The stock market is on the rise. The inflation rate has fallen. And most data paints a picture of relative economic health. Why are so many Americans pessimistic about the US economy?
A recent Bankrate survey found that 59% of Americans feel the economy is in a recession. Of course, this is far from the numerical truth. Officially, two consecutive quarters of contracting GDP (negative growth) are required to mitigate a recession. The latest statistics showed the US economy grew 5.2% on an annual basis in the third quarter, the strongest growth in two years.
A separate poll published by CBS News helps explain the discrepancy. That survey included a question asking, “How do you determine how the economy is doing?” 85% of respondents cited “their own experiences,” far higher than the 66% who based their opinion on “national data.”
The mainstream media naturally focuses its attention on national data and macro trends. For most of 2023, these trends showed economic resilience, strong consumer spending, low unemployment and corporate profits that exceeded expectations.
However, inflation has an outsized influence on economic opinions and we are still in the late stages of the biggest inflation battle of our generation. The daily lives of most Americans — grocery shopping, paying bills, going out to dinner, etc. — are full of reminders that almost everything is more expensive.
The latest Consumer Price Index (CPI) showed inflation at 3.1% year-on-year. In other words: the pace of inflation is decreasing. But in absolute terms, prices for goods and services continue to rise, albeit at a pace more in line with historical averages.
Often the data can be interpretable. Consumer spending is a perfect example. American consumers' credit card debt just reached a record-breaking $1 trillion (fewer than 20 countries generate such a large GDP)! Should this be a concern, especially given that the average interest rate on these cards is more than 22%? Or is the stubbornly high consumer spending, which accounts for two-thirds of U.S. GDP, a sign of economic health?
There are other legitimate factors that cause American families to feel uneasy about their financial well-being. Massive government stimulus during the pandemic has eased hardship for many, but Uncle Sam's checks are long gone, temporarily deferred student loan payments have returned and higher interest rates are making the cost of financing car and home purchases more prohibitive.
The abolition of the family-friendly home office policy can also contribute to dissatisfaction. While going back to the office has little financial impact, it is another negative factor in whether you are better off or worse off.
On the other hand, the stock market – a leading economic indicator – was exceptionally strong. The S&P 500 has gained 15% since its late October low, closed just at this year's peak and is now just a few percentage points away from its all-time high. The predictions of a “soft landing” (defeating inflation, avoiding recession) are likely to prove correct.
But not all Americans have benefited equally. Those who own significant amounts of stocks and real estate have seen these assets rise dramatically. However, if you have smaller account balances or are looking to own a home, these become increasingly more expensive.
Some benefits are more universal. Gasoline prices have fallen dramatically. The national average is just over $3 per gallon, according to AAA. That's a 20% drop since September and 40% cheaper than summer 2022, when average gasoline prices rose to nearly $5 a gallon.
Ultimately, personal income is perhaps the most important component of financial comfort that many of us attribute to “economic health.” Data from the Bureau of Labor Statistics showed wages rose 4% from a year ago, outpacing inflation of 3.1% over the same period.
If this trend continues, we can expect more families to feel confident about their economic prospects.
Ben Marks is chief investment officer at Marks Group Wealth Management in Minnetonka. He can be reached at [email protected]. Brett Angel is the firm's senior wealth advisor.
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