Why do most Americans feel bad about the economy?

For months now we have been hearing from the current administration and the media that the economy is doing well and we are calling it „Bidenomics” to manage the economy.

Indeed, third-quarter GDP was 4.9%, a strong growth that was revised up to 5.2% last week. Consumer spending, which accounts for two-thirds of GDP, continues to drive economic growth. The labor market in particular remains stubbornly strong, with the latest unemployment rate for October at 3.9%, near a historic low. Job openings peaked at 12 million in March 2022, though they continued to decline from that level to 8.7 million last month. We added an average of 239,000 jobs a month through October this year, 400,000 a month in 2022 and 600,000 a month in 2021.

All of the above macroeconomic numbers look very strong. Why do most Americans feel like the economy is working against them? Let me suggest some factors that affect most of us.

inflammation. Clearly, this is the number one cause of dissatisfaction. Since the late 70’s, early 80’s, we have experienced very high inflation. Inflation rose to 9% in June 2022 and eased to 3.2% in October. Although the rate of inflation has slowed, overall prices remain higher than they were 3 years ago. Looking at the annual average CPI for 2020, the index stood at 258.8. The same number will come in 2023 at 305.0. If you do the math, prices in 2023 will average 17.9% higher than in 2020. Clearly, this is average. Some prices are high and some are low.

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wages. Closely related to the first factor, the U.S. Census Bureau came out in September and showed that median real income has fallen every year since 2019 due to inflation. The numbers for median real income for the years 2019-2022 are as follows: 2019 – $78,250; 2020 – $76,660; 2021 – $76,330; 2022 – $74,580. In the years covered, median real income was $3,670, a 4.7% decrease. Inflation is an insidious phenomenon that hits people at lower income levels hard.

Interest rates. Interest rates have risen to no one’s surprise. The Federal Reserve Bank has price stability as one of its missions. It has been fighting inflation since March 2022, when it began raising the Fed funds rate to its current standard of 5.25-5.5%. Market rates have risen accordingly, causing rates for 30-year fixed-rate mortgages to rise from 2.5-3% to 8% to its current standard of 7.25-7.5%, according to Freddie Mac. Interest rates on personal loans have gone up, credit card rates have gone up. Bottom line, the cost of borrowing for almost anything has increased significantly.

Home sales market. The housing market is one of the primary ones affected by high interest rates. National home sales for October fell 4.1% to a seasonally adjusted 3.79 million, according to the National Association of Realtors. Domestically, the housing market has been significantly affected. In 2021, 2,821 homes were sold through the Columbia Real Estate Board. This year, the total number of homes will be in the 1,900 range, down about 900 homes, or 32%, from two years ago. There are two main factors driving this market. High interest rates are clearly a major factor. A second factor is the low inventory of homes on the market, which has the effect of pushing up prices. A large number of people with low rate mortgages (2.5%-3%) are locked into low rates and cannot trade or sell. This poses the problem of affordability, which is the lowest it has been in decades. First time home owners suffer from this problem the most.

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Stock market. The past two years have been tough years for the stock and bond markets. In particular, performance in 2022 was historic in that both stocks and bonds clobbered. Even this year, with the S&P 500 up 19% year-to-date, that number has changed significantly thanks to what it calls an amazing seven tech stocks. The fantastic seven are Amazon, Apple, Alphabet (Google), Meta, Microsoft, Nvidia and Tesla, whose outperformance has disproportionately affected it. Bonds have been adversely affected by the rapid rise in interest rates.

In short, although macroeconomic data is relatively strong, everyday events such as higher prices, lower real wages, higher borrowing costs, a challenging housing market, and underperforming stock and bond markets have affected our daily lives. We need most of these factors before we feel like the economy is working for us.

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