What's Going on with the Economy?

I've done some research and would like to share with you what I have found.

Research is daunting. Especially when you are busy and have a life. But in an election year the economy plays a big role on how one casts their vote so if it is okay with you I have done a little research on what’s going on and why it’s hard to believe the “pundits”.

You have a lot of experts out there. Experts have a field they work in and their field can be quite narrow so what they say may feel out of sync. This means you have to listen to or read through a lot of expert info. It’s really hard. So I am going to be your generalist and do my best. Let’s dive in.

First, let’s take a look at the general economy. I am calling it a “How healthy are we as a country?” question.

According to Forbes we have the best economy in the world with a GDP of $28.78 trillion, followed by China with a GDP of $18.53 trillion. Gross Domestic Product is a measure of services and goods produced by a country. GDP will have down ticks during recessions. We had a bad one with the 2008 recession. It lasted two years but it wasn’t as severe as the one we had at the beginning of the COVID outbreak. Remember we had supply side issues from other countries as well as high unemployment. Thankfully that’s over and now as a country we are a humming.

What about unemployment? Currently, we are at 4.1% (today) which is great. Unemployment really goes up during recessions. COVID was brutal. We hit an unheard of high of 15%. However, during the last 2 years unemployment has been below 4% and that is a big deal. Low unemployment rates can push individual wages up which is another good thing for our workforce and economy.

Let’s look at oil production. We are pumping and producing unheard of levels oil right now. More than Saudi Arabia, Iraq, and the UAE combined. The world is buying oil from us! While this is not what you may be hearing, it’s true. We have to be careful. If we produce too much oil as the world shifts to renewables we can create a glut and that would drive the prices down and hurt our GDP.

Stock market? It keeps going up and up. When I last looked today the Dow Jones was 42,422.65. People invested in the stock market are happy, happy. Business is booming.

Which brings us to corporate profits. Corporate profits are truly at an all time high and this is after taxes. This is good for the country and corporations but not necessarily for the little guy. Especially when corporate price gouging and corporate government subsidies have helping create the huge profits.

I can definitely agree with Forbes. We have an enviable economy.

So, why don’t we, as the little guy, feel it? I wish I could give you a simple answer but there isn’t one. Let’s look at the overall picture. “What is the little guy feeling?”

The Consumer Price Index or CPI is a good place to start. As we all know prices always go up over time. They may come down a bit but its usually only for a short period. After COVID hit the CPI spiked up. This was due to lots of things but the two major issues were (1) supply was not able to keep up with demand and (2) corporate greed. Both drove up the cost of everything.

Biden pushed a lot of money into the economy after he was elected to help people recover from the economically devastating effects of COVID. Unfortunately, that had the effect of fueling inflation. We weren’t the only country hit with COVIDflation but that doesn’t make you or me feel any better. When Trump took office in 2017 the inflation rate was 2.5% and did not deviate largely from that during his term. Trump left office while COVID deaths were still spiking. When Biden took over he did not want Americans to suffer financially the way they did during the 2008 recession where the government only bailed out the banks and left the little guy in the lurch. Fault Biden if you want but he was giving people, not just corporations an economic boost. This fueled inflation which peaked in June 2022 at 9.1%. What would things look like if all those bills were not passed? Not good. Inflation has been going down and is now 2.4% as of September 2024, thankfully causing the Federal Reserve to cut back on their lending rate.

The Federal Reserve is an independent federal banking regulator. The only impact the President has on the Fed is by appointment only, just like the Supreme Court. The Fed is interested in a humming and thriving economy and will adjust our bank lending (interest) rates accordingly. The Fed will drastically cut lending rates for recessions. After the 2008 recession the Fed lending rate was essentially zero for a long time. This was not normal and so they started to raise it during the Trump administration (2.4%). That was until COVID. It went back down to close to zero until COVIDflation hit. Then the Fed raised the interest rate back up to 5.33%. Lots of us don’t remember the 2007 rate of 5.25% or the 2000 rate of 6.5% or the 1981 rate of 19.1%. We sure don’t want to go back to those days. Looking at the Federal Funds Effective Rate I don’t believe we will be going back to the days of close to zero percent. Realistically, we should hope for rates between 2% and 5%. As consumers, most of us won’t be happy until the rate is below 4%.

Let’s talk about the price of fuel at the gas pump. That is felt by workers and consumers alike. It hurts. Depending upon your age your favorite gas price will give you away. Let’s stick to the prices of this last decade. In 2014 the nationwide average was $3.37/gal. We peaked at $4.90 in 2022. This 2022 peak was in part due to the Russian invasion of Ukraine. World economies boycotted Russia’s oil which Russia uses to fund its wars causing everyone’s fuel prices to spike. Nasty Russians. Today, gas prices are below the 2014 prices. My Gas-Buddy app reports a low of $2.97 and a high of $3.29 in my area. I’m happy to be back to below 2014 prices.

Another part related to gas at the pump prices is number of people using the airlines. COVID dropped the number of people flying in half in 2020. We are now back up to 2019 numbers - almost 40 million flights a year. Wow! Twenty years ago the number of Americans flying to various destinations was around 25 million.

Housing - oof da! Average sales prices of houses sold in the United States varies considerably based upon the locale. The US nationwide home sold average was recently $522K. In my area it’s $559K. People are moving for various reasons: weather due to fires, floods, and hurricanes. Or moving due to political views and/or retirement. Not as many are moving for work anymore for remote work from home is no longer an outlier. Another major impact on housing prices is the sudden interest in the housing market by hedge fund managers. Hedge funds are greatly impacting real estate values with 28 percent of all homes sold in 2022 going to institutional investors. It is true if you feel like rich people are coming to take your homes away from you. Will Congress do something to protect the individual homeowner? Depends upon who gets elected.

What about real household income? It was really going up from its stagnant levels during 2012 through 2019. Then down somewhat until 2022, when unemployment became so low. The nationwide household income average is now $80,610. Unions and low unemployment will continue to help improve real household income. A recession will not. According to the Federal Reserve and other economists we are looking good right now.

I don’t know if this helped you but it sure did help me. Things are complicated. Perspective does matter and so does buying power. Based upon discretionary spending we are all looking pretty good. Too many people are trying to tell you things are really terrible with the economy right now. Look around. My eyes and my research tells me the economy is actually pretty good. Thanks for letting me bend your ear. Hopefully this will help you decide who to vote for this November!