Prakash Kolli, Wealth of Geeks
The numbers show the United States economy is booming. The inflation rate has fallen, unemployment is low, the Gross Domestic Product (GDP) is climbing, and technology and growth stocks are in a bull market. The American economy has defied predictions from experts and economic models of a recession.
But Americans are pessimistic and seemingly disagree with the data showing a historically strong economy, giving President Biden low marks for handling the economy. The disparity between the data and American sentiment may surprise some, but experts point to still struggling workers as the catalyst.
—————
Is the U.S. economy really doing well?
By many metrics, the United States economy is performing historically well and better than in 2022. The GDP has grown for four consecutive quarters. However, last year and early this year, headlines convinced many people in America that hyperinflation was here to stay. In fact, many economists predicted inflation combined with rising interest rates would result in an unprecedented recession. But the U.S. economy has been resilient, and many pessimistic forecasts did not materialize.
—————
Inflation is down
Inflation has faded, much to the surprise of many economists. In 2022, the highest inflation rate in four decades caused producer and consumer prices to surge. However, the Consumer Price Index (CPI) peaked at 9.1% in June 2022 but was only 3% in June 2023. Although prices are higher than before the pandemic, they are no longer rising as quickly.
The United States Federal Reserve targets an inflation rate of approximately 2%. Clearly, the consumer inflation rate is heading in the correct direction.
—————
Unemployment is near a record low
The unemployment rate also fell below 4% in 2022 and has so far stayed near 3.5%, near a record low. Additionally, many states are at or near record-low unemployment. Moreover, workers are satisfied with their jobs. Surveys show a 62% job satisfaction rate, the highest reported value, and driven largely by a hybrid work culture.
The American economy has rapidly added jobs. About 3.1 million more jobs exist now than before the pandemic. July 2023 saw another 187,000 jobs added — the 31st monthly gain in a row. A person who wants a job can find one. The number of job openings has come down from the highs of 2022 but is still above 9 million — a historically high quantity. In 2019, the year before the pandemic, that number was between 7 and 7.5 million.
Furthermore, the economic positives are causing investors to purchase equities. Stock market news shows a strong bull market, especially for technology and growth stocks. The Nasdaq is performing exceptionally well, up more than 33% this year. But the other indices, like the S&P 500 Index and Dow Jones Industrial Averages (DJIA), are positive too. As a result, retirement portfolio values are rising.
But why are Americans so gloomy if the economic news is so good?
—————
Why are Americans pessimistic?
Only about one in three Americans approve of how President Biden has handled the economy. Broader sentiment surveys show comparable results. The well-known University of Michigan Survey of Consumers, reported a 71.6 in July 2023, 39% higher than one year ago, but still near the values during the Great Recession in 2008 to 2009.
—————
Inflation is a primary concern
Consumers in the United States are dissatisfied, despite a booming economy. This discontent can be traced mainly to high inflation. The experts agree. Jesse Carlucci, Ph.D., Certified Financial Planner, of Arrow Investment Management LLC in Oklahoma City, told Dividend Power, “…much of the pessimism about the economy comes from the fact that inflation has already increased the value of important household items like groceries, fuel, and supplies, as well as recreational items like car rentals and airfare. Even though the labor market is thriving and the economy is growing again, inflation from the previous 18 months is already entrenched into the costs of everything consumers purchase.”
—————
Wages haven’t kept up
Another reason people are cynical about the economy is wages have not kept up with inflation. Usually, when the economy is performing well, and the unemployment rate is low, real wages rise. But the highest inflation in four decades has caused real wages to shrink, increasing living costs. “While year-over-year inflation is cooling, costs of living are still very high for most Americans, especially in comparison to wage increases. With less money for discretionary spending, many Americans naturally have a dismal outlook on the economy,” stated Christopher Johns of Spark Wealth Advisors in Jacksonville, Florida.
However, the news is more favorable in 2023 because wage growth is starting to exceed inflation. But the U.S. consumer may need more time for wage growth to outperform inflation for families to feel like they’re getting ahead.
—————
Homes are more expensive
One consequence of higher inflation is raising interest rates to combat it. The U.S. Federal Reserve has increased rates quickly to control rising prices. But a secondary effect is average interest rates have skyrocketed to about 7% for a 30-year fixed-rate mortgage. The bottom line is homes are more expensive.
Patrick G. Moore, CFP and Enrolled Agent of Ironclad Wealth Management in Georgia, told Dividend Power, “A $500,000, 30-year mortgage would be $2,108 at a 3% interest rate. At 7%, that same mortgage would be $3,327.” Hence, the monthly payments for the American dream of owning a home are out of reach for many, furthering a low opinion of the U.S. economy.
—————
The bottom line
American consumers have valid reasons to feel pessimistic. Wages are higher, but they have not kept up with everyday living costs. Also, a bull market in stocks does not benefit everyone; thus, the majority do not feel wealthier. The bottom line is it will take a more extended period of low inflation, stable interest rates, and real wage growth to reverse the negative opinions about the U.S. economy.
