This week’s data indicates that the American economy is expanding at its most rapid rate in two years; however, polling reveals a bleak sentiment among Main Street residents. It is nearly astonishing to consider that we are discussing the same economic landscape. However, the metrics serve as a further reminder that two apparently conflicting trends can coexist concurrently. A rapidly growing economy does not inherently imply that all individuals are experiencing its benefits. Indeed, gross domestic product, the most comprehensive indicator of the US economy, accelerated this summer to an impressive annualized rate of 4.3%, significantly exceeding economists’ forecasts. However, the robust GDP growth did not result in a surge in employment, nor did it coincide with a reversion to typical inflation levels. “GDP represents a theoretical construct. However, individuals are familiar with employment opportunities. “They know they can’t find a job if they lose theirs,” stated Mark Zandi. “And they are aware that they are incurring higher costs for coffee, beef, electricity, child care, and nearly all other goods and services.”
GDP serves as a report card for the economy. However, akin to any report card, it may not provide a comprehensive view of the underlying dynamics at play. For instance, a significant factor contributing to the acceleration of GDP in the third quarter is the uptick in consumer spending. This phenomenon has persisted across both the Biden and Trump administrations: robust consumer spending despite a myriad of economic challenges. Nevertheless, the report fails to clarify which segments of consumers increased their spending. “Retirees and the top 10% persist in propelling economic activity. “It’s still very much a K-shaped economy,” stated Mike Reid. Although individuals may not perceive elevated GDP levels, they are acutely aware of rising prices. Inflation has not surged dramatically this year, contrary to the concerns that arose due to President Donald Trump’s extensive tariffs. However, inflation has not seen significant improvement since Trump assumed office in January, when the annual rate of price increases was at 3%, compared to November’s rate of 2.7% (as per government data that includes considerable fine print due to distortions related to shutdowns).
Nonetheless, it remains elevated compared to the 1.7% average annual inflation rate that Americans faced in the decade leading up to the pandemic, as indicated by data. The prices of certain essential goods have decreased. For instance, in November, the price of eggs was 13% lower compared to the same month the previous year, as reported by the BLS. Milk experienced a decline of 1% in price. Gasoline prices have remained stable throughout the year, with the national average recently declining to $2.86 per gallon, marking a new low not seen in four and a half years. That represents a significant departure from the $5-per-gallon gasoline prices observed in 2022 following Russia’s invasion of Ukraine. Nonetheless, various other necessities have experienced price increases. On average, consumers are experiencing a 7% increase in electricity costs, a significant issue in the upcoming gubernatorial elections in New Jersey and Virginia this November. The cost of natural gas, the predominant heating source for American households, has increased by 9%. In November, ground beef experienced a notable year-over-year increase of 15%, marking the most significant rise since 2020. Consumers are incurring significantly higher expenses for car repairs, which have risen by 10%, and for coffee, which has seen a 19% increase, as reported. It is indeed accurate that paychecks have increased; however, this rise frequently falls short of matching the escalating cost of living. Bank of America deposit data indicates that in November, paychecks outpaced prices exclusively for high-income households. Wage growth for middle-income households registered at a modest 2.3%, whereas lower-income households experienced a mere increase of 1.4%. In a genuinely thriving US economy, consumer concerns regarding job security would likely be minimal. That is not the observation we are making today.
The proportion of consumers anticipating an increase in job openings over the next six months has declined to its lowest point in four years, as indicated by consumer confidence data released by the Conference Board. The proportion of consumers who perceive an increase in job acquisition difficulty has also risen. The unemployment rate reached a four-year high of 4.6% last month, an increase from 4% in January. Earlier this year, the count of job seekers surpassed the available job openings for the first time in four years. The overarching consumer confidence data indicated that this is leading consumers to adopt a more pessimistic outlook on the economy. One reason hiring has decelerated is that businesses are discovering how to achieve greater efficiency with a reduced workforce, facilitated by advancements in artificial intelligence. Concurrently, Trump’s unpredictable alterations to trade policy have rendered numerous businesses immobilized. Amidst the prevailing uncertainty regarding his forthcoming tariff decisions, numerous entities have opted to suspend their hiring initiatives. Furthermore, certain enterprises have opted for workforce reductions to prevent the necessity of transferring larger price hikes from tariffs onto consumers. The essential point is that GDP, regardless of its magnitude, will not enhance Americans’ perceptions of the current economic situation. Paychecks that extend further, increased certainty regarding future prospects, and enhanced job security will.