Turns out how you feel about the economy likely comes down to your paycheck, Emily writes.

• If your wages are outpacing inflation, things look rosy — if not, well, that's quite dispiriting, a new paper finds.

Why it matters: The paper from economist Darren Grant answers a puzzle plaguing economists and journalists since 2022. That is, why was consumer sentiment so dismal even as the economy roared and unemployment hit record lows?

• The findings have big implications politically as President Biden tries to sell Americans on the success of "Bidenomics."
• The contradiction between how Americans feel about the economy — and the actual state of the economy — will play a key role in the 2024 election, Axios' Hans Nichols writes.

Driving the news: In a speech in Chicago yesterday, Biden talked up his economic record, touting historic job growth, the low unemployment rate (especially for women and Black people), and his infrastructure legislation, among other things.

• Biden touted record wage growth for low-wage workers, too.

Between the lines: The thing is, the overall picture for wage growth is a less positive story. Until very recently, real wage growth — that is, factoring in the impact of inflation — was negative for Americans on average.

• Now, finally, as inflation eases, real wage growth is turning positive — you can see the recent reversal in the chart above. And consumer sentiment is picking up, too, as Axios' Neil Irwin reports.
• The key question now: Will it last?

"The deal isn't really sealed with the American public until real wages start to grow," said Grant, a professor at Sam Houston State University in Texas.

Zoom in: Back in 2014, Grant published a paper looking at decades of consumer sentiment polling and economic data, and found Americans' views of the economy were deeply connected to the unemployment rate: When the jobless rate was low, people's moods brightened.

• When he updated the research last year, he found that was no longer true. But he couldn't quite understand why.
• He wasn't alone: Economists and journalists both puzzled over this. Some attributed the shift to partisanship, media coverage, COVID, or inflation.
• Still wondering, Grant spent the past year looking at wage growth data from the Atlanta Fed to see how it correlated with his data on sentiment. Turns out, there was a strong connection — particularly among workers in their 30s and 40s, who are most strongly attached to the workforce.

The bottom line: When people's incomes are going up, they feel better. "It's a pretty straightforward explanation that works," Grant said.

✅ U.S. banks passed the Fed’s annual stress tests. (Reuters)

🚗 Biden's push for electric cars alienates longtime union allies. (Axios)

🇨🇳 Nvidia downplays possible U.S. chip export restrictions. (CNBC)

Cruise lines topped the market in the second quarter, Matt writes.

Why it matters: The soaring sentiment buoying cruise operators suggests investors don't expect the American consumer to pull back on spending.

The latest: Earlier this week, Carnival Cruise reported that fiscal Q2 revenues doubled compared with last year, nearly hitting $5 billion — the highest level since 2019.

• The rise in sales helped it cut its losses by nearly 80%.

What they're saying: Captains of the cruise industry say that despite the still-dour mood for many in the U.S. and globally, consumers are confident enough to book trips and shell out cash freely onboard.

• "In North America, the booking curve is as far out as we have ever seen it," Carnival CEO Josh Weinstein told analysts earlier this week.
• "Onboard revenues were, once again, off the chart this quarter," he added.

Reality check: It's worth remembering that the cruise industry remains deeply beaten up from the total shutdowns of the COVID era — and the three operators charted above are all still posting losses.

• Even after the remarkable rally the stocks enjoyed in recent months, both Carnival and Norwegian have share prices 60% lower than at the end of 2019.
• Royal Caribbean, the outperformer, is still down more than 20% from pre-crisis levels.

“The largest single-employer strike in American history now appears inevitable.”

A standoff between UPS and the Teamsters over their new contract intensified Wednesday, when the union's president put out his strongest statement yet — saying a strike would happen if the company didn't improve its offer on wages and benefits, Emily writes.

• The union said UPS has until Friday to come back to the table with something better or risk a strike by Aug. 1.

Why it matters: A strike would be a huge disruption to the supply chain — and to the many ordinary Americans who rely on UPS to deliver millions of packages every day.

Zoom in: The announcement was a surprise to UPS in what had until now been a relatively smooth negotiation process, an insider familiar with the company's thinking told Axios.

Zoom out: The current mood among UPS workers as they negotiate a new contract is a lot like it was back in 1997 — which was the last time drivers went out on strike, said Scott Gove, a driver in Manchester, N.H. who was on the picket line back then.

• The economy is far more dependent on package delivery now. If the company's 340,000 workers went out on strike, UPS' competitors at FedEx and the postal service wouldn't be able to absorb the 20 million packages that the company delivers per day, Bloomberg reports.
• For UPS, a strike would hurt. Customers might leave and never return — choosing competitors for long-term deals, Satish Jindel, founder of ShipMatrix, a consultancy that's advised UPS in the past, told Axios.

What they're saying: "We all want a raise and I think we're all deserving of a raise," said Gove.

• "[Drivers] put in the time, they worked through the pandemic, they made deliveries when most people wouldn't even go face to face and meet people," he added.
• "It always gets ugly at the end but that doesn't mean things are going to fall apart," said John Drake, vice president of transportation, infrastructure and supply chain policy at the Chamber of Commerce, who's watching the bargaining closely.
• In a statement on Wednesday, UPS said: "We remain at the table ready to negotiate."