Jobs, paychecks, spending, wealth, and financial security have made big gains, which offset the burden of higher inflation. That's true for most families. The good news stretches far beyond the rich.
Love reading your thoughts about the economy. Currently, the data you present seem to fly in the face of the recent survey that was your jumping off point. Maybe paying so much more for food and gas makes the larger paychecks less satisfying leading to negativity??? As in all things time will tell and you’ve been calling it correctly so far! Thanks!
I have also written on the extra gloom. My read is that Covid (and the disruptions it caused) broke us and that social media is amplifying the negativity (often tied to inflation).
I hadn’t seen that. Thanks for sharing it. Seems like a reasonable conclusion. The comments under the graph showing a leveling of prices resonate too. Essentially, I don’t care how good you tell me it is, a box of cereal still costs $7 instead of $4….. the divergence between expected sentiment and surveyed sentiment was impressive. Judging what that means for the future is the hard part!
Completely agree! And notable for me is that all that is happening to the whole US economy: consumers, firms, markets, and US government. Many workers still have good paying jobs; no widespread profit losses, and firm bankruptcies and failures; billionaires have recovered their losses and are wealthier; and US Gov, even with all its dysfunctions, is still capable for supporting fiscally two major ongoing wars without hurting Americans directly. My suspicion is whether the people who were overly concerned about inflation have now switched to being overly concerned about a recession that may happen but is not happening now. Their over-concern is likely cause for the reported gloom.
I retired March 11th 2020 and am about the same financially. Its been an emotionally rollercoaster tho. On good days I'm more stoic than stern. Good thing happiness isnt the goal in life. Not sure my sanity would survive prolonged period of unrelenting happiness.
I absolutely hear you on the rollercoaster. It was not until this summer that I got emotionally healthy again. A mood disorder and hyper-empathy does not help.
Really helpful summation of the overall state of economic affairs. Hope mass media picks this up.
While not the focus of this summary, did you see any additional signals re. poverty reduction (beyond wage gains at the low end.). The sustained low unemployment does seem to be opening up opportunities for people to move to full-time/higher wage jobs, which I’ve observed anecdotally, but don’t know where to see that in the data. On the down side, inflation, especially in food prices and rent, have a disproportionate impact on people below or near poverty levels. And then there is the impact of the Child Care Tax Credit….
The gains in the labor market, especially at the bottom, are stunning. Arin Dube has some new research on wage compression (less wage inequality). The CTC was amazing, as were the many relief programs like stimulus checks, extra jobless benefits, bigger food stamps, and eviction forbearance. They are gone, but we know how to fight poverty. It's a policy choice.
So far it seems you're right that the median American household was able to get their finances in a better shape. My parents both got laid off early on in the pandemic around May 2020 and the combination of their enhanced unemployment benefits and mortgage forbearance and stimulus checks allowed them to pay off their credit cards. I can only imagine what people who didn't pay rent for several years due to "covid" or student loan payments being on forbearance for 3.5 years were able to save. So even though all the freebies are over they've got plenty of cash saved up no doubt. Although that being said, I've seen charts of the above trend aggregate savings (you're right "excess savings is misnomer) now being back to pre-pandemic levels and still dropping.
It seems like the economy is weakening just a little bit each month as the lag effects start to bite. ie businesses roll over their debt into a higher rate environment. Look no further than the company I work at, Rite Aid, that's closing stores left and right to pay off higher interest rate debt.
The elephant in the room to me is the bigger picture stuff.
Yellen is sucking nearly half a trillion dollars per month of out the real economy (because it's not the Fed buying, and foreign central banks and US banks aren't buying much because they're trying to maintain dollar liquidity) and the Fed is deleting $1 trillion/year worth of cash out of existence at the same time.
What happens, in the above described environment, to the risk free rate when the reverse repo facility is completely drained which at the current run rate will happen some time in Q1 2024? So far there was literally excess liquidity that banks didn't know what to do with but once that's gone things get interesting for bond rates.
This is obviously why the market which is probably more wise than any of us individuals, is expecting a Fed to start cutting rates in March 2024. I'm guessing Powell will continue QT (just a hunch) I think he wants to continue that, maybe at a slower pace, for as long as possible. The new cycle is for the Fed to do QE, then try do QT and when it's gotten about 15% rolled off the balance sheet they end up going back into QE. We're almost to 15%.
What happens to the long end when the Fed cuts rates? My guess is while the shorter end comes down, interest on 10 year treasury notes stays quite high with the insane supply Yellen is still dropping. Sounds like a classic bull steepener after a hiking cycle. Probably unemployment will be starting to rise around there (it already is well past the inflection point coming back up as I'm sure you're aware since you literally created the Sahm rule). Some time around there, the NBER will declare a recession (in a couple years) to have started some time at the end of 2024 or early 2025 most likely if I had to guess.
Everything is lining up.
Somewhere in there Powell will realize he's made all the classic mistakes of every Fed chair person and he'll pivot into the biggest ever QE and ZIRP or NIRP because no one could've predicted it. Well except literally everyone who looks at chart of the Fed funds rate with recessions overlaid. However as I heard you mention on a podcast recently, there's so very little effort to forecasting at the Fed.
Helping push CARES to Rescue Plan is something I am very proud of. Getting inflation/jobs/no recession call right is a relief, too. However, inflation has been painfully slow coming down.
The relief was always meant to be temporary and to get us to the other side of the crisis. I would want to see the wealth at the bottom stay intact. With the labor market so good, it might be for many people.
On the Fed, they don't matter right now. Fiscal overpowered everything they did/could do. Also, I am not too worried about the deficit. The spending since Covid was an excellent investment.
The biggest issue for Biden on the economy is simply that the Democratic Party sucks at messaging, while the GOP fascists are masters at marketing half-truths and outright lies.
I believe you've made an important point that is largely being ignored. I don't believe I could have survived this Thanksgiving weekend without an assist from Google's spam filter. I got several hundred spam messages, many of them duplicates, and all but a few were right-wing fairy-tale conspiracy reminders. The hidden problem is that our brain gets trained by repetition, and it doesn't take long for the negative messages to accumulate to the point where we unconsciously believe them! The GOP fascists, as you call them, are exceedingly well funded and the sheer mass of their nonsense overwhelms the few positive messages. It doesn't help that the current news headlines remind us of a horrid war in Gaza and a continuing way in Ukraine.
Possibly the metric Americans are internalizing, no matter how the poll question is posed, is how am I doing compared to before 2008 (or even before 1973) plus how will I be doing in the future...
Agree, these "how are you doing?" questions are very squishy and sensitive to how it's phrased and what questions come before it. I only used that one as an example. Same message in other surveys.
In retrospect, what I think I was getting at with the above comment is there seems to be a multigenerational “trauma” associated with the effects of deindustrialization/neoliberalism, precarity if you will. Many people, even those too young to have experienced mid century prosperity, still expect that they should be able to buy a home, send their kids to college or be able to find work without a college degree, have a steady employer - a pension even - etc. This “vibe” makes “how am I doing” questions even more squishy. I think economists need to find a way to account for this built in bias in order to more accurately gage the public response to the effects of economic policy.
Better to compare to 1998. In 2008 we were reaching the top of the real estate bubble HELOC abuse (fake personal wealth) and the FIRE/derivative economy (fake corporate wealth), both driven by Clinton listening to Alan Greenspan and his other Wall Street shills and capitulating to financial deregulation, i.e. basically giving the Republicans one of their biggest wins since Reagan.
Going back to before that and the dot-com boom/bust that immediately preceded it would be more realistic.
Not me. I’m 73. Not only did I lose wealth because of the rate hikes, but also because of the phenomenal rise in rents and the cost of living that happened during and after the pandemic. My life style has been permanently altered downwards.
I just listened to your interview on Planet Money. After hearing that you welcome people reaching out with their theories, I wanted to provide some thoughts. I very much appreciate that you’ve tried so hard to understand consumer sentiment, and at the same time, it feels so apparent to me that you’re blind to what the economic situation actually feels like to most of us. Frankly, your interview felt a bit tone deaf. It’s not just the political uncertainty, and it’s not just “bad vibes”. Sure, inflation is coming down, but that doesn’t fix the insane changes in the cost of basic living expenses in the past few years. Food prices typically increase around 2% per year. From 2021 to 2022, food prices increased 11%. Yes, it would be great to hear that we’ll hopefully go back down to 2%, but that doesn’t reverse that massive jump. It just adds to it. Going to the grocery store and seeing essential items be so much more expensive is incredibly disheartening. In most places, home prices are climbing far faster than wages. Yes, the bottom is coming up. Yes, most people are more financially stable than they were last year, but the sticker shock of everything around us is devastating. And I am envious that you live a life where you can’t see that.
Well if the data are so good and the spirits are quiet, what explains the disconnect? ?? The general atmosphere of MAGA propaganda, relative deprivation, faltering long term hopes and expectations, the absence of security due to declining basic gov't functioning????
So far it seems you're right that the median American household was able to get their finances in a better shape. My parents both got laid off early on in the pandemic around May 2020 and the combination of their enhanced unemployment benefits and mortgage forbearance and stimulus checks allowed them to pay off their credit cards. I can only imagine what people who didn't pay rent for several years due to "covid" or student loan payments being on forbearance for 3.5 years were able to save. So even though all the freebies are over they've got plenty of cash saved up no doubt although that being said, I've seen charts of the above trend aggregate savings now being back to prepandemic levels and still dropping.
It seems like the economy is weakening just a little bit each month as the lag effects start to bite. ie businesses roll over their debt into a higher rate environment. Look no further than the company I work at, Rite Aid, that's closing stores left and right to pay off higher interest rate debt.
Your next article should be about the big picture.
The elephant in the room to me is the bigger picture stuff.
Yellen is sucking nearly half a trillion dollars per month of out the real economy (because it's not the Fed buying, and foreign central banks and US banks aren't buying much because they're trying to maintain dollar liquidity) and the Fed is deleting $1 trillion/year worth of cash out of existence at the same time.
What happens, in the above described environment, to the risk free rate when the reverse repo facility is completely drained which at the current run rate will happen some time in Q1 2024?
This is obviously why the market which is probably more wise than any of us individuals, is expecting a Fed to start cutting rates in March 2024. I'm guessing Powell will continue QT, just a hunch I think he wants to continue that, maybe at a slower pace.
What happens to the long end when the Fed cuts rates? My guess is while the shorter end comes down, interest on 10 year treasury notes stays quite high with the insane supply Yellen is still dropping. Sounds like a classic bull steepener after a hiking cycle. Probably unemployment will be starting to rise around there. Some time around there in a couple years the NBER will declare a recession, some time in 2024 most likely. Some time around there Powell will realize he's made all the classic mistakes of every Fed chair person and he'll pivot into the biggest ever QE and ZIRP or NIRP because no one could've predicted it.
Love reading your thoughts about the economy. Currently, the data you present seem to fly in the face of the recent survey that was your jumping off point. Maybe paying so much more for food and gas makes the larger paychecks less satisfying leading to negativity??? As in all things time will tell and you’ve been calling it correctly so far! Thanks!
I have also written on the extra gloom. My read is that Covid (and the disruptions it caused) broke us and that social media is amplifying the negativity (often tied to inflation).
https://stayathomemacro.substack.com/p/why-cant-we-shake-the-gloom-its-more here's one.
I hadn’t seen that. Thanks for sharing it. Seems like a reasonable conclusion. The comments under the graph showing a leveling of prices resonate too. Essentially, I don’t care how good you tell me it is, a box of cereal still costs $7 instead of $4….. the divergence between expected sentiment and surveyed sentiment was impressive. Judging what that means for the future is the hard part!
Completely agree! And notable for me is that all that is happening to the whole US economy: consumers, firms, markets, and US government. Many workers still have good paying jobs; no widespread profit losses, and firm bankruptcies and failures; billionaires have recovered their losses and are wealthier; and US Gov, even with all its dysfunctions, is still capable for supporting fiscally two major ongoing wars without hurting Americans directly. My suspicion is whether the people who were overly concerned about inflation have now switched to being overly concerned about a recession that may happen but is not happening now. Their over-concern is likely cause for the reported gloom.
And thanks for a great summary!
I retired March 11th 2020 and am about the same financially. Its been an emotionally rollercoaster tho. On good days I'm more stoic than stern. Good thing happiness isnt the goal in life. Not sure my sanity would survive prolonged period of unrelenting happiness.
I absolutely hear you on the rollercoaster. It was not until this summer that I got emotionally healthy again. A mood disorder and hyper-empathy does not help.
Wow... that's fun timing...
Really helpful summation of the overall state of economic affairs. Hope mass media picks this up.
While not the focus of this summary, did you see any additional signals re. poverty reduction (beyond wage gains at the low end.). The sustained low unemployment does seem to be opening up opportunities for people to move to full-time/higher wage jobs, which I’ve observed anecdotally, but don’t know where to see that in the data. On the down side, inflation, especially in food prices and rent, have a disproportionate impact on people below or near poverty levels. And then there is the impact of the Child Care Tax Credit….
The gains in the labor market, especially at the bottom, are stunning. Arin Dube has some new research on wage compression (less wage inequality). The CTC was amazing, as were the many relief programs like stimulus checks, extra jobless benefits, bigger food stamps, and eviction forbearance. They are gone, but we know how to fight poverty. It's a policy choice.
So far it seems you're right that the median American household was able to get their finances in a better shape. My parents both got laid off early on in the pandemic around May 2020 and the combination of their enhanced unemployment benefits and mortgage forbearance and stimulus checks allowed them to pay off their credit cards. I can only imagine what people who didn't pay rent for several years due to "covid" or student loan payments being on forbearance for 3.5 years were able to save. So even though all the freebies are over they've got plenty of cash saved up no doubt. Although that being said, I've seen charts of the above trend aggregate savings (you're right "excess savings is misnomer) now being back to pre-pandemic levels and still dropping.
It seems like the economy is weakening just a little bit each month as the lag effects start to bite. ie businesses roll over their debt into a higher rate environment. Look no further than the company I work at, Rite Aid, that's closing stores left and right to pay off higher interest rate debt.
The elephant in the room to me is the bigger picture stuff.
Yellen is sucking nearly half a trillion dollars per month of out the real economy (because it's not the Fed buying, and foreign central banks and US banks aren't buying much because they're trying to maintain dollar liquidity) and the Fed is deleting $1 trillion/year worth of cash out of existence at the same time.
What happens, in the above described environment, to the risk free rate when the reverse repo facility is completely drained which at the current run rate will happen some time in Q1 2024? So far there was literally excess liquidity that banks didn't know what to do with but once that's gone things get interesting for bond rates.
This is obviously why the market which is probably more wise than any of us individuals, is expecting a Fed to start cutting rates in March 2024. I'm guessing Powell will continue QT (just a hunch) I think he wants to continue that, maybe at a slower pace, for as long as possible. The new cycle is for the Fed to do QE, then try do QT and when it's gotten about 15% rolled off the balance sheet they end up going back into QE. We're almost to 15%.
What happens to the long end when the Fed cuts rates? My guess is while the shorter end comes down, interest on 10 year treasury notes stays quite high with the insane supply Yellen is still dropping. Sounds like a classic bull steepener after a hiking cycle. Probably unemployment will be starting to rise around there (it already is well past the inflection point coming back up as I'm sure you're aware since you literally created the Sahm rule). Some time around there, the NBER will declare a recession (in a couple years) to have started some time at the end of 2024 or early 2025 most likely if I had to guess.
Everything is lining up.
Somewhere in there Powell will realize he's made all the classic mistakes of every Fed chair person and he'll pivot into the biggest ever QE and ZIRP or NIRP because no one could've predicted it. Well except literally everyone who looks at chart of the Fed funds rate with recessions overlaid. However as I heard you mention on a podcast recently, there's so very little effort to forecasting at the Fed.
Helping push CARES to Rescue Plan is something I am very proud of. Getting inflation/jobs/no recession call right is a relief, too. However, inflation has been painfully slow coming down.
The relief was always meant to be temporary and to get us to the other side of the crisis. I would want to see the wealth at the bottom stay intact. With the labor market so good, it might be for many people.
On the Fed, they don't matter right now. Fiscal overpowered everything they did/could do. Also, I am not too worried about the deficit. The spending since Covid was an excellent investment.
Mine are almost always unpaid posts. But you can just take my word for it if you prefer.
The biggest issue for Biden on the economy is simply that the Democratic Party sucks at messaging, while the GOP fascists are masters at marketing half-truths and outright lies.
I was out of my lane, but I could have gone on and on with the encouraging news from the recovery.
I believe you've made an important point that is largely being ignored. I don't believe I could have survived this Thanksgiving weekend without an assist from Google's spam filter. I got several hundred spam messages, many of them duplicates, and all but a few were right-wing fairy-tale conspiracy reminders. The hidden problem is that our brain gets trained by repetition, and it doesn't take long for the negative messages to accumulate to the point where we unconsciously believe them! The GOP fascists, as you call them, are exceedingly well funded and the sheer mass of their nonsense overwhelms the few positive messages. It doesn't help that the current news headlines remind us of a horrid war in Gaza and a continuing way in Ukraine.
Yes, in my piece here: https://stayathomemacro.substack.com/p/why-cant-we-shake-the-gloom-its-more
Do your inflation measures account for soaring housing and health care costs?
Possibly the metric Americans are internalizing, no matter how the poll question is posed, is how am I doing compared to before 2008 (or even before 1973) plus how will I be doing in the future...
Agree, these "how are you doing?" questions are very squishy and sensitive to how it's phrased and what questions come before it. I only used that one as an example. Same message in other surveys.
In retrospect, what I think I was getting at with the above comment is there seems to be a multigenerational “trauma” associated with the effects of deindustrialization/neoliberalism, precarity if you will. Many people, even those too young to have experienced mid century prosperity, still expect that they should be able to buy a home, send their kids to college or be able to find work without a college degree, have a steady employer - a pension even - etc. This “vibe” makes “how am I doing” questions even more squishy. I think economists need to find a way to account for this built in bias in order to more accurately gage the public response to the effects of economic policy.
Better to compare to 1998. In 2008 we were reaching the top of the real estate bubble HELOC abuse (fake personal wealth) and the FIRE/derivative economy (fake corporate wealth), both driven by Clinton listening to Alan Greenspan and his other Wall Street shills and capitulating to financial deregulation, i.e. basically giving the Republicans one of their biggest wins since Reagan.
Going back to before that and the dot-com boom/bust that immediately preceded it would be more realistic.
Not me. I’m 73. Not only did I lose wealth because of the rate hikes, but also because of the phenomenal rise in rents and the cost of living that happened during and after the pandemic. My life style has been permanently altered downwards.
Understood. "Most" Americans is not good enough, and it certainly is no comfort to those who fell behind.
I am not financially better off. I left a well paid job at the Fed and am now self employed.
I just listened to your interview on Planet Money. After hearing that you welcome people reaching out with their theories, I wanted to provide some thoughts. I very much appreciate that you’ve tried so hard to understand consumer sentiment, and at the same time, it feels so apparent to me that you’re blind to what the economic situation actually feels like to most of us. Frankly, your interview felt a bit tone deaf. It’s not just the political uncertainty, and it’s not just “bad vibes”. Sure, inflation is coming down, but that doesn’t fix the insane changes in the cost of basic living expenses in the past few years. Food prices typically increase around 2% per year. From 2021 to 2022, food prices increased 11%. Yes, it would be great to hear that we’ll hopefully go back down to 2%, but that doesn’t reverse that massive jump. It just adds to it. Going to the grocery store and seeing essential items be so much more expensive is incredibly disheartening. In most places, home prices are climbing far faster than wages. Yes, the bottom is coming up. Yes, most people are more financially stable than they were last year, but the sticker shock of everything around us is devastating. And I am envious that you live a life where you can’t see that.
https://substack.com/@derpderpderp/note/c-44570034?r=2kpk00
Well if the data are so good and the spirits are quiet, what explains the disconnect? ?? The general atmosphere of MAGA propaganda, relative deprivation, faltering long term hopes and expectations, the absence of security due to declining basic gov't functioning????
No their either
So far it seems you're right that the median American household was able to get their finances in a better shape. My parents both got laid off early on in the pandemic around May 2020 and the combination of their enhanced unemployment benefits and mortgage forbearance and stimulus checks allowed them to pay off their credit cards. I can only imagine what people who didn't pay rent for several years due to "covid" or student loan payments being on forbearance for 3.5 years were able to save. So even though all the freebies are over they've got plenty of cash saved up no doubt although that being said, I've seen charts of the above trend aggregate savings now being back to prepandemic levels and still dropping.
It seems like the economy is weakening just a little bit each month as the lag effects start to bite. ie businesses roll over their debt into a higher rate environment. Look no further than the company I work at, Rite Aid, that's closing stores left and right to pay off higher interest rate debt.
Your next article should be about the big picture.
The elephant in the room to me is the bigger picture stuff.
Yellen is sucking nearly half a trillion dollars per month of out the real economy (because it's not the Fed buying, and foreign central banks and US banks aren't buying much because they're trying to maintain dollar liquidity) and the Fed is deleting $1 trillion/year worth of cash out of existence at the same time.
What happens, in the above described environment, to the risk free rate when the reverse repo facility is completely drained which at the current run rate will happen some time in Q1 2024?
This is obviously why the market which is probably more wise than any of us individuals, is expecting a Fed to start cutting rates in March 2024. I'm guessing Powell will continue QT, just a hunch I think he wants to continue that, maybe at a slower pace.
What happens to the long end when the Fed cuts rates? My guess is while the shorter end comes down, interest on 10 year treasury notes stays quite high with the insane supply Yellen is still dropping. Sounds like a classic bull steepener after a hiking cycle. Probably unemployment will be starting to rise around there. Some time around there in a couple years the NBER will declare a recession, some time in 2024 most likely. Some time around there Powell will realize he's made all the classic mistakes of every Fed chair person and he'll pivot into the biggest ever QE and ZIRP or NIRP because no one could've predicted it.