The U.S. economy grew at a 4.9% annual rate between July and September, the Commerce Department said Thursday, the fastest pace in more than two years ― what should be unabashed good news for President Joe Biden and his reelection campaign.
New numbers on the gross domestic product, though, are not necessarily designed to cut through news that includes former President Donald Trump’s ongoing legal woes, the Israel-Hamas war and the marathon mess of the House Republicans’ finally finished speaker selection process. And even if it did, will Americans believe it instead of what they see with their own eyes?
Poll after poll has shown Americans with a terribly pessimistic view of the economy in spite of record low unemployment, cooling inflation and recent growth in real wages. The recession almost all economists said was a near-certainty 10 months ago never came close to materializing, and growth remains so strong that the Federal Reserve is more worried about potential overheating than a slowdown.
“I think one thing the White House should take comfort from is, in some sense, people are so irrationally negative right now, the only direction things really could go is up,” said Jason Furman, former chairman of the White House Council of Economic Advisers in the Barack Obama administration.
Simply by the numbers, the U.S. economy is not only better than expected, it’s also in many ways doing better than it was before the pandemic, a period Trump has liked to call the best economy “in the history of the world.”
For example:
- The U.S. unemployment rate through September has been below 4% for 20 straight months, seven more than the longest streak during the Trump years.
- The number of people older than 16 who had a job was 161.6 million in September, above the 158.8 million that had been the pre-pandemic peak in December 2019.
- Retail sales hit $613 billion in September as they continued to shift up sharply from the trend before the pandemic, when they peaked at $457.7 billion.
- Personal income, even adjusted for inflation, is about 5% higher than where it was before its pre-pandemic peak.
“When people are voting with their wallets and answering an economics question with real stakes, ‘Should I spend my money or not?’ they act like they feel great about the economy. When people ask a political question, they answer much more negatively,” Furman said.
And it’s not just the usual monthly indicators. Other measures, which Trump has often pointed to as proof about how well the economy was, are also up.
For example:
- Domestic production of oil hit 12.991 million barrels in July, the latest month available from the Energy Information Administration, higher than any month in the Trump administration except one.
- The trade deficit with China through the first half of the year was about $132 billion, a steep drop from about $206 billion in the first half of 2022, due to lower imports.
- Median household net worth — the worth in the exact middle of the distribution — rose by 37% from 2019 to 2022, thanks in part to generous pandemic aid, while the median leverage ratio, which measures indebtedness against income, fell to a 20-year low, according to the Federal Reserve.
Even though all of those figures would ordinarily be enough to win an argument over the economy, that’s not the case now. Stubbornly persistent inflation has soured many Americans’ views of the economy, and the White House knows it.
“Inflation is still too high,” Jared Bernstein, the chairman of the president’s Council of Economic Advisers, told HuffPost in an interview on Wednesday. “The president says it all the time. We have more work to do.”
Bernstein admitted that trying to convince people to look at the upside is not a high priority.
“People are the best arbiters of their economic well-being, and that’s something we respect and always will do so,” he said.
So why has inflation, which is now not far from where it was during the Goldilocks economy of the late 1990s, weighing so much on Americans’ minds? There are a few theories.
Disinflation vs. Deflation
Inflation measures the pace at which prices rise. Usually it’s gradual and wages grow at somewhere near the same pace or, ideally, faster so a dollar goes further.
After rising at a clip of more than 9% compared to year-ago levels in 2022, prices have started rising at a much smaller pace, giving wages a better chance of keeping up with them. That’s called disinflation.
But what Americans may be looking for is outright deflation, a fall in prices. Economically, deflation is terrible and causes consumers to become more cautious as the value of their assets also falls.
“They remember what their old prices were, and, damn it, they want them back,” Bernstein said.
Furman said a world in which wages grew by 10% and inflation by only 8% is the same as a world in which wages grew by 2% and inflation was flat. But people don’t perceive them the same.
“I think some people may be thinking of price levels, not rates of inflation,” he said, and get angry when prices just grow more slowly rather than fall back. “I think there are some people out there saying, ‘What the hell?’”
No One Watches The CPI
Official inflation has a number of measures, but the most popular are the Labor Department’s consumer price index (CPI) and the Fed-favored personal consumption expenditures price index (PCE). Both are broad measures that try to capture the price movements in a huge variety of goods and services.
But it turns out people look at their own experiences with items they buy on a regular basis to decide if inflation is up or down. A 2019 paper found their own shopping and friends and family were the two biggest ways people formed their inflation expectations.
“Literally, food, energy and shelter is 50% of CPI. That means when you fill up your car, go to the grocery and go home, you’ve now touched half of your costs. And those have been nothing but bad news in the main for two years,” said Douglas Holtz-Eakin, president of the conservative American Action Forum think tank.
“People get their information from the prices that are in their face all day,” Bernstein said.
The Price Of Moderation
After inflation rose sharply in the late 1970s and into the early 1980s, central banks like the Fed made sure to keep it in check. The long period of price stability since then has become known as the Great Moderation.
But one cost of that moderation is the different perception of inflation among generations. While 7% mortgage rates are a completely new thing for many, they don’t compare with 18%-plus rates seen by older generations in 1981.
“You didn’t really have to think about inflation for 20 years, maybe 15. You didn’t really have to think about inflation, and then all of a sudden you did,” Bernstein said.
Holtz-Eakin said it would be understandable if the White House was frustrated with having in many ways an excellent economy but getting no credit. He said the George W. Bush administration saw what was dubbed a “jobless recovery” in the early 2000s.
“Every month, things went right. But they didn’t go right enough to satisfy the endless harping of the critics, and we found it quite frustrating,” he said. He also said he thought the administration mishandled it by not being more sympathetic and listening to what people were complaining about.
Bernstein said he’s not trying to convince anyone of anything.
“I wouldn’t really necessarily tell people to be patient because I just don’t go around telling people how they should feel,” he said.
“I’m not saying ‘Hey, you know, be patient, it’ll all be OK.’ Nobody can look around the corner like that. I can say we think we understand what needs to be done here. And we’re working like hell to do it.”