The economy feels worse than it actually is because people were spoiled by the snap-back recovery after the pandemic crash

• Americans feel bad about the economy, even though data shows a booming labor market.
• That disconnect goes beyond inflation; it shows how Americans realized they could have a better deal.
• The recovery from the pandemic recession reset everyone's expectations about what a good economy looks like.

The economy is doing really, really well. Don't trust us — just look at the data.

If your immediate reaction was to shake your head, you're not alone. Americans are feeling bad about the economy, and some of that is likely due to inflation eating at their budgets. But, even so, the labor market and recovery from the COVID-19 recession are pretty much unprecedented — especially when compared to the lagging comeback from the Great Recession, whose scars were still felt when the pandemic hit. 

After the 2008 financial crisis, it took more than six years for the economy to gain back all the jobs lost in that crash. But it only took a little over two years to return to pre-pandemic employment after the much deeper hole COVID-19 punched in the economy in 2020.

The labor market is still booming. The US economy added 209,000 jobs in June, according to data from the Bureau of Labor Statistics published last Friday, a tad less than a month prior but still on par with most monthly gains from earlier this year. The low unemployment rate declined to 3.6% in June, after edging up in May.

"The jobs market remains incredibly tight by any historic metric," Aaron Terrazas, chief economist at Glassdoor, told Insider following Friday's data release.

Acting Secretary of Labor Julie Su told Insider that it was "a very, very strong jobs report that indicates that we are moving to a place of steady and stable growth, which is the key to a strong and resilient economy." 

The high inflation of the past year is likely souring some Americans on the economy, but that's been steadily falling — hopefully clearing the way for Americans to feel more optimistic and not as cash-strapped.

So why does everyone feel so bad? It may be because Americans have grown so accustomed to wild economic swings that an ease into a new normal feels rocky — especially coming off a historically fast recovery fueled by some of the most aggressive government financial support the US has ever seen. 

Feelings about the economy are out of kilter with the hard data

When gauging the economy right now, it might all come down to the baseline everyone is working from. When comparing the current economy to how things were going before the pandemic, things seem pretty darn good. But while that's the touchpoint that many economists and journalists use as a point of reference, that's probably not what most Americans are comparing to.

According to results from a Pew Research Center survey conducted earlier this year, around half of US adults rated economic conditions as "only fair." Over a third rated conditions as poor. Consumer confidence is still low, and, as JPMorgan Asset Management chief global strategist David Kelly writes, Americans feel an "unreasonable level of gloom."

"While a gloomy consumer can still keep America growing, a lack of confidence could moderate economic growth and inflation, keeping the 'soft' in the 'soft landing' that is looking more likely every day," Kelly wrote.

Americans' feelings about the economy historically have been tied to hard data like unemployment, inflation, and stock prices, but in the COVID-19 era that relationship has weakened. As Kelly explains, a statistical model including those figures, along with the pace of job growth or losses and gas prices, accounted for 70% of fluctuations in consumer sentiment from February 1978 until December 2019.

But adding in the remaining months from January 2020 to June 2023 causes that figure to drop to just 55%, showing that the relationship between the hard data economists look at to gauge the economy and consumer sentiment has dramatically weakened since the start of the pandemic.

In short, the things that used to make Americans feel good or bad about the economy aren't as consequential anymore.

Even economists don't know what to make of the new normal

While workers and consumers are still feeling bad vibes despite mostly positive data, economists and market watchers are also struggling with interpreting the latest developments.

"The professional economy watchers and analysts, Fed and elsewhere, are having this existential crisis of what is good, what is bad, and what can we know about the future?" Terrazas said. 

A good example of how the new normal has changed experts' views on the economy comes from Americans who are working part-time but want full-time work, a group whose numbers increased in June by almost half a million. That's surely a pain point for workers, and regarded with some concern by economists — but it's still much better than what was typical before the pandemic.

"Any sense of what was normal before the pandemic, we really lost sight of; we've really become desensitized to what is normal I think over the past few years," Terrazas said. "In 2018, 2019, if we had seen that number of part-time workers for economic reasons this low, we would've been thrilled."

And so America's economic recovery, which, for many, included sustained, livable incomes for the first time in their lives, may have opened a new Pandora's Box: American workers still aren't used to the whipsaw from the medicocre economy of the 2010s to the short sharp pandemic recession to the rapid bounce back to the current strong but not red-hot job market of today.