The ‘yes, but’ economy. Yes, we’re worried about recession — but the economy remains resilient
By Christine Romans, CNN Chief Business Correspondent
Each week brings head-scratching contradictory news about the economy. This past week was no different, with a batch of economic reports showing that — despite the recession talk — the US economy shows remarkable resilience.
Yes, the economy is strong. But it comes with a lot of caveats.
Let’s review:
- November’s jobs report defied analysts’ expectations, adding 263,000 new roles and keeping America’s jobless rate at 3.7%, almost a half-century low.
- The Federal Reserve’s favorite inflation gauge, the PCE Price Index, finally showed signs of cooling.
- Gross domestic product grew at a 2.9% annualized rate last quarter, a sharp bounce back from shrinking in the first half of the year.
However, these are just ingredients in a murky soup of conflicting “yes, but” headlines.
Yes, consumers say they feel lousy about the economy. But a record 196 million Americans went shopping over the Thanksgiving weekend — and those roaring sales numbers weren’t just because inflation has pushed prices higher, but also because people were making more transactions, according to Adobe Analytics.
Curtis Dubay, chief economist at the US Chamber of Commerce calls this “second-hand pessimism” and says the economy might not be doing as poorly as you think.
Yes, inflation at near 40-year highs is biting into family budgets. But Americans are booking air travel and heading to Disney parks in near-record numbers, even with higher park prices.
Yes, economists are worried about a recession, but the job market is incredibly tight with more than 10 million open jobs and 1.7 jobs available for anyone who’s searching for one (or looking to job hop).
“The labor market is incredibly strong again,” Federal Reserve Chairman Jerome Powell in a speech Wednesday. “It’s too great, in a way, because it’s going to be adding to inflation.”
So what’s next?
The truth is that no one knows what happens next. Forecasts have been notoriously unreliable in the post-Covid economy. (Remember “transitory” inflation?”)
The Fed has been trying to contain the highest inflation since the 1980s, jacking up interest rates six times this year and even rolling out a bumper three-quarter-point hike not once but four times in a row.
That means the next year will no question be a challenge as all that tightening continues to work its way through the economy.
But household finances are in better shape to handle it, with an excess $1.7 trillion in savings as a cushion — although people will likely have to dip into more of their savings.
And while the housing market may be cooling, it’s not crashing. After a very strong 2021, the sector is “readjusting, recalibrating,” Bess Freedman, CEO of Brown Harris Stevens, said on CNN’s “Early Start.”
Covid broke the economy and putting it back together has been hard to measure. Tens of millions of jobs were lost overnight. Schools closed, factories shuttered, more than a million lives lost. More than two years later, we’re still struggling to gauge the strength and durability of the recovery.
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