The Sky is Falling…or is it?

A snapshot of the economic data

Some recent headlines:

Credit card delinquencies spike, a sign of cracks in the strong consumer. Axios, February 6, 2004.

Will This Be the Shortest Bull Market on Record? These 2 Recession Indicators Point to Yes. The Motley Fool, March 24, 2024.

Stockmarkets are booming. But the good times are unlikely to last. The Economist, February 25, 2024.

Hot inflation is back. Axios Macro, April 10, 2024.

Do these stories worry you? Should they? With the stock market falling, inflation stalled, and conflict abroad, it’s hard not to worry.

Over the rest of April and into May, we’ll take a tour of the economy. We’ll look at the big picture data: GDP and growth, employment, and inflation. We’ll also look at interest rates, trade, and other pieces of the economic puzzle, such as the impact of immigration. Then you’ll get a better picture of where the economy is.

My in-house editor reminded me to talk about percentage rates. I use annualized rates. Percentage rates, usually for a quarter (three months), imply what would be in effect for 12 months. For the interested, the calculations are in the footnotes. [1]

Growth [2]

Gross Domestic Product (GDP) is strong and growing. The rate for the last three quarters is over 3 percent, exceeding the target rate of over 2 percent.

Gross Domestic Product is the value of all final goods and services produced in an economy. If you add together the value, in dollars, for each good or service produced, you get GDP

GDP growth was 4.9 percent for the third quarter 2023 and 3.2 percent for the fourth quarter, according to the BEA (Bureau of Economic Analysis). For the first quarter of 2024 (January through March), preliminary results show us that the economy is growing at a 3.4 percent clip. [3]Economic growth comes from increases in demand and supply.

The big story during 2023 was consumer demand. Consumer demand depends on disposable income (income minus taxes), wealth, interest rates, preferences and availability. COVID stimulus checks helped buoy the economy during the shutdown. Those checks increased wealth, causing an increase in luxury and travel spending. Remote work, the rise of at-home gig work, as well as low interest rates at the beginning of the pandemic increased the demand for housing. Increased demand leads to economic growth, as producers strive to keep up.

Demand also depends on consumer confidence. Consumers, though weary of increasing prices in groceries and rent, are feeling better about their overall financial health, according to University of Michigan’s Survey of Consumers. Three measures of consumer confidence improved over the past year. For March 2023, the index of consumer sentiment rose 23.4 percent and current economic conditions rose 19.8 percent. 

These two indexes show that consumers are feeling better about the economy and their finances. The index of consumer expectations also increased 26 percent, showing that consumers expect inflation to keep falling and the general economy to keep improving.

Small businesses feel worse about the economy, although they are more troubled by inflation now, as reported in the Small Business Sentiment Index. For the past three years, their concern was on finding and keeping workers.

In 2024, supply-side healing is the main source of growth. During the pandemic, supply-chain problems choked the availability of goods. Here are some of the problems that arose:

• Ports couldn’t get goods offloaded because of COVID and restrictions.

• We couldn’t get parts and other supplies for manufacturing and construction. 

• Work stopped because workers got COVID or were afraid that they would catch the disease if they returned. 

• Many workers, especially women, were sidelined with childcare and other care responsibilities. 

• Federal regulations prevented migrant workers from entering the country delaying crops from getting to stores. 

This sudden sharp decrease in supply caused businesses to close and inflation to rise.

During 2023 and into 2024, those shortages reversed. We had parts for manufacturing, increases in the number of immigrants to fill positions, and greater access to food and other goods. Imports are up, another signal that consumers feel good about the economy.

The Fed looks for GDP growth over 2 percent. According to the Bureau of Economic Analysis (BEA), for the last three quarters we’ve seem GDP grow at 4.9 percent for July through September 2023, 3.2 percent for October through December 2023, and 2.9 percent for January through March 2024.

Since the labor market (more on that next time) remains strong and growth is steady, a national recession is very unlikely in the near future. Rolling recessions across industry and location are possible though.

Next time we’ll look at the employment reports and some anecdotal trade evidence. We’ll see that the sky is probably not falling, but higher interest rates are slowing the economy down.

Thanks to my in-house editor—my husband Mark.

And thanks to you for reading. I appreciate your support.

Nikki

[1] To annualize a quarter’s worth of data, multiply by 12 and divide by three. For four months, divide by four instead. For monthly data, just multiply by 12.

[2] In a separate post (forthcoming), titled “Who You Gonna Call,” I’ll list all the names of government agencies that I use, as well as what data they provide. I’ve also included other sources and information you may find helpful.

[3] According to Fed Chair Jerome Powell, quoted on Marketplace.org, March 25, 2024.