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The US economy is expected to have grown robustly in a strong recovery since the first half of the year, but most Americans are unlikely to see the turnaround.
Persistent inflation continues to weigh on both economic growth and household budgets and has become a major focus ahead of the midterm elections. A strong result in the next gross domestic product report, due out on Thursday, would be welcome news for Democrats, who are struggling to convince voters they have a plan to stem rising prices and move the economy to a more stable one to set the base.
Though the latest numbers likely look like improvements on paper, economists say they don’t reflect major shifts in the economy that could be headed for a recession next year.
“This will look better than the previous two GDP reports, but conditions on the ground haven’t changed much,” said Douglas Holtz-Eakin, president of the American Action Forum and former director of the Congressional Budget Office. “Inflation is still taking its toll. Fed tightening concerns remain. Things are not significantly different.”
GDP, the broadest measure of economic activity, is likely to have risen about 2.9 percent between July and September, according to a tracker from the Federal Reserve Bank of Atlanta. That’s consistent with some of the stronger economic growth years before the pandemic.
It comes after six months of contraction, with the US economy shrinking 1.6 percent, then 0.6 percent in the first two quarters of the year. That slump in the first half raised fears that the country is already in a downturn, although recessions are not typical when unemployment is near record lows. The official finding is made by a panel of experts, and economists generally agree that the US economy has averted a recession — at least this year.
America’s return to growth stands in sharp contrast to other major economies, including Europe and the UK, which are either already in recession or almost certainly heading into recession. China’s “zero Covid” policy has also become a brake on its economic growth after long being one of the leading engines. (China recently delayed the release of GDP data, obscuring its economic situation.)
The latest US GDP figure is likely to be supported by a narrowing trade gap as the US imports fewer goods due to slowing demand. Also, retailers’ inventories are expected to grow faster as the supply chain issues of the pandemic are resolved. None of these factors have much impact on Americans’ daily lives.
Economic insecurity is one of the biggest issues in the Nov. 8 midterm elections, where gun control, abortion rights and immigration are also big issues. And the stakes are high: Democrats are just six seats away from losing control of the House and Senate.
“Don’t be fooled by a recovery in GDP,” wrote Joseph LaVorgna, chief economist at SMBC Nikko Securities America and former Trump White House economic adviser, in a recent note to clients. “Is the economy over the hill? no The economy often produces healthy gains in real GDP early in a recession. In fact, this has happened in four of the last six downturns.”
A growing choir of economists say a 2023 recession is all but inevitable as the Federal Reserve continues to aggressively raise interest rates in hopes of slowing the economy enough to control inflation. There are also growing fears that turmoil abroad, in Europe and Asia, could spill over into the US economy.
But for now, the economy remains strong through many measures. Unemployment is near an all-time low at 3.5 percent and many Americans are getting pay rises. Business investment and consumer spending remain strong, even as households and business owners say they are pessimistic about their finances and the direction of the economy.
The White House pointed to strong job growth and resilient consumer spending — which accounts for nearly 70 percent of GDP — as promising signs the economy remains resilient.
“Obviously, when you’re trying to understand the strong growth of the US economy, the labor market is a key contributor,” said Jared Bernstein, a member of the President’s Council of Economic Advisers. “Most people get their income from the labor market — it’s paychecks, not stock portfolios — so if people work and get ahead, that’s going to be a major contributor to the economy.”
Economists are closely watching a key metric that discounts factors like retail trade and inventory levels. That metric, final sales to private domestic buyers, offers a clearer view of U.S. demand and has risen every quarter since the pandemic began. However, growth rates have started to slow this year, suggesting economic gains are slowing even as GDP is rising.
“Nuance is really important right now,” said Andrew Patterson, senior international economist at Vanguard. “If you look at the underlying metrics, consumption by households, businesses and governments is all trending downwards. This time we may see positive GDP growth, but that is due to a fall in imports rather than higher consumption.”
However, reading economic tea leaves is often as much about perceptions of households and businesses as it is about actual numbers. Despite a booming job market and buoyant spending, many Americans are incredibly pessimistic about the economy. Consumer sentiment remains near record lows, and many Americans say they expect an even bumpier road ahead, according to a closely watched index from the University of Michigan.
This somber mood is driving voters across the country to reconsider their choices ahead of the midterm elections. Polls consistently show that inflation remains a top concern for many Americans.
In Nashville, Cheryl Beaumont is voting the Democrats for governor and Congress, although she says several friends are switching to Republican candidates for economic reasons. Many are grappling with higher food and gas costs, she said, and don’t feel the current government is doing enough to bring prices down.
“Democrats still talk about gun safety and abortion, but the real concern of Americans on a day-to-day basis is: How do I feed my family? How do I pay the rent?” said Beaumont, 52, who handles transportation logistics for a shoe retailer. “You want a plan. People no longer have the luxury of putting principle over inflation.”
Prices have risen 8.2 percent over the past year, government figures show, although many everyday necessities such as food, gas, utilities and health care have risen at a much faster rate. As a result, more Americans are turning to their bank accounts and taking on more credit card debt to make ends meet. Many say they are feeling a growing sense of desperation as wage increases and savings from the pandemic are being wiped out by inflation.
Philip Hyatt, who owns a barbecue catering business in Carson City, Nevada, says recession concerns have caused many customers to hold back on bookings for next year. At the same time, he faces double-digit price hikes on almost everything from condiments to spare ribs, and says he will vote Republican in the midterm election, partly because he thinks President Biden hasn’t done enough to stem the soaring address costs.
“A lot of that inflation would happen no matter who was in power,” he said. “But I also see things in the White House that don’t help us get through this or ease that pressure.”
But while voters are still saying the economy is their top concern this fall, there are signs many Americans are feeling at least slightly better about their finances as gas prices tumble from summer’s record highs.
Theresa McCloskey, owner of a graphic design and printing company near Philadelphia, is suffering from supply shortages and rising prices. But she says she’s more concerned about abortion rights. Though she often votes for candidates on both sides of the aisle, she plans to stick squarely with Democrats this time.
“Although my job as a businessman literally puts me under a roof, I personally believe that my rights as a woman – and the rights of my daughter and nieces – are far more important than anything business can throw at me. ‘ said the 62-year-old. “I don’t care what things cost. I have previously done three jobs as a single mother and I will do it again if necessary to uphold my rights.”
McCloskey, who has cut back on eating out and travel to save money, says she’s optimistic about the economy. Schools, car dealerships and other customers continue to shell out business cards, brochures and large banners. Her sales are on track to surpass last year’s by 20 percent and she hopes the United States can stave off a recession.
“Inflation is difficult at the moment,” she said. “But if it gets more expensive, I’ll either cut more or find another job. I won’t worry just yet.”
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