The US Economy: A Temperature Check

Hi, today we explore: (1) Is the economy firing on all cylinders, or are we on the brink of recession? We explore the latest data. TOGETHER WITH Today's Topics Happy Sunday! Having tackled [Taylor Swift]( and [Streamonomics]( in our last 2 Sunday Deep Dives, today we’re giving you all the data and ammunition you need to confidently wade into a debate that’s currently raging in America — how is the US economy doing? Today's Chartr is brought to you by [cred.ai]( the high tech bank that feels like a debit card with superpowers – known for its proprietary automatic credit score optimization, premium metal card, cutting edge tech features, and guarantee to never pay fees or interest.* [Read this on the web instead]( Stuff is expensive It’s hard to talk about the economy without discussing the elephant in the room — inflation. Not for decades has the “i word” been so widely used, with the Federal Reserve raising interest rates at an almost unprecedented pace in a bid to fight inflation. But are prices still rising? The most commonly cited data is the CPI Index, which was up 3% year-on-year in its [most recent]( reading. That is way down on the peak reading of +9.1% back in June 2022, but it means that prices are still rising — just at a slower rate. One way we like to slice the numbers is to simply measure everything from one point in time (Jan 2020 in this case). Cheaper by the dozen So, relative to the start of 2020, how are prices looking? Well, the average basket of stuff — which includes goods and services — is now 17% more expensive than it was. That means, if your life looks anything like what the statisticians at the Bureau of Labor Statistics think is “average”, you need 17% more cash to do everything you used to do in Jan 2020. The reality of course is much messier. If you’re an omelet lover, you’ve been on a roller coaster. At one point in January of this year, eggs were costing 94% more than they were 3 years prior. Prices have since fallen sharply, but eggs are still some 27% more expensive than they used to be. The average price of meat is up 22%, gasoline is up 24%, electricity is up 24% and buying a used car is likely to set you back 44% more than it would have done 3 years ago. One notable category that’s gotten cheaper is airline tickets as airlines have hired aggressively to meet the pent-up demand from the pandemic. Measuring misery Apart from rising bills, the unemployment rate is another indicator worth watching, measuring — in simple terms — how many people want jobs, but can’t find work. The rate stood at just 3.6% as of [June]( one of the lowest figures on record. Adding the inflation and unemployment rates together creates the [Misery Index]( — a crude measure of how much economic pain is being felt. With both falling recently, it’s no surprise then that the Misery Index isn’t looking too miserable, at 6.7%, lower than the average of 9.5% from 1980-2023. If the worst of inflation is indeed behind us, the question will be whether the US economy can avoid two things: - Deflation — where prices persistently fall. - A “hard landing” — where the slowdown in the economy turns into a full blown recession. Deflation is arguably a scarier word to economists than its sibling. Prices falling sounds good, but what it tends to lead to is a deflationary spiral, as people continuously wait for prices to keep dropping before making their purchases… sending prices lower… and tightening the feedback loop. For now, at least, deflation seems unlikely. [Sponsored by cred.ai]( What’s your credit score worth? We don’t always get the credit we deserve. 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Soon that house you really wanted, but couldn't quite afford (you know the one... extra balcony, perfect view), might just be within reach. [Optimize your credit score with cred.ai]( A nice soft landing? The [latest growth figures]( suggest that the Federal Reserve might have achieved its ultimate goal, to cool inflation without sending the economy into a full blown recession — a “soft landing”. But, the jury is likely to be out for at least another 6-12 months, as the effect of higher interest rates takes time to filter through the economy, particularly when [much of America’s household debt is at fixed rates](. No search results Inevitably, when chatter of a potential recession starts getting louder, people start searching the internet for terms like "are we in a recession”. Indeed, last year, with near-record high gas prices and escalating grocery bills, Americans were searching for “recession” like never before. In June 2022, a YouGov [survey]( revealed that 3 out of 5 Americans believed the country was in a recession, though technically the threshold for a recession — often 2 consecutive quarters of negative GDP growth — was never met. The depressed mood persisted into this year, with a [survey]( in May reporting that two-thirds of people anticipated a recession, with many fearing that the downturn could rival the severity of the 2007-2009 Financial Crisis. Dude, what about my house? While the US economy may not be red hot, it’s probably at least warmish. But one area that’s getting increasingly cold is the housing market. Prices soared during the pandemic, but are now down ~1% on this time last year, and homeowners seem to be [refusing to sell]( with the number of homes for sale [at a record low](. That's worth watching closely, because nothing makes people tighten their purse strings faster than hearing their house is worth less than they paid for it, and consumer confidence is still the bedrock of the US economic machine. The ~vibes~ matter Indeed, you could spend an entire week poring over economic data (which… we did) trying to guess what happens next. But, much of the future is going to be driven simply by how we’re all feeling. Economics is ultimately a tapestry woven by the interplay of policy, human psychology, and unforeseen events — everyone expecting a recession to happen doesn’t change the economic reality… until it does. If there's a lot of uncertainty in the air, maybe businesses decide to play it safe on their planned expansion, consumers save a little bit more this month, banks don’t lend as freely, and — suddenly — things can turn. China is an interesting example, as the economy slows after 40+ years of lightning growth. There officials are so concerned with keeping up positive appearances that the government is reportedly [pressuring local economists]( to avoid even discussing negative trends like deflation. [Sponsored by cred.ai]( [cred.ai]( ensures you always know the score With interest rates through the roof, having an optimized credit score is more important than ever. Level up with [cred.ai]( and cross "optimize credit score" off your to-do list without missing a beat. Get the credit you deserve via a high tech metal card spending experience, with a guarantee to never pay fees or interest. Because with [cred.ai, you're better than your bank](. Like this Deep Dive? Put your own political spin on it and share with your friends, colleagues and family as a way to start an argument over the economy — enjoy! [Read or share this story on the web]( *Sponsored content from cred.ai. Thanks for reading. See you tomorrow, when we return to our regular scheduled programming! 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