WASHINGTON (AP) – Wanted signs are everywhere. Employers are posting nearly two job openings for every unemployed American. Hiring is on track for the second strongest year on government records since 1940. And the economy grew strongly this summer.
From other angles, the country’s economic picture appears healthy.
But the event is being shot down by an invisible intruder: Long-term inflation. Rising prices are straining family budgets and creating problems for the poorest families. In addition, the Federal Reserve’s desire to reduce inflation with higher interest rates is increasing the risk of a recession by next year.
With voting taking place in the midterm elections that culminate next week, most Americans are not worried about the state of the economy and their finances – encouraging news for Republicans hoping to regain control of Congress and scary news for President Joe Biden’s Democrats. A survey conducted in early October by The Associated Press-NORC Center for Public Affairs Research found that 46% of people consider their financial situation to be poor, up from 37% who said so in March.
America’s economy is in shambles 2½ years after COVID-19 lifted business as usual. A brief but deep recession that began at the end of 2020 was quickly followed by a strong recovery in the global economy, which led to a decline in output and employment and added to persistent price pressures. What remains is the unusual combination of rising inflation and a stable labor market.
“The data,” said economist Megan Greene of the Kroll Institute, “is all over the map.”
Many workers have received good wages from employers who want to attract and retain workers. But rising prices are eroding the benefits of those payments. Adjusted for inflation, hourly wages fell 3% in September from a year ago – the 18th straight monthly decline.
“Wage growth is not going well,” Greene said. “It is good that people have jobs. But their values are being corrupted by rising prices.”
Here’s a closer look at key economic indicators, which are sending mixed signals to policymakers, businesses, forecasters – and voters:
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ALL THE WEALTH
Perhaps no economic measure has been of greater concern than gross domestic product – the economic value of goods and services. After a rise of 5.9% last year, the best indicator since 1984, GDP fell into a funk in the first half of this year. It fell by 1.6% year-on-year from January to March and then by 0.6% from April to June.
The first half of the recession was caused by factors that did not really reveal the health of the economy. The decline was driven by a decline in industrial production, a boom that often follows, and an increase in imports, reflecting Americans’ preference for foreign goods.
Last week, the government reported that GDP returned to growth in the July-September quarter, growing at a robust 2.6% annual rate.
However the new image was not cause for celebration. Consumer spending, which accounts for about 70% of economic activity in the US, weakened last quarter: It rose at an annual rate of 1.4%, down from a rate of 2% in the April-June period.
All of the increase in the third quarter of GDP can be attributed to the increase in foreign trade and the decrease in goods, which together added about 2.8 percent of growth. That action cannot be repeated. A strong dollar has made American goods more valuable overseas. And Russia’s war against Ukraine has helped weaken the global economy and reduce demand for US goods.
“If you look down at the numbers for the third quarter,” Greene said, “it shows that it wasn’t that strong, and we can’t expect that to continue.”
The economic outlook is also worsening as the Fed slowly raises interest rates. Since March, the central bank has raised rates five times, including three straight quarterly hikes. He is expected to do so again on Wednesday and in December.
Fed policymakers have been aiming for a “soft landing” — raising interest rates to slow growth and bring inflation to 2% a year without triggering a recession. However, many economists doubt that it can be done. They predict a recession starting sometime in 2023.
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INFLATION
One of the reasons why many people are skeptical about the Fed’s ability to slow rate cuts is that inflation is proving harder to beat than policymakers expected. The result is that more inflation than previously thought will be needed.
In September, government inflation rose more than expected by 0.4% from August and 8.2% from last year. Even worse, so-called core inflation, which strips out volatile food and energy costs to better gauge price pressures, rose 6.6% from last year. This was the largest such jump in 40 years.
Furthermore, inflation is not limited to the United States. In the 19 countries that share the euro, for example, prices rose 9.9% in September from a year earlier. Russia’s invasion of Ukraine has raised electricity prices and disrupted food supplies.
In the United States, inflation has not only risen but has expanded from the financial sector to the service sector – a broad area that includes everything from airline prices, car insurance and health care to hotel prices, rent and housing. food to eat. The problem is, the higher the inflation rate, the more difficult it is to control.
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WORK
The job market is the bright star of the American economy.
Employers have shrugged off rising wages, rising interest rates and fears of a recession and continued to hire. After adding a record 6.7 million jobs last year, the economy has reached a monthly average of 420,000 so far this year. The unemployment rate in September, 3.5%, is equal to a half-year low.
However, the labor market is freezing. Job gains have declined for two straight months – to 263,000 in September from 315,000 in August and 537,000 in July.
Employers posted 10.7 million job openings in October, the government said Tuesday. This was up from 10.3 million, although it was down from the 11.9 million mark in March. Historically, these numbers have risen dramatically: For 15 straight months, openings have exceeded 10 million, a level that had not been reached before 2021.
Americans also enjoy greater job security. Employers are shedding an average of 1.4 million workers each month – at a rate higher than last year due to the smallest decline in government payrolls since 2001. The labor market, however, is expected to deteriorate as the Fed’s numbers begin to bite.
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ALL
American consumers, the source of economic growth, have shown resilience due to the ups and downs of the COVID-19 economy. Their spending has helped fuel the recovery and fueled inflationary pressures.
Even though higher prices have reduced their energy spending, and the 2020 and 2021 federal paychecks are long gone, Americans still spend, albeit at a lower rate. Consumer spending rose 0.3% from August to September, even after accounting for inflation, the government said.
It is not clear whether consumers can continue. Together they have spent much of their savings during the pandemic, even though their finances are still tight, and are turning to credit cards. US savings rates have fallen.
“It’s clear that the economy is slowing down,” said Kroll’s Greene. “The question is how fast.” And another question is, at what point do businesses and consumers feel they need to quit. And that is more a question of psychology than it is of economics. “
Meanwhile, businesses and consumers have enough money to spend. They should not reduce immediately:
“But they might do it anyway because there’s all this talk of a recession coming because there’s so much economic uncertainty.”
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HOUSE
Fed rate hike already: America’s housing market reeling from record high interest rates.
The average price on a 30-year fixed-rate mortgage, which was just 3.14% a year ago, rose 7% last week for the first time since 2002. Sales of existing homes have fallen for eight straight months.
The GDP report showed that housing costs fell by 26% year-on-year from July to September. And construction activity in September fell 8% from last year.
Home prices are still rising, helped by fewer homes on the market. But inflation is slowing. The S&P CoreLogic Case-Shiller index of home prices in 20 US cities rose 13% in August from a year earlier. However, this represented a 16% year-on-year decline in July.
As rising interest rates continue to weigh on the housing market, Oxford Economics predicts, “the housing crisis is only going to get worse from now on.”
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MANUFACTURERS
American factories are still growing. But the appearance is diminishing.
A manufacturing index released on Tuesday by the Institute for Supply Management, a consumer watchdog, showed that factories have been expanding for the 29th straight month. However, the index fell in October to its lowest level since May 2020, as the economy continued to struggle due to the closure of businesses forced by COVID. New orders, export and hire all contractors.
Likewise, the government reported last week that orders for durable goods (excluding the non-scheduled transportation sector) fell by 0.5% in September.
The report “does not go well,” wrote Kathy Bostjancic, a US economist at Oxford Economics. Manufactured goods are likely to weaken due to a stronger dollar and stagnant overseas economies.
Bostjancic warned that the US economy may weaken in the October-December quarter and decline in the first half of 2023.
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