Although consumer sentiment, as measured by the University of Michigan Surveys of Consumers, remains much lower than it was before the pandemic, it is finally on an upward trajectory. And while some groups – such as lower-income and younger renter households – are still reeling from the highest inflation in more than four decades, most Americans are financially better off than they were a year ago and wealthier than before the pandemic.
The U.S. economy continues to outperform expectations, earning its place as the envy of the world. There’s much to be thankful for this holiday season.
While the economy is cooling from the torrid pace of the pandemic, fueled by fiscal and monetary stimulus, real gross domestic product (GDP) per capita still expanded by 2.1% in the third quarter – well above the pre-pandemic average pace of roughly 1.8%.
Although the unemployment rate has risen slightly to 4.1% from 3.8% a year ago, more prime-age adults are employed now than at any time in the past 20 years. The unemployment rate remains roughly on par with the pre-pandemic level of 4.2% and well below the long-run average of 5.7%.
Wage growth has also surprised on the upside. Average hourly earnings are up 4% from a year ago, significantly outpacing the pre-pandemic yearly increase of 2.9%. Meanwhile, consumer price growth has eased to 2.6% year-over-year, down from a peak of 8.4% in July 2022. Although inflation remains elevated, it is much closer to its long-run average yearly pace of 1.9%.
Even after taxes and inflation adjustments, total income per person increased 2.6% this past year, surpassing the pre-pandemic pace of 2.3%.
Let’s talk about wealth for a moment. The stock market is on the rise, continually hitting new highs. If you had invested $10,000 in SPY – a widely held ETF tracking the S&P 500 – just a year ago, you would have gained over $3,000 in returns. Compared to pre-pandemic levels, that same investment would now be worth $18,100, nearly doubling in just four years. If you owned a typical U.S. home in 2019, its value has likely increased by nearly 45%. Combined with the low mortgage rates of the pandemic era, many homeowners have accelerated their debt repayment. Some are even living essentially mortgage-free as investment gains cover housing costs.
So, the next time someone complains about the economy, encourage them to zoom out. The American economy has left other rich countries in the dust, making it clear we’re better off here than almost anywhere else.
Elsewhere in the economy:
Consumer confidence is likely to continue improving as household finances strengthen. Higher incomes and easing inflation, particularly the drop in energy prices, have been a boon for household budgets.New home sales may dip in October due to hurricane disruptions and an uptick in mortgage rates. However, even with a potential decline, sales are expected to remain higher than this time last year. For new home sales to fall below year-ago levels, this week’s report would need to show a decline of at least 10%, which seems unlikely given that buyers now have more options and mortgage rates remain lower than a year ago. As of September 2024, new home sales in the US reached a seasonally adjusted annual rate of 738,000—the highest level since May 2023.The Federal Reserve’s preferred inflation measure, the PCE price index, will be the main focus this week. October’s inflation data could show a slight uptick, as core PCE inflation has been rising over the past three months. A strong economy and increasing core inflation may prompt the Fed to pause its rate-cutting cycle in December.
