On the eve of the election, the state of the US economy is unclear

On the eve of the election, the state of the US economy is unclear

WASHINGTON (AP) — Help wanted signs are everywhere. Employers post nearly two job openings for every unemployed American. Hiring is on track for its second strongest year in government records dating back to 1940. And the economy grew solidly over the summer.

From some angles, the economic picture of the nation looks healthy.

But the scene was photo-bombed by an unfortunate intruder: Chronically high inflation. Rising prices strain household budgets and inflict hardship on the most economically disadvantaged families. In addition, the Federal Reserve’s push to tame inflation through much higher interest rates increases the risk of a recession next year.

With voting underway in the midterm congressional elections that culminate next week, many Americans are gloomy about the outlook for the economy and their finances — encouraging news for Republicans hoping to take back the control of Congress is ominous news for President Joe Biden’s congressional Democrats. A poll conducted in early October by The Associated Press-NORC Center for Public Affairs Research found that 46% of people felt their personal financial situation was poor, up from 37% who said so in March.

America’s economy is in a confusing place 2½ years after COVID-19 disrupted business as usual. The brief but deep recession that erupted in the spring of 2020 was quickly followed by an explosive recovery that disrupted global supply chains, causing shortages of goods and labor and fueling downward price pressures . What remains is an unusual mix of subdued inflation and a robust labor market.

“The data,” said economist Megan Greene of the Kroll Institute, “is all over the map.”

Many workers have received decent pay rises from employers who are desperate to attract and retain staff. But higher prices have eroded those wage gains. Adjusted for inflation, hourly wages fell 3% in September from a year earlier — the 18th consecutive monthly decline.

“Wage growth is not keeping pace,” Greene said. “It’s great that people have jobs. But their living standards are being eroded by inflation.

Here’s a closer look at the economy’s vital signs, which are sending mixed signals to policymakers, businesses, forecasters — and voters:



Perhaps no economic barometer has been as head-scratching as gross domestic product — the economy’s total output of goods and services. After the increase of 5.9% last year, the best marked since 1984, the GDP fell into a funk in the first half of this year. It decreased at an annual rate of 1.6% from January to March and then by 0.6% from April to June.

The economic contraction of the first half was caused by factors that did not really reveal much about the health of the underlying economy. The decline was driven by a drop in business inventories, a cyclical development that often reverses shortly thereafter, and a surge in imports, reflecting Americans’ appetite for foreign goods.

Last week, the government said that GDP returned to growth in the July-September quarter, expanding at a solid 2.6% annual rate.

Still, the new press wasn’t entirely cause for celebration. Consumer spending, which represents about 70% of economic activity in the United States, weakened last quarter: it grew only at an annual rate of 1.4%, from a rate of 2% in the period from April to June.

The total increase in GDP in the third quarter could be attributed to a jump in exports and lower imports, which added almost 2.8 percentage points of growth. This performance is not likely to be repeated. A stronger dollar has made American products cheaper overseas. And Russia’s war against Ukraine has contributed to a weakening of the global economy and lower demand for American goods.

“If you look under the hood at those third-quarter numbers,” Greene said, “it suggests he wasn’t that strong, and we can’t expect that to continue.”

The economic outlook is also bleak as the Fed raises interest rates. Since March, the central bank has raised its benchmark rate five times, including three straight hikes of three-quarters of a point. It is expected to do so again on Wednesday and in December.

Fed policymakers aimed for a “soft landing” — raising rates enough to slow growth and bring inflation back toward its 2% annual target without triggering a recession in the process. Most economists, however, doubt that it can be done. They predict a recession starting sometime in 2023.



One of the reasons for widespread skepticism about the Fed’s ability to strike a soft landing is that inflation is more difficult to defeat than policymakers had expected. The result is that more and more tax increases than originally planned will probably be necessary.

In September, the government’s consumer price index rose 0.4% higher than expected from August and 8.2% from a year earlier. Worse, the so-called core inflation, which removes the volatile costs of food and energy to better assess price pressures, rose 6.6% from a year earlier. It was the biggest jump in 40 years.

Moreover, high inflation is hardly confined to the United States. In the 19 countries that share the euro, for example, prices rose 9.9% in September from a year earlier. The Russian invasion of Ukraine raised energy prices and disrupted supplies.

In the United States, inflation has not only been high, but has spread from the goods sector of the economy to the much larger service sector – a vast area that includes everything from airline fares, car insurance and medical care to hotel fees, apartment rental and medical care. restaurant meals. The problem is, the more inflation spreads, the harder it is to control.



The labor market is the clear star of the American economy.

Employers shrugged off rising prices, rising interest rates and fear of an impending recession and kept hiring. After adding a record 6.7 million jobs last year, the economy has picked up a robust monthly average of 420,000 so far this year. The unemployment rate in September, 3.5%, corresponds to a half-century low.

However, the job market is cooling. Job gains slowed for two consecutive months – to 263,000 in September from 315,000 in August and 537,000 in July.

Employers posted 10.7 million jobs in October, the government said Tuesday. It increased by 10.3 million, although it was from a peak of 11.9 million in March. By historical standards, these figures were unusually high: For 15 consecutive months, openings exceeded 10 million, a level they had never reached before 2021.

Americans also enjoy extraordinary job security. Employers shed a monthly average of fewer than 1.4 million workers – on pace to surpass last year for the fewest layoffs in government records dating back to 2001. The labor market, however, is expected to deteriorate as Fed rate hikes begin to bite.



American consumers, the lifeblood of the economy, have proven resilient through the ups and downs of the COVID economy. Their spending has both driven a strong recovery and ignited inflationary pressures.

Although higher prices have sapped their spending power, and the federal relief checks of 2020 and 2021 are long gone, Americans have continued to spend, albeit at a moderate pace. Consumer spending rose 0.3% from August to September, even after accounting for inflation, the government said.

Not sure if consumers can keep up. They have collectively used up much of the savings they accumulated during the pandemic, although their finances are still relatively strong, and they are increasingly turning to credit cards. The US savings rate has declined.

“It’s clear the economy is slowing down,” Kroll’s Greene said. “The question is how quickly. And the other question is, to what extent companies and consumers feel that they need to recover. And this is more a question of psychology than economics.”

For now, businesses and consumers have enough cash on hand to keep spending. They do not need to be cut immediately:

“But they might do that anyway because there’s all this talk of a downturn coming and given that there’s so much uncertainty in the economy.”



The Fed’s rate hikes have already claimed a victim: America’s housing market is reeling under the strain of sharply higher mortgage rates.

The average rate on a 30-year fixed mortgage, which was just 3.14% a year ago, reached 7% last week for the first time since 2002. Sales of existing homes have fallen for eight straight months.

The GDP report showed that investment in housing fell at an annual rate of 26% from July to September. And housing construction in September was 8% from a year earlier.

House prices are still rising, supported by a limited number of houses on the market. But the increase in prices is decelerating. The S&P CoreLogic Case-Shiller home price index in 20 US cities rose 13% in August from a year earlier. However, that marked a slowdown from an annual gain of 16% in July.

As higher mortgage rates continue to derail home sales, Oxford Economics predicts, “the housing news only gets worse from here.”



American factories are still expanding. But the outlook is dimming.

A manufacturing index issued Tuesday by the Institute for Supply Management, an organization of purchasing managers, showed that factories have been growing for 29 consecutive months. However, the index fell in October to its lowest level since May 2020, when the economy was still struggling under the weight of business closures forced by COVID. New orders, new export orders and hires all contracted.

Likewise, the government reported last week that orders for durable goods (excluding the volatile transport sector) fell 0.5% in September.

This report “doesn’t bode well,” wrote Kathy Bostjancic, chief US economist at Oxford Economics. Factory-produced goods will likely be weakened by the higher dollar and stagnant economies overseas.

Bostjancic warned that the US economy will likely weaken in the October-December quarter and slip into recession in the first half of 2023.

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