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Work & Economy

Economy is doing OK. So why are Americans so pessimistic about their prospects?

Scholars say government statistics can miss lived experience, politics taking larger role in shaping perceptions

Christina Pazzanese

Harvard Staff Writer

September 15, 2025

4 min read

There is some uncertainty mostly driven by the new global tariffs, but overall the U.S. economy is doing reasonably well, economists say.

Still, Americans seem to be feeling disproportionately pessimistic about their economic prospects for reasons that aren’t totally clear to scholars — and may not be directly connected to the economy itself.

The Federal Reserve is widely expected to cut interest rates this week. Core inflation remains around 3 percent — 3.1 percent for August, according to federal data released Thursday. Unemployment hit 4.3 percent in August, above a record low of 3.4 in April 2023 but far below the pandemic high of 14.7 percent in 2020.

Those numbers aren’t great but still look “pretty good,” said Karen Dynan, former chief economist at the U.S. Treasury and a professor of the practice of economics and public policy at the Faculty of Arts & Sciences and Harvard Kennedy School.

But that sentiment appears out of sync with how most Americans are feeling: Only 25 percent believe they have a good chance to improve their standard of living, the lowest share since the stock market crashed in 1987, according to a recent Wall Street Journal/NORC poll.

More than 75 percent say they are not confident the next generation will have a higher standard of living than they do, the poll also showed.

“A lot of the pessimism doesn’t seem consistent” with the data, Dynan said.

So why the disconnect?

“It’s not that Americans or the data are wrong — consumers do have legitimate concerns. It’s that some of the financial pressures people are feeling, like increased financing costs for auto loans or closing costs on home mortgages, don’t necessarily show up in the major datasets like the Consumer Price Index,” said economist Stefanie Stantcheva, whose Social Economics Lab at Harvard studies how people understand economic issues and policies.

Economists Karen Dynan (from left), Kenneth Rogoff, and Stefanie Stantcheva.Harvard file photos

Government statistics tend to take a very broad view so geographic and demographic disparities or variations across industries and sectors often get overlooked, Dynan said.

“A lot of the data we have speak to conditions in the economy overall. The unemployment rate that we look at is for the nation as a whole; the GDP number is about how the entire pie is growing,” she said. “The data that we have on how individuals are doing is more limited and less timely.”

For instance, lower-income people often face higher inflation than the wealthy, something known as inflation inequality. That’s not captured by the usual economic measures, leaving economists with an incomplete picture of people’s “lived experiences” with the economy, Stantcheva said.

“A lot of people’s feeling of satisfaction and well-being is relative to what they’re used to, what they see their neighbors enjoying, and increasingly, what they see on the internet,” said Kenneth Rogoff, professor of economics and Maurits C. Boas Chair of International Economics at Harvard.

25%

Of Americans believe they have a good chance to improve their standard of living, according to a recent WSJ/NORC poll

Pressure that rising financing costs for things like credit cards and car loans are putting on consumers, or anxiety over the high price of housing across the U.S. aren’t getting quantified by economic reports. Still, they are leaving many pretty grim about their economic future, especially young adults who also face an increasingly tough job market, said Rogoff.

Of late, Stantcheva notes, there’s been a rise in “zero-sum thinking” about the economy.

“This idea that if you do well, or a group of people does well, it means someone else must be doing worse, someone else must be losing. We see that much more pronounced among younger generations, not just in the U.S., also in other rich countries,” she said.

Politics also now plays an outsized role in shaping what the public knows about the economy and how they perceive it, whether negative or positive. People tend to give more weight to how their trusted political leaders or favorite news outlets characterize the economy than what government statistics seem to show, said Dynan.

A confluence of changes that consumers experience daily — like continuing high prices, remote work and other perks employers offered only a couple of years ago but have since clawed back, and staffing and funding cuts across the federal government earlier this year — are starting to be felt locally as institutions and services people see and use, like schools, healthcare, and transportation, close or face cutbacks.

“I think some of these social changes may be weighing on people and then end up expressed as views about the economy,” Dynan said.