Every week brings mind-blowing conflicting news about the economy. The past week has been no different, with a spate of economic reports showing that despite talk of a recession, the US economy is showing remarkable resilience.
Yes, the economy is strong. But it comes with a lot of caveats.
- Gross domestic product grew at an annualized rate of 3.2% last quarter, a strong rebound after contraction in the first half of the year.
- Consumer confidence rose unexpectedly in December.
- Last month’s jobs report defied analyst expectations, and unemployment remained at its lowest level in nearly half a century.
- And several recent inflation reports show that prices are starting to calm down.
However, these are just ingredients in a cloudy soup of conflicting “yes, but” titles.
Yes, consumers say they feel bad about the economy. But a record 196 million Americans went shopping over Thanksgiving weekend, and those skyrocketing sales numbers aren’t just because inflation has driven up prices, but also because people were doing more transactions. , according to Adobe Analytics.
Curtis Dubay, chief economist at the US Chamber of Commerce, calls this “secondhand gloom” and says the economy may not be as bad as you think.
Yes, inflation at nearly 40-year highs is hitting family budgets. But Americans are booking air travel and visiting Disney parks in near record numbers, even with higher park prices.
Yes, economists are worried about a recession, but the job market is incredibly tight with over 10 million jobs open and 1.7 jobs available to anyone looking for one (or wanting to change jobs).
“The job market is incredibly strong again,” Federal Reserve Chairman Jerome Powell said in a speech last month. “It’s too good, in a way, because it will add to inflation.”
So what is the next step?
The truth is that no one knows what will happen next. Forecasting is notoriously unreliable in the post-Covid economy. (Remember “through” inflation?
The Fed has tried to rein in the highest inflation since the 1980s, raising interest rates six times this year and even launching a one-off three-quarter-point hike not once but four times in a row.
This means that next year will certainly be challenging as all of that tightening continues to work its way through the economy.
But household finances are better able to cope with it, with a surplus of $1.7 trillion in savings as a cushion, although individuals are likely to have to dip into more of their savings.
And even if the housing market is cooling off, it’s not crashing. After a very strong 2021, the industry is “resetting, recalibrating,” Bess Freedman, CEO of Brown Harris Stevens, said on CNN’s “Early Start.”
Covid broke the economy and putting it back together was hard to measure. Tens of millions of jobs were lost overnight. Schools closed, factories closed, over a million lives lost. More than two years later, we are still struggling to measure the strength and durability of the recovery.