Best US Economy in 50 Years?

On June 11, 2024, Raw Story published a commentary by John Stoehr arguing that the U.S. economy was the best it had been in 50 years, but that people couldn’t see it:

… a majority … appears to believe we’re in a recession, according to one poll, when the opposite is true. No one has seen a better economy in 50 years. Wages are outpacing inflation. I couldn’t have written that sentence even in the boom-boom nineties.

The opinion piece was shared widely online, including by actress Morgan Fairchild:

This post had been seen more than 513,000 times and liked 10,000 times as of this writing, and it received several replies confirming the hypothesis that people could not see how good the economy was. “My gas and grocery bills beg to differ,” said an X user claiming to be a supporter of former U.S. President Donald Trump. Another gave a longer response:

Yet people are having to choose between food and medicine. No one can buy a home. Half of the people in the country could not survive a $400 emergency expense! Inflation ruins people’s lives and it’s super-high thanks to Joe Biden.

I’m not going to criticize you. You have money because you earned it. I’m not one of the ppl I mentioned above. But my heart breaks for so many of our fellow-Americans who are in dire straits financially.

And I am beyond furious that Biden has brought in 10-12 million illegals who get EVERYTHING for free!

Stoehr’s opinion piece leaned on the U.S. government’s May 2024 jobs report to make the argument, citing The Washington Post:

 The US economy added 272,000 jobs in May, “reflecting a booming labor market that continues to fuel the economy with workers benefiting from wages that are outpacing inflation,” the Post said Friday. “Job creation accelerated from the previous month, rising above the average monthly level of growth so far this year, which was already strong, after a period of cooling for part of 2023.”

“The American middle class is seeing their economic standing improved. The strong wages and improving living standards are the main takeaway from this very strong jobs report,” Joe Brusuelas, chief economist for the accounting firm RSM US, told the Post Friday.

It is true that the jobs report beat expectations, as the consensus was that the economy would add 180,000 jobs that month. It is also true that average hourly earnings had risen by 4.1% since the previous May, from $33.54 to $34.91. This number was above the inflation rate of 3.3% in May 2024. The data pointed to a very strong economy, which we noted in March and May 2024.

Still, other signs told a slightly different story. For example, the unemployment rate hit 4% for the first time since January 2022. The labor force participation rate (that is, the number of people in a position to work who are either working or actively looking for work) dipped, remaining below pre-pandemic levels. Part of it could be that members of the Baby Boom generation were retiring — something that might explain a steady decline since the early 2000s — but it could also indicate a population that was growing slowly, or one that was discouraged, resigned to staying unemployed and not seeking work.

Mixed Signals

It also seemed likely that people in the U.S. were looking at other data as they assessed the economy. A fast-growing economy often brings along hyperinflation. During U.S. President Joe Biden’s administration, in large part fueled by the rapid recovery from the COVID-19 pandemic, the Consumer Price Index — a common measure of inflation using the price of household goods and services — rose to a level not seen since the early 1980s. According to Bankrate in January 2024, prices for a basket of essential goods had risen 20.8% from February 2020, just before the pandemic hit the country. 

One of the most effective tools of central banks against hyperinflation is to increase interest rates. Since the 2008 financial collapse, the Federal Reserve had lowered its Effective Federal Funds Rate (EFFR) to between 0% and 0.25%, hoping to stimulate the economy. It remained there through 2015 and rose during the end of Barack Obama’s administration and until the pandemic began in 2020, when the Fed elected to support the recovery. A year after Biden took office, the economy began to overheat and the Fed increased the EFFR:

(New York Fed)

The immediate result was that it became more expensive to borrow money. People who were looking to buy homes held off; those seeking to sell their homes saw real estate prices go down and pulled their properties from the market; corporations, which also rely on loans to grow and invest, cut costs and postponed projects. Meanwhile, economists wrongly predicted a recession: As we wrote this, inflation and interest rates remained high, and as the May 2024 jobs report suggested, hiring and wage increases had yet to abate.

Layoffs, Bankruptcies  

Still, hundreds of thousands of people lost their jobs in mass layoffs in 2023 and 2024. For example, layoffs had soared 98% in 2023 compared to the previous year, according to the January 2024 Challenger Report, released every month by employment agency Challenger, Gray & Christmas. This came to 721,677 people laid off, the most since 2009, excluding the 2020 pandemic (as we’ve reported before, the jobs lost during the pandemic were quickly replaced within the two years that followed). The most affected sectors were technology, retail and health care. 

Layoffs continued in 2024, with 385,859 people losing their jobs from January to May, according to the June 2024 Challenger Report. “Meanwhile, hiring announcements are at their lowest levels in a decade. The typical churn in a healthy labor market appears to be stalling,” said Andrew Challenger, the agency’s senior vice president. 

The buoyant economy didn’t affect everyone the same way. High interest rates and a steadily rising stock market benefited those with enough money to save and invest, while they tended to hurt those who didn’t have savings. People who borrowed at a fixed rate when interest rates were low could cap their expenses, despite the increase in the prices of gasoline, energy and groceries. Companies that hoarded more cash than they could spend were far better positioned than those that relied on loans. For example, 2023 saw a 40.4% increase in business bankruptcies from 2022 (non-business bankruptcies rose 16.8% in the same period).

It was not surprising, given these various indicators, that many people thought the U.S. was going through a recession. Consumer confidence rose a bit in May 2024, but anxiety was still palpable, even as retailers announced price cuts. An individual’s perception of recession has less to do with the strict, macroeconomic definition — a drop in gross domestic product over two consecutive quarters — than with their personal experience.

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