My Yearly Check-In on the Economy: It’s Doing Great, But Many People Still Aren’t Happy

8 Images on the Economy

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Last year, I did something I’ve only ever done once before: I re-posted an article in its entirety. Why? Because I started writing an article about people constantly predicting economic doom and gloom, i.e., recessions, then realized midway through the writing process that I’d already written that article the year before. 

(Said article is unlocked and free for everyone. I re-read it and stand by everything in there.)

Unlocked: Should We Worry About a Recession? (Maybe, But Entertainment is Still in a Bad Place!)

I could do the same thing this year. Now, to be fair, recession fears finally “eased” last month, but you can still find websites predicting a coming recession here, here and here. And many doomsayers, er, pundits still predicted a recession all year.

In reality, this economy is, in the words of Noah Smith, “historically great”. Here are some uplifting factoids:

• GDP growth is strong, based on a 3-year average. (And this is quite high historically.)

• Inflation is down.

• Unemployment is at historic lows.

• Prime-age labor force participation is at its highest level in twenty years.

• Wages and productivity are up.

• Wealth in the US is also up. 

• Household debt has gone down.

• Poverty is historically low, plus poor people are doing great.

• Millennials are doing fine as a generation and are now the wealthiest generation.

• America is doing better economically than every other country. 

• Globally, poverty has gone way down. 

(Most of these stats all come from Kevin Drum and Noah Smith, two must-read writers and my go-to’s for economic realism.)

Here’s the freshest economic stats from just this week. It’s mostly good news with one piece of “Eh” news:

• America’s GDP grew at 2.8% in Q3.

• Inflation is down to 2.1%.

• Hourly wages are up.

• Disposable income, total compensation, and consumer spending are up.

• Consumer confidence finally rose last month.

• America barely added any jobs in October, but unemployment stayed at 4.1%.

And yet...“voters” aren’t happy, are they? Just take this Politico headline:

What explains all of this? The news is getting increasingly negative, which especially applies to economic news. Just click on that NY Times link up above. The article explains that recession worries have faded...then focuses on three pieces of bad economic news: the hurricane, war in the Middle East, and the dock workers strike, three problems which are already over in terms of economic impact. Almost daily, I read newsletters touting bad economic news and rarely focusing on the positive. 

Plus social media amplifies the loudest, most extreme voices, making it all worse.

So, to sum up, if you want a mostly objective look at the state of the economy, it is strong. Very strong. Historically strong. 

Strategically, understanding this matters. As a business leader, you need to balance two competing, true ideas: on the one hand, the economy is actually very strong, so consumers have money to spend but, on the other hand, many of them think the economy sucks. Understanding that disconnect will allow you to make better decisions.

A Few Other Quick Notes:

• If you want me to “steelman” the case for why Americans are upset about the economy, it’s quite simple: people really, really, really hate inflation. And since inflation doesn’t reverse itself (prices stay up), it’s hard to change people’s perceptions about inflation. And the best argument I’ve read is that “anti-core” inflation for fuel and food really did shoot up in 2021-2023, but that didn’t appear in the inflation statistics. John Authors and Adam Toozemade this case, and I find it quite convincing. 

• As I wrote last year, a majority of “voters” concerns about the economy just boils down to Republican views of the economy. As Kevin Drum just updated last month, Republicans continue to view the economy negatively. ¹

• The “left” isn’t completely innocent either. Look at that factoid about Millennials up above...how many people on the left side of the aisle know that that’s true? What about the factoid that most Americans are living “paycheck to paycheck”? That one was debunked by both Noahpinion and Slow Boring. In sum, some commentators make a non-insignificant portion of the left think everything is horrible when it isn’t.

• As I’ve written before, the entertainment industry (possibly Los Angeles) is in a sector-specific recession, as I tried to warn people two years ago. Streaming isn’t as strong of a business model as the old cable bundle, along with other factors. 

1. Prediction: If Trump wins, consumer sentiment will instantly boom and, in retrospect, this dynamic will be the “Hilary’s emails” of the 2024 election.