to take a bit of time to ramp up oil flows, to rebuild inventories and things like that, but definitely this is a good development for the economy. So as that conflict resolves, hopefully things can get back to normal, even if it does take a bit of time for all of these developments to pass through and to gas prices.

[Jessica Mendoza]

If so many people feel like the economy is bad, does it matter that the economy is actually pretty good?

[Harriet Tory]

I mean, yes, it definitely matters. So expectations are a big part of the economy. Not just sentiment, but also things like inflation expectations. Because if you think that inflation is going to keep going up, that does have an impact on your behavior. Like for instance, you might go to your boss and say, I need a raise because everything is more expensive. And so it has sort of a real world effect of pushing up wages, pushing up prices. If people expect higher prices, they tend to happen in a way. So the way that people feel about the economy is definitely important.

[Jessica Mendoza]

Harriet, when you step back from all these indicators, what is the best way to describe the mood of this economy?

[Harriet Tory]

Well, back in 2022, the term vibe session was all the rage when consumer sentiment readings were rock bottom. And yet they continue to spend. And it feels a little bit like vibe session 2.0 where the economy seems to be growing and yet we still find people reporting that they feel really, really bad about the economy.

[Jessica Mendoza]

And maybe you'll just have to get used to $7 for Dubai chocolate. Was it at least worth it?

[Harriet Tory]

It was. It was so delicious.

[Jessica Mendoza]

Sometimes it just is.

[Harriet Tory]

You want to enjoy it.

[Jessica Mendoza]

Before we go, we're looking for your questions about AI in the workplace. Are you confused about using AI at work? Do you want to know if it'll really help you with your career? Or do you wonder if you should even bother? Send us a voice note with your questions to the journalsj.com that's the journalsj.com. That's all for today. Wednesday, June 17 the Journal is a co production of Spotify and the Wall Street Journal. Additional reporting in this episode by Justin Lehart. Thanks for listening. See you tomorrow.

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