4 reasons to love today’s economy (and 4 reasons to hate it)

The U.S. economy has momentum: Inflation is falling, stocks are breaking records, and the job market is exceptionally strong. Yet many Americans don’t realize it.

While several economic indicators suggest progress, 63% of Americans say the economy is getting worse and only 30% say it is getting better, according to a Gallup poll last month. Meanwhile, 45% of respondents describe the economy as “poor” and another 29% say it is “fair.”

Does the public underestimate the positive aspects of the current economy? Perhaps.

“I’m always reluctant to tell people they’re wrong about their feelings,” says Michel Linden, a senior policy fellow at the Washington Center for Equitable Growth, a left-leaning think tank. With that caveat, he says it’s “disconcerting” that economic gains aren’t translating into greater support for the Biden administration’s management of the economy ahead of the 2024 election.

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Democrats argue that inflation has fallen to around 3% and that unemployment is still near historic lows. The recession you were warned about? It didn’t happen.

This is “contrary to what almost everyone predicted,” says Daniel Hornung, deputy director of the National Economic Council. “We basically have a strong economy and one that has improved significantly over the last year.”

Of course, conservative economic experts see it differently. For them, public opinion about the economy is proof that there are serious problems under the hood. “I don’t think it’s disconcerting at all, actually,” says Richard Stern, director of the Heritage Foundation’s federal budget center.

Stern says the number one problem is the damage done by more than two years of high inflation. He has thrown people astray in a way that may take years to recover from.

“People have kept their jobs, but their jobs pay them much less in real dollar terms,” Stern says. “Purchasing power has dropped by thousands of dollars for most American workers.”

Since it’s an election year, there are political reasons everywhere to make the economy run better or worse than it is. In reality, the situation is probably not as rosy as the Biden administration says, nor as bleak as Republicans claim. Here’s what the data tells us.

4 things to love about the current economy

The president likes to say that his administration has “put the country back on its feet”. From an economic perspective, there are some strong numbers to support this.

1. The job market is strong

The current unemployment rate of 3.7% is still more than good. That’s up slightly from the all-time low of 3.4% in January 2023, but anything below 4% is considered full employment.

Americans have jobs and not only that, they earn more as labor remains in demand.

“Prices exceeded wages,” says Harvard economist Jason Furman, a senior fellow at the Peterson Institute for International Economics. “Now wages exceed prices.”

Average hourly wages are increasing at an annual rate of 4.5%, higher than the inflation rate of 3.1%. Since mid-2023, wages have been beating inflation. Hornung says this wage growth is providing “breathing room” for families.

2. Stocks are recovering

The S&P 500 just hit 5,000 for the first time, the latest milestone in an extraordinary run for the U.S. stock market. In the last year alone, the S&P 500 Index is up more than 22%.

Recent market gains translate into more money in people’s retirement accounts and overall investment portfolios.

3. Savers can actually get decent returns

Opportunities for significant returns in savings accounts are usually one of the benefits of a higher rate environment – ​​and this is clearly the case today. The average savings account rate is at its highest point since the Federal Deposit Insurance Corp. (FDIC) began keeping track in 2009.

High-yield savings accounts offer rates above 4%. It’s easy money without any risk.

And if you have some savings you don’t plan on touching for a while, you can lock in an even higher rate with a certificate of deposit (CD).

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4. Lower rates are on the horizon as inflation declines

By June, market expectations are that the Federal Reserve will have implemented a rate cut of at least a quarter point. This would be the first rate cut in four years and would represent a crucial moment after the period of intense tightening in the fight against inflation.

If the predictions are true, borrowing money for things like homes and cars would become cheaper and people could refinance existing loans. Lower rates can also stimulate economic growth by leading to higher stock prices.

Rate cuts aren’t guaranteed this spring, but the fact that it’s a real possibility represents progress, economists say.

4 things to hate about the current economy

Of course, it may also be true that the economy has improved and TThere are ongoing challenges here, such as high real estate costs and interest rates. Here are four big reasons why the GOP says the economy is in shambles.

1. Everything is expensive

People struggle to afford rent, bills and higher priced groceries. Since January 2021, consumer prices have increased by more than 17%. This is the worst three-year period of inflation in more than four decades.

The Fed’s higher interest rates finally lowered inflation, but Americans lost so much purchasing power in 2021 and 2022 that the damage has been done.

“The vast majority of Americans went to work for two years and stayed behind. And they haven’t forgotten,” says Douglas Holtz-Eakin, president of the American Action Forum, a conservative think tank. “Inflation has been extremely damaging to people’s perception of the economy.”

2. The accommodations are unaffordable

In an ideal economy, more Americans eager to buy homes would meet their goals. Instead, the real estate market moves extremely slowly.

According to the National Association of Realtors, home sales last year were at the lowest level since 1995. Affordability is the biggest obstacle for most buyers: Home prices have increased 35% in the last three years, and it certainly doesn’t help that mortgage rates have risen from 3% in 2021 to 6.77% now.

People with real estate have benefited from the massive rise in home prices, but the dream of buying a home now seems further out of reach for many renters.

Conditions are expected to improve by the end of the year. Mortgage rates are expected to fall if the Fed cuts interest rates, and home prices could fall slightly, although most experts expect a very small level, if anything. However, affordability will remain a challenge for aspiring homebuyers.

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3. Insurance costs are taking up a larger share of American budgets

Inflation has cooled for most sectors, but insurance prices continue to rise, especially for home and auto insurance.

Home insurance prices are on track for double-digit increases in 2024, and some homeowners worry that rising insurance costs could push them out of where they live. Insurance prices have risen so high, so fast that 12% of homeowners say they plan to skip insurance altogether because of the cost.

According to the consumer price index, car insurance prices have increased by 20.6% in the last year.

4. Debt with high interest rates makes borrowing even more expensive

Rates for all types of loans are still painfully high right now. Borrowing money for really important things – for example, houses, cars and education – is often considered “good debt”. But an auto loan with a 9.7% APR, for example, is far from ideal.

This means people are forced to choose between delaying financial goals or taking on high-interest debt. You may only be driving an old car or living in a house you’ve outgrown for so long. At some point, people bite the bullet and go into debt at an undesirable rate.

This, in turn, can lead to monthly difficulties paying bills. Defaults on auto loans just hit the highest levels in 10 years, and loans opened in 2022 and 2023 are “performing worse than loans opened in previous years, perhaps because buyers during these years faced high prices.” cars higher and may have been pressured to borrow more, and at higher interest rates,” the researchers said.

Credit card delinquencies are also at a 10-year high and balances reach $1.13 trillion, which is 14.5% higher than a year ago.

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