Despite the sentiment that the economy is in shambles, the US is currently experiencing boom times

On December 29th, the last trading day of the year, traders work on the floor of the New York Stock Exchange. They capped a strong year for the stock market, even though many economists had predicted that the American economy would experience a recession.

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For many Americans, prices at the pumps are the indicator for measuring inflation, says Michael Taylor. But gas prices are also falling again in the current economic situation. Tuesday's statewide average of $2.65 per gallon was below last year's average of $2.85 per gallon. GasBuddy predicts a further price decline in 2024.

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Federal Reserve Chairman Jerome H. Powell speaks at a news conference at the Federal Reserve in November. The U.S. economy held strong through 2023, despite fears earlier in the year that a recession might be inevitable. For a time, there was even concern that the economy might be too strong, putting upward pressure on inflation and forcing the Federal Reserve to keep interest rates higher for longer.

Susan Walsh/Associated Press

Two big concerns dominated the gloomy economic discourse a year ago: inflation, which was high and real, and brutal interest rate hikes, which were severe and painful. Both led to a consensus that we would see a recession in the United States in 2023.

But people still had the impression in polls of some sort of recession and that generally “things were going badly.” In other words, the discourse was about “vibecession.” If there wasn't a recession, but everyone seemed depressed anyway, were we actually experiencing some kind of recession, one that doesn't show up in the data?

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Economists debate this problem – the apparent difference between the data and the perception of the economy's strength.

Because you're entitled to your own vibe, man, but not your own data.

So here is the data. And spoiler alert: Not only did we not see a recession, but the data also shows that 2023 was a boom period. And 2024 prepares us for more of the same.

inflation

The last annual inflation rate for which we have data, in November, was 3.1%. Current components of inflation – monthly changes in consumer and producer prices – suggest that annual inflation will continue to decline in the coming year.

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High gas prices at the pump – and I'm convinced they're actually what people mean when they talk about inflation – have fallen dramatically over the last six months and are expected to fall further this year.

In a similar story, the United States has quietly become the world's largest and dominant oil and gas producer, so this version of inflation – changes in gas prices – will remain under control this year, no matter what supply tricks Saudi Arabia, Iran, Russia and other OPEC countries are trying to follow suit.

And yes, a 0% inflation rate does not mean that prices will return to 2020 levels. This means that prices won't rise much from here. You may think that things cost too much right now, but inflation is a measure of change, not absolute price levels.

Prices, indices

Successfully containing inflation gives the Federal Reserve room to cut interest rates in 2024, which investors are already expecting to happen multiple times in the coming year. The Fed is subtly denying this and somehow wants to ignore this because they don't want to encourage complacency. But it happens.

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The stock market boomed in the second half of 2023 partly because investors knew this was happening. The U.S. stock market serves as an important, albeit imperfect, indicator of investor sentiment and expectations of future profitable economic activity. The market ended the year at virtually an all-time high.

The Dow Jones Industrial Average, the widely followed grouping of large representative stocks, hit a record high in the final week of 2023. The S&P 500 index, a grouping of the largest U.S. companies, was one trading session away from an all-time high, up 24% from a year ago. The technology-heavy Nasdaq index did not reach an all-time high in 2023, but it increased by more than 44 percent, making it the sixth-best annual performance of all time.

What all this means is that the U.S. stock market signaled the opposite of a recession or swing in sentiment last year and next year. This is all despite the fact that interest rates have been relatively high, a strong headwind facing the US consumer and business community.

What about Texas?

The Texas State Comptroller projects that the state is expected to have an all-time high of $188 billion in tax revenue in 2024-2025, up 26% from the previous two-year period.

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The auditor also forecast a budget surplus of $32.7 billion by the end of 2023. Both the surplus and the record increase in tax revenues can be understood as an indicator of economic activity.

According to the Federal Reserve Bank of Dallas, the unemployment rate in Texas is a low 4.1%. That's not exactly a record, nor is it as good as the US unemployment rate of 3.7%, but historically it is quite high. And it falls.

In short: the state economy is running at full speed, as is the national economy.

Debts

So if the data says things are looking pretty good, then what's wrong with our attitudes or the real economy? A few things.

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In parallel with our booming employment and booming stock market, there is also the predictable boom in consumer debt. Both credit card debt and student loan debt significantly exceeded $1 trillion in 2023. These balances amount to $1.08 trillion and $1.7 trillion, respectively.

Student loans are now payable, unlike during the 42-month COVID-era pause. The Supreme Court blocked the Biden administration's plan to forgive up to $20,000 for every borrower.

Interest rates on new home mortgages ($12.5 trillion outstanding) and new car loans ($1.6 trillion outstanding) are also significantly higher than they were two years ago, so high levels of debt and the high cost of debt are obviously deterring many people to be fully financed I enjoy the boom times.

New Roaring 20s?

Arguing at the start of 2024 that we are in a new era of the “Roaring 20s” (the century decade of rapid economic growth) obviously sounds like a double-edged sword to students of financial history. However, there is no denying that we are not in a recession or an economic crisis. Rather, this is a real jam session. We should recognize the data for what it tells us.

Financial media of all kinds has a strong incentive to highlight conflict or negative news in order to elicit an emotional response.

“Hey guys, things are actually pretty great,” is a boring headline. But as you may have noticed, I'm not afraid of being boring.

Michael Taylor is a columnist for the San Antonio Express-News, author of “The Financial Rules for New College Graduates” and host of the podcast “No Hill for a Climber.”

[email protected] | twitter.com/michael_taylor