By Romans Christine
The powerful American economy is doing well by almost any metric. The widely anticipated recession of 2023 never materialized. Rather, the unemployment rate has not exceeded 4% for the past two years, wages are finally growing at a rate faster than inflation, and the economy grew by nearly 5% in the third quarter. More economic tailwinds in the coming months will be fueled by bipartisan investments in computer chip manufacturing and infrastructure that are just now beginning to pay off.
Indeed, Goldman Sachs predicted that inflation would continue to decline in 2024 and declared that “the hard part is over” for efforts to support the global economy in a note to clients on Wednesday. The Federal Reserve and other forecasters have expressed increasing economic optimism, and as a result, the bank’s researchers now project a mere 15% chance that the US will enter a recession next year.
However, a lot of Americans don’t hold that opinion, so the Republican contenders for president who will be competing in Wednesday night’s News-hosted debate in Miami will be searching for chances to reaffirm their position.
According to a recent Bank rate survey, half of Americans said that as of Election Day 2020, their overall financial status has gotten worse. Furthermore, according to a New York Times/Siena College poll released this week, 81% of respondents thought the economy was either “fair” or “poor,” while only 19% thought it was “good” or “excellent.”
However, consumers continue to spend, accounting for two thirds of economic activity, in spite of the general pessimism.
The chief economist of ADP, a company that processes payroll, Nela Richardson, stated, “People may be feeling bad, but they are not spending badly.” “Despite reporting that they are pessimistic, they are spending like they are optimistic.”
How come? The most plausible explanation is a bleak concoction of two major wars, continuing political rifts within the country, a pandemic that is still relatively new, and price pressures that have sharply slowed down but rarely reversed.
Mark Hamrick, senior economic analyst at Bank rate, put it simply: inflation. According to him, the cumulative effect of inflation over the last 18 months more than offsets the historically high job market and other benefits to American consumers’ wallets.
Many people are irritated because, although inflation is declining, prices aren’t, according to Hamrick. Furthermore, the stark economic inequality in the nation means that even strong total consumer spending figures are unable to fully conceal the significant differences in household wealth. “There isn’t a single, homogenous ‘consumer,'” stated Hamrick.
From a painful 9.1% in the middle of last year to 3.7% in September, inflation has decreased. However, although that trend is welcomed by Fed officials and economists, regular Americans can still clearly remember a time not too long ago when many things were less expensive.
For instance, in November 2019, the average cost of a gallon of milk was $3.19. It returned to $3.97 this fall after rising to $4.20 in May 2022.
Richardson stated, “The price level has taken a big, gigantic step up in our economy.” The cost of borrowing money has increased due to the highest interest rates in decades, which translates into higher credit card and mortgage interest rates.
It’s unclear how, or even whether, the economic downturn in the United States will manifest itself in the economy or at the polls a year before the 2024 election. However, both sides have placed strong bets that it will matter.
To boost rural economies, President Joe Biden has been hammering home the $5 billion in new investments, hoping that voters will reward him and fellow Democrats for stepping up infrastructure projects across the nation. Republicans, meanwhile, have been racing to blame the administration’s economic policies, which they believe are driving up prices, on voters’ resentment of “Bidenomics,” a term the White House has tried, albeit unsuccessfully, to brand.
Naturally, presidents often receive an excessive amount of credit and blame for the state of the economy during their administrations. In fact, pollsters have found that voters are more likely to hold a leader accountable for a faltering economy than for one that is thriving.
But there’s no assurance that the economy will play a major role in the contest next year, if Tuesday’s election results are any guide. Other issues emerged in several races, even though they were off-year contests that typically attract a different demographic of voters than presidential elections.
Since the Supreme Court reversed Roe v. Wade last year, Democrats have continued to win victories at the state and local levels thanks in large part to access to abortion. Conservative voters who vehemently disagree with Biden, particularly regarding his economic policies, have frequently straddled party lines in favor of greater access to reproductive healthcare.
If the inaccurate economic forecasts of the last twelve months have taught us anything, it’s that a lot can happen in a year, to Americans’ financial situations and attitudes toward them.
Richardson was cautious when discussing the contradiction between many of the economic fundamentals and the pessimistic view of consumers.
“I think that’s when we’re going to have to pay attention,” she stated, “when that feeling starts translating into behavior.”
