Experts see a “resilient” U.S. economy. Voters aren’t buying it.

With just days until the midterm elections, getting a read on the U.S. economy can be elusive: The country remains a step ahead of a recession and the labor market is surprisingly strong, with most workers who want a job currently employed.

Yet inflation remains at a 40-year-high, souring the mood of many voters, some of whom say they have had to cut back on basic expenses to pay for their energy bills. The key housing market is also sagging, with mortgage costs soaring as the Federal Reserve jacks up interest rates in a bid to stifle inflation.

Asked to sum up the U.S. economy in a word, economists interviewed by CBS MoneyWatch described it as “fragile” and “cooling,” yet also “resilient.”

Some voters may use more descriptive terms as they head to the polls on November 8. Sue Lee, an 80-year-old retiree in Crestwood, Kentucky, said this election marks the first time she will vote straight Republican on the ballot because she blames Democrats for rising propane and gas bills, which have forced her to cancel her dental insurance and home warranty. 

“I’m getting down to the point of, what do I cancel next? I can’t cancel my taxes because I’ll lose my home,” said Lee, whose propane heating costs have jumped from $120 to $175 a month, prompting her to turn off her furnace at night. 

It’s still the economy

It’s been 30 years since James Carville’s pithy explanation of what drives voters: “It’s the economy, stupid.” And surveys underline the deep public pessimism about the state of the economy, with 70% of Americans saying the economy is either “fairly bad” or “very bad,” according to more than 2,000 registered voters polled in mid-October by CBS News/YouGov Battleground Tracker. 

To be sure, the job market remains strong, with businesses still hiring and many Americans continuing to job-hop in search of better pay and working conditions. But voters who prioritize the economy — and whose mood has curdled after months of high inflation — will likely lean toward Republican candidates on Tuesday, according to CBS News polling.

Economists are less negative than voters, although they point out that the U.S. faces a series of economic headwinds, ranging from ongoing high rates of inflation to slowing corporate profits — risks that many experts think could lead to a recession in 2023. 

Despite those problems, the economy is currently “still progressing,” noted Greg Daco, chief economist at consulting firm EY Parthenon.

“It’s an economy where businesses are still investing and hiring, where consumers are still spending, but where all of this activity is being done with much more discretion,” Daco said. 

Indeed, recent economic data suggest a recession is not around the corner. The economy grew at a 2.6% annual rate from July through September. That marked a strong rebound after the nation’s gross domestic product shrank in the first two quarters of the year, and eased concerns that the U.S. is on the brink of a recession. 

But despite the strong GDP headline number, there were signs that consumers are reeling from the brunt of high inflation. Final sales to domestic purchasers — a measure of how much Americans are buying — edged up only 0.1% on an annual basis — the worst showing since the pandemic hit in the second quarter of 2020 and a worrying metric given that consumer spending accounts for roughly two-thirds of economic activity. 

“Nobody’s got a magic wand”

Jackie Trapp, a 57-year-old in Muskego, Wisconsin, who left the workforce a decade ago to care for her parents and who relies on Social Security disability and a small pension for most of her income, said she and her husband are cutting back on expenses to offset the impact of inflation.

“Do we need cable? No, we don’t. Do I need that $5 Starbucks? No, we don’t,” Trapp said. “If we get tacos from the taco truck, I like them just as much as that lovely dinner we used to go to.” 

Despite the financial pinch, Trapp said she’s planning on voting for Democrats, prioritizing what she described as the party’s support for voting rights and Social Security. Trapp has a rare blood cancer that cost her nearly $22,000 to treat last year, even with Medicare footing most of the bill. She said she’s looking forward to seeing those costs drop in coming years as drug-pricing provisions of the Inflation Reduction Act kick in.

Sen. Ron Johnson, a Wisconsin Republican, has suggested transforming Social Security into a discretionary program that would have to be renewed by Congress every year. That would further politicize funding for a program that supports almost 70 million Americans — mostly retirees, but also disabled workers and the survivors of Social Security beneficiaries — many of whom have been hard-hit this year by inflation because the 2022 cost-of-living adjustment failed to keep pace with the sharp spike in prices. 

“Senator Johnson in my home state is openly talking about eliminating Social Security and Medicare, and he’s ahead” in the polls, Trapp said. “Inflation is worldwide, and nobody’s got a magic wand.”

Sliding backward

It’s not only retirees who are falling behind — many of America’s 164 million workers have slid backwards despite a spurt in pay during the pandemic. Although wages rose 5% in the third quarter, inflation topped 8% during the same period. That’s forcing some consumers to tap into their savings to cover expenses, noted John Leer, chief economist for Morning Consult. 

“Now you’re in a world where wages aren’t keeping pace with inflation. They have to draw down savings, rely on credit,” he noted. “Savings are eroding, but the job market is strong. That’s the dichotomy right now.”

Still, economists expect inflation to recede in response to the six interest rate hikes this year by the Federal Reserve, although not in time for the midterms. Consumers may not see relief for several months, with EY Parthenon’s Daco forecasting that inflation is unlikely to start falling in earnest until the second quarter of 2023.

Still kicking, but for how long?

If there’s a bright spot in the U.S. economy, it’s the nation’s employment sector, economists say. 

“Going into the election, the labor market is the one thing going for Joe Biden,” said Julia Pollak, chief economist for ZipRecruiter. 

President Biden is touting the strength of the job market ahead of the midterms, pointing out that 10 million jobs have been created since his inauguration in January 2021. Layoffs also remain low, a trend that Leer of Morning Consult calls “labor hoarding.”

“Businesses are holding onto workers even if they don’t need them or if they think there will be a downturn,” Leer said. 

That’s because the tight labor market during the pandemic has made it hard to find workers, making business leaders loath to fire people. Companies are laying off a third fewer workers each month than they did prior to the pandemic, according to Pollak. 

Even so, there are signs the labor market is slowing in some sectors, such as technology and finance.

“That’s where you’ve got hiring freezes, where you’ve got layoffs, where you’ve got big banking CEOs talking about storms and hurricanes in all kinds of dramatic language,” she said. “Main Street is still all right.”

Power of perception

Unemployment is likely to rise if the economy tumbles into a recession, although perhaps not as much as in prior recessions, Daco said. For its part, the Fed is predicting a significantly higher jobless rate in 2023, expecting it to rise from 3.5% now to 4.4% next year — a number that implies the loss of about 1.2 million jobs.

Whatever the economic data show, some polls show many Americans already believe the U.S. is in a recession. By contrast, the organization that officially calls a recession, the National Bureau of Economic Research, hasn’t made such a declaration.

What’s clear, however, is that the combination of high inflation and the perception that the U.S. is in a rut could affect voter behavior, economists say. 

“People really, really don’t like inflation, especially women,” Pollak said. “Women experience inflation more keenly and they feel more negative about the path of the economy when prices are high because they buy groceries, and they feel inflation more regularly.”