Published on: February 10, 2023
by Kevin Coupe
There were a number of economy-related stories this morning that I read as I scanned the news for entries I could use on MNB, and what struck me about them is a kind of Eye-Opening dissonance between how economists see the world and how consumers experience it, and the apparent gap between data and perception.
• From the Wall Street Journal this morning:
"Interest rates are rising, inflation is elevated and recession fears linger. Despite all that, employers keep hiring.
"The U.S. added 1.1 million jobs over the past three months and ramped up hiring in January. That appears puzzling, given last year’s economic cool down, signs that consumers are pulling back on spending as their savings dwindle, and a stream of corporate layoff announcements, particularly in technology.
"Driving the jobs boom are large but often overlooked sectors of the economy. Restaurants, hospitals, nursing homes and child-care centers are finally staffing up as they enter the last stage of the pandemic recovery. Those new jobs are more than offsetting cuts announced by huge employers such as Amazon.com Inc. and Microsoft Corp.
"Employers in healthcare, education, leisure and hospitality and other services such as dry cleaning and automotive repair account for about 36% of all private-sector payrolls. Together, those service industries added 1.19 million jobs over the past six months, accounting for 63% of all private-sector job gains during that time, up from 47% in the preceding year and a half."
• The Associated Press reports that "more Americans filed for jobless benefits last week, but layoffs remain historically low despite attempts by the Federal Reserve to cool the economy, and hiring, to bring down inflation.
"Applications for jobless aid in the US for the week ending Feb. 4 rose by 13,000 last week to 196,000, from 183,000 the previous week, the Labor Department reported Thursday. It’s the fourth straight week claims were under 200,000.
"Jobless claims generally serve as a proxy for layoffs, which have been relatively low since the pandemic wiped out millions of jobs in the spring of 2020."
• Bloomberg reports on a new Gallup survey saying that "half of Americans say they are financially worse off now than they were a year ago, the highest share since 2009."
In addition, "An even greater portion of lower-income Americans said they were losing ground, according to the Jan. 2-22 survey. About 61% of those with a household income of less than $40,000 reported they were worse off, compared to 49% and 43% for middle- and high-income households respectively."
The survey results point to rising inflation and interest rates and a declining stock market as being primarily responsible for the negative outlook.
However, "Some 60% of Americans expect they will be better off a year from now. That share is largely the same across different income groups, and Gallup said the optimism is not unusual — Americans tend to expect their finances to improve rather than worsen." Gallup also says that "to the extent financial expectations differ, it is because of politics. Whereas 70% of Democrats and 60% of independents believe their situation will be improved at this time next year, only 49% of Republicans agree."
• And finally, from the New York Times this morning:
"Many economists and investors had a clear narrative coming into 2023: The Federal Reserve had spent months pushing borrowing costs rapidly higher in a bid to tame inflation, and those moves were expected to slow growth and the labor market so much that the economy would be at risk of plunging into a downturn.
"But the recession calls are now getting a rethink.
"Employers added more than half a million jobs in January, the housing market shows signs of stabilizing or even picking back up, and many Wall Street economists have marked down the odds of a downturn this year. After months of asking whether the Fed could pull off a soft landing in which the economy slows but does not plummet into a bruising recession, analysts are raising the possibility that it will not land at all — that growth will simply hold up.
"Not every data point looks sunny: Manufacturing remains glum, consumer spending has been cracking, and some analysts still think a mild recession this year remains likely. But there have been enough surprises pointing to continued momentum that Fed officials themselves seem to see a better chance that the nation will avoid a painful downturn. That resilience could even be a problem.
"While a gentle landing would be a welcome development, economists are beginning to ask whether growth and the job market will run too warm for inflation to slow as much as central bankers are hoping — eventually forcing the Fed to respond more aggressively."
Clearly, all the charts and data points in the world don't matter if people are feeling crunched. Whether or not we actually are in a recession really doesn't matter if people have a recessionary mindset.
I hope that if there is a recession, there will be a soft landing. Even more importantly, I hope that all the efforts to tame inflation will be successful, and that people can think about hopes and dreams and aspirations, not just survival. Most important, I hope we can get past our societal need for immediate gratification … it took time and pandemic to put us where we are, and digging out of the hole is not an overnight process.