Many Americans are unhappy with the booming economy
This week’s data indicates that the American economy is expanding at its quickest rate in two years; however, polling reveals a bleak sentiment on Main Street. It’s nearly unbelievable that we are discussing the same economy. However, the metrics serve as a further reminder that two apparently conflicting trends can coexist simultaneously. A rapidly growing economy doesn’t automatically translate to widespread benefits for all individuals. Indeed, gross domestic product, the most comprehensive indicator of the US economy, surged this summer to an impressive annualized rate of 4.3%, significantly exceeding economists’ forecasts. However, the surging GDP did not lead to a significant increase in hiring, nor did it coincide with a resurgence of typical inflation levels. “GDP is an abstract concept.” However, individuals are familiar with employment opportunities. “They know they can’t find a job if they lose theirs,” Mark Zandi told. “And they are aware that they are spending more on coffee, beef, electricity, child care, and nearly everything else.” The GDP serves as a report card for the economy. However, similar to any report card, it may not provide a comprehensive view of the situation at hand.
For instance, a significant factor behind the acceleration of GDP in the third quarter is the increase in consumer spending. This has been a persistent issue throughout the tenures of both the Biden and Trump administrations: Consumer spending remains resilient despite a multitude of economic challenges. However, the report fails to clarify which consumers increased their spending. Experts indicate that the increase in spending during the third quarter was probably fueled by higher-income consumers, who are reaping the greatest rewards from unprecedented real estate values and exceptional stock market gains. Many lower- and middle-income Americans, conversely, are facing challenges to remain above water. Several individuals are reducing their expenditures and struggling to keep up with their financial obligations. “Retirees and the top 10% continue to drive the economy. It’s still very much a K-shaped economy,” stated Mike Reid. While individuals may not perceive a robust GDP, they certainly experience elevated prices.
Inflation has not surged this year, contrary to the concerns that arose due to President Donald Trump’s extensive tariffs. However, inflation has not seen significant improvement since Trump assumed office in January, when prices were increasing at a 3% annual rate, compared to November’s rate of 2.7% (as per government data that includes considerable fine print due to shutdown-related distortions). Nonetheless, it surpasses the 1.7% average annual inflation rate that Americans faced in the decade leading up to the pandemic, as reported. Prices on certain essentials have decreased. According to the reports, eggs in November were 13% cheaper than they were a year earlier. Milk experienced a decrease in price of 1%. Gasoline prices have remained stable throughout the year, with the national average recently dropping to $2.86 per gallon, marking a new low not seen in four and a half years. That represents a significant contrast to the $5-a-gallon gas prices seen in 2022 following Russia’s invasion of Ukraine. Nevertheless, other necessities have increased in cost. Consumers are facing an average increase of 7% in electricity costs, a significant issue in the upcoming November gubernatorial races in New Jersey and Virginia. Natural gas, the predominant method for heating homes in America, has seen a price increase of 9%. In November, ground beef experienced a significant surge of 15% year-over-year, marking the largest increase since 2020. According to the reports, consumers are spending significantly more on car repair (10%) and coffee (19%).
It’s true that paychecks have increased – but often not sufficiently to match the rising cost of living. Bank of America deposit data indicates that in November, paychecks outpaced prices solely for high-income households. Wage growth for middle-income households was a mere 2.3%, whereas lower-income households saw an increase of only 1.4%. If the US economy were genuinely thriving, consumers would not be concerned about their job security. That is not what we are witnessing today. The proportion of consumers anticipating an increase in job openings over the next six months has dropped to its lowest point in four years, as reported in the consumer confidence figures released by The Conference Board on Tuesday. The proportion of consumers who feel it has become more challenging to secure employment has also increased. The unemployment rate reached a four-year high of 4.6% last month, an increase from 4% in January. Earlier this year, for the first time in four years, the number of job seekers surpassed the number of available jobs. The overarching consumer confidence data indicated that this is leading consumers to adopt a more pessimistic view of the economy. One reason hiring has slowed is that businesses are discovering how to accomplish more with fewer workers, attributed to advancements in artificial intelligence. Simultaneously, Trump’s unpredictable trade policy shifts have rendered numerous businesses immobilized. Amid uncertainty regarding his forthcoming tariff decisions, numerous companies have put their hiring plans on hold. Furthermore, certain businesses have turned to staffing cuts to prevent the need to impose larger price hikes from tariffs on consumers. The essential truth is that GDP, regardless of its level, will not improve Americans’ sentiments regarding this economy. Paychecks that stretch further, greater certainty about what lies ahead, and improved job security will.
