The American Economy is Strong, You Just Don’t Notice It

Each week delivers head-scratchingly contradicting news on the American Economy. This week was no exception, with a slew of economic figures demonstrating that, despite recession concerns, the American economy is very resilient.

Yes, the economy is doing well. However, there are numerous warnings that come with it.

Let us recap:

• Last quarter, GDP increased at an annualized rate of 3.2%, following a period of contraction in the first half of the year.
• Consumer confidence increased sharply in December.
• The jobs data released last month confounded economists’ forecasts, with unemployment holding near a half-century low.
• Furthermore, several recent inflation figures indicate that prices are beginning to cool.

However, these are only components in a muddled stew of “yeah, but” headlines.

Yes, consumers are dissatisfied with the economy. According to Adobe Analytics, a record 196 million Americans went shopping during the Thanksgiving holiday — and those booming sales numbers weren’t just because inflation had pushed up prices, but also because individuals were making more purchases.

According to Curtis Dubay, chief economist at the US Chamber of Commerce, this is “second-hand pessimism,” and the American economy may not be doing as badly as you believe.

Yes, near-four-decade-high inflation is wreaking havoc on household budgets. Despite rising park tickets, Americans are planning air travel and visiting Disney parks in near-record numbers.

Yes, analysts are concerned about a recession, but the employment market is extremely tight, with more than 10 million unfilled positions and 1.7 jobs available for anyone looking (or looking to job hop).

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“The labor market is extraordinarily strong again,” said Federal Reserve Chairman Jerome Powell last month in a speech. “It’s too great, in a way, since it’ll add to inflation.”

So, what comes next?

The truth is, no one knows what will happen next. Forecasts in the post-Covid American economy have proven notoriously incorrect. (Remember the term “transitory” inflation?)

The Fed has been attempting to manage the biggest inflation since the 1980s by raising interest rates six times this year, including a three-quarter-point increase not once, but four times in a row.

That means the coming year will undoubtedly be difficult as all of the tightening works its way through the American economy.

However, household finances are better prepared to absorb it, with an extra $1.7 trillion in savings as a buffer — though people will likely have to tap into their savings more.

And, while the housing market is softening, it is not collapsing. Following a successful 2021, the industry is “readjusting, recalibrating,” according to Bess Freedman.

Covid shattered the American economy, and piecing it back together has been difficult to quantify. Tens of millions of jobs were lost in an instant. Schools were closed, factories were closed, and over a million people were killed, yet we’re still trying to figure out the strength and longevity of the recovery after more than two years.

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