Each week brings head-scratching conflicting news about the economy. This past week was no different, with a series of economic reports showing that – despite the recession talk – the US economy is showing remarkable resilience.
Yes, the economy is strong. But it comes with many caveats.
However, these are just ingredients in a murky soup of conflicting “yes, but” headlines.
Yes, consumers say they feel miserable about the economy. But a record 196 million Americans went shopping over the Thanksgiving weekend — and the roaring sales numbers weren’t just because inflation has pushed prices higher, but also because people made more transactions, according to Adobe Analytics.
Curtis Dubay, chief economist at the US Chamber of Commerce calls this “used pessimism” and says the economy may not be as bad as you think.
Yes, inflation at almost 40-year highs is eating into family budgets. But Americans are booking flights and going to 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 more than 10 million open jobs and 1.7 jobs available for anyone looking for one (or wanting to work).
“The labor market is incredibly strong again,” Federal Reserve Chairman Jerome Powell said in a speech on Wednesday. “It’s too good, in a way, because it’s going to increase inflation.”
So what’s next?
The truth is, no one knows what happens next. Forecasts have been notoriously unreliable in the post-Covid economy. (Remember “transient” inflation?)
Trying to contain the highest inflation since the 1980s, the Fed has raised interest rates six times this year and even launched a three-quarter hike not once, but four times in a row.
That means next year will no doubt be a challenge as all that tightening continues to work its way through the economy.
But the household economy is in better shape to handle it, with an excess $1.7 trillion in savings as a cushion – although people will likely have to dip into more of their savings.
And while the housing market may cool, it won’t crash. After a very strong 2021, the sector is “adjusting, recalibrating,” Brown Harris Stevens CEO Bess Freedman said on CNN’s “Early Start.”
Covid broke the economy and putting it back together has been difficult to measure. Tens of millions of jobs were lost overnight. Schools closed, factories closed, more than a million lives lost. More than two years later, we are still struggling to measure the strength and durability of the recovery.