“It was the best of times, it was the worst of times…”. You might recognize that as the opening line in Charles Dicken’s classic A Tale of Two Cities. That phrase might well apply to the U.S. economy. Despite relatively strong economic numbers, polling in the U.S. consistently shows consumers are dissatisfied with the American economy. Only one in five Americans feels that the economy is doing well.
There are likely several contributing factors to this. First, some media outlets consistently paint a dismal economic picture. If we heard it on the news, it must be true, right? Second, a major factor in dissatisfaction is the inflation shock we experienced the last couple of years. From the Great Recession year of 2008 through 2020 (the onset of Covid), U.S. inflation averaged just 1.7 percent per year. In 2021, prices shot up by 7.0 percent, more than triple the previous 13-year average. That inflation continued in 2022 at 6.5%.
Inflation certainly has slowed, currently running just over three percent. Consumers may misinterpret this as prices should start falling. For example, assume a $5 jar of peanut butter pre-pandemic now costs $8. A lower inflation rate doesn’t mean peanut butter is going back to $5. It’s likely stuck at $8! The relatively long period of mild inflation, combined with a shorter period of rapid price increases, has led to consumer frustration. Real wages (wage increases over and above the inflation rate) have actually increased the last few years. But they haven’t increased for everyone, and many families feel left behind. Hence, the high level of consumer dissatisfaction regularly being measured in polls.
The facts on three key measures of the American economy are as follows:
- GDP: GDP grew at a rate of 2.5% for 2023 and continued growing in first quarter of 2024 at a rate of 1.6%.
- Inflation rate: as mentioned, currently at around three percent. The Federal Reserve’s targeted rate is in the two percent range.
- Unemployment rate: currently at 4.0 percent, near an all-time historical low. Jobs are readily available in many areas.
If I had to pick perfect economic numbers, I’d suggest GDP back to 2.5, inflation at 2.0, and I’m fine with unemployment at 4.0. The actual numbers aren’t that far off! In his book The Psychology of Money, financial writer Morgan Housel sums it up: Nothing is ever as bad or as good as it seems! Those words might well apply to our current U.S. economy!
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