Reality Check on the State of the Economy

By at 27 June, 2024, 8:42 pm


by Raymond J. Keating –

The latest revision in the GDP data for the first quarter of 2024 wasn’t all that notable. The bottom line is that real growth was revised up ever so slightly from 1.3 percent to 1.4 percent.

Either way, it was a dismal performance. And that leads to an important point that needs highlighting.

Strong Economy?

Among various analysts, economists and talking heads, there is an assertion being put forth that we’re in the midst of a strong economy, and these people express bewilderment that this economic strength is not widely recognized. Well, could it be that these individuals are wrong – either  ignoring key data out of ignorance or because of politics?

Let’s consider three foundational points in terms of the economy: economic growth, inflation and employment.

First, real economic growth (seasonally adjusted, annualized gross domestic product) has been woeful.

As noted, real GDP growth came in at 1.4 percent in the first quarter of this year. Meanwhile, it registered 2.5 percent in 2023 and 1.9 percent in 2022. Understanding that the pandemic resulted in a change in real GDP of -2.2 percent in 2020, following by a 5.8 percent bounce back in 2021, the U.S. economy should have been recovering and growing robustly in subsequent years.

Yet, real GDP from 2022 forward has under-performed the post-WWII historical average (since 1948) of 3.1 percent. Indeed, it must be noted that growth has been poor since 2007, with the real average rate of growth registering only 1.8 percent from 2007 to 2023. To put this further in perspective, real growth post-WWII through 2006 averaged 3.5 percent.

Second, inflation has been running red hot since early 2021.

As measured by the Consumer Price Index, inflation registered 4.7 percent in 2021, 8.0 percent in 2022, and 4.1 percent in 2023. And over the past six months, inflation ran at about a 3.3 percent annualized rate. Thankfully, inflation has been moving in the right direction, but it’s still far too high. Indeed, the past three years represent the worst inflation performance in the U.S. since the 1970s into the very early 1980s.

Third, jobs are pointed to by those who say that this is a strong economy.

They look to a low unemployment rate – which came in at 4.0 percent in May – as evidence. Also, from February 2022 to April 2024, the unemployment rate remained below 4 percent. The problem with the unemployment rate is that it doesn’t tell us all that much about the actual level of employment.

One can have a relatively high unemployment rate, but a solid employment-population ratio, while a low unemployment rate can coincide with a low employment-population ratio. So, while the unemployment rate has been very low since February 2022, at the same time, the employment-population ratio has consistently run below its pre-pandemic level. For example, in February 2020, the employment-population ratio came in at 61.1 percent, but in May 2024, it registered 60.1 percent, and from February 2022 to May 2024, the monthly high was 60.4 percent. So, at best, one can say that the employment picture has been mixed of late.

Poor economic growth, high inflation and a mixed story on employment does not make for a strong economy. Indeed, far from it.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest books on the economy are The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist, The Weekly Economist II: 52 More Quick Reads to Help You Think Like an Economist and The Weekly Economist III: Another 52 Quick Reads to Help You Think Like an Economist.


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