Opinion | When will Americans stop worrying and learn to love the American economy?

Opinion |  When will Americans stop worrying and learn to love the American economy?

What would it take for Americans to stop worrying and finally learn to love the American economy?

On paper, at least, the US economy looks remarkably well. The latest stunning jobs report has now been followed by a stunning GDP report: U.S. economic output grew at an annual rate of 4.9 percent in the third quarter of this year, the Commerce Department reported Thursday. After adjusting for inflation and usual seasonal patterns.

For context, that’s more than double the pace of the previous quarter, the fastest rate of growth since late 2021, and light years higher than economists expected not long ago.

When this year began, a majority of private sector economists surveyed expected an imminent contraction. Well, even in June, economists at the Federal Reserve were predicting a “moderate recession” that would begin sometime in 2023. These economists are not right-wing partisans trying to make President Biden look bad, or gullible ordinary people who have been brainwashed by them. Pessimistic media, no matter how much the Democrats dream. They are professional forecasters who are paid to get the numbers right.

These fateful predictions have since been written off anyway. It goes without saying that annual growth of 4.9% is nowhere near standard recession territory, while GDP is often contracting.

It is striking that the US economy is not only exceeding those pessimistic forecasts from a few months ago, but it is also exceeding the forecasts reached so far. before The epidemic has begunbased on forecasts published in January 2020 by both Congressional Budget Office And the IMF for where we would be now.

This is not true for other countries. In most parts of the world, economies today are still performing worse than pre-pandemic estimates. This makes some sense, given the huge gap that an unexpected global health crisis has created in every economy.

The huge growth wasn’t the only good news in Thursday’s trade report.

For the first time since late 2020, the Fed’s preferred inflation measure is back to a number starting with 2 (specifically, 2.4 percent). Why is this important? The Federal Reserve’s inflation target rate is 2%. We are now close to achieving this, and we hope that we will not suffer from the recession that has historically accompanied low and high inflation rates.

This data is worth a quarter – the numbers can be noisy, and will be revised several times before the Commerce Department settles on a final figure. So, as always, don’t read too much into just one report, especially as some other risks loom on the horizon (wars, potential government shutdown, tightening financial conditions, etc.). Few economists expect next year’s growth to be as hot as last quarter.

However, other economic indicators have been looking strong lately as well, including data on rising wages.

All this raises two questions. First, why were the numbers so much stronger than professional forecasters expected? Second, why do Americans not seem to believe them?

No one (including yours truly) knows the answer to any of these questions for sure. But the ambivalent consumer seems to be the key to both.

Consumer spending has recently become defying gravity. Despite inflation, and despite rising interest rates making all kinds of purchases more expensive, consumers continue to keep their wallets open. Maybe they are used to spending more money; They may feel pressured to keep up with the Joneses; Maybe they feel more flow than they let on.

Whatever the case, they are still spending, and they are the main reason why economic growth is so unexpectedly resilient.

At the same time, consumers’ stated expectations about the economy are in stark contrast to their spending behavior. In fact, according to the University of Michigan Consumer Confidence Index, Americans have a no less negative view of the US economy today than they did during the Great Recession. As a reminder, the economy was in very bad shape at the time: the foreclosure crisis was still raging through the economy, and unemployment was hovering around 9 percent, more than double what it had been recently.

By almost every measure, the economy looks better today than it did then — and yet consumers still hate it just as much. The only anomalous measure, of course, is inflation. Although prices have slowed down a bit recently, people are clearly still angry about the price growth they’ve already experienced. Perhaps this is not very surprising. Historical research in developed countries suggests that few things would make the public angrier than an unexpected bout of inflation.

Additionally, despite Biden’s poor polling (especially on the economy), note that leaders in other countries with high inflation often poll worse than him.

There are also signs of tension among US consumers, despite their continued spending. For example, delinquency rates on credit card loans and auto loans are rising. So it is not as if all is well, or that the risk of recession has completely disappeared.

No matter how unhappy you are with the economy But now, it’s worth remembering one thing: it could be a lot worse.

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