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World News

Why the U.S. Economy Remains Surprisingly Strong — But You Don’t Realize It

New York
CNN Business

Each week brings mind-boggling conflicting news about the economy. The past week has been no different, with a series of economic reports showing that, despite talk of recession, the US economy is showing remarkable resilience.

Yes, the economy is strong. But it comes with a lot of caveats.

Let’s review:

  • Gross domestic product grew at an annualized rate of 3.2% last quarter, a sharp rebound after the contraction in the first half of the year.
  • Consumer confidence rose unexpectedly in December.
  • Last month’s jobs report defied analysts’ expectations, with unemployment remaining at its lowest level in nearly half a century.
  • And several recent inflation reports show that prices are starting to calm down.

However, these are just ingredients in a murky soup of conflicting “yes, but” titles.

Yes, consumers say they feel bad about the economy. But a record 196 million Americans went shopping over Thanksgiving weekend – and those skyrocketing sales numbers aren’t just because inflation has driven up prices, but also because people were transacting more, according to Adobe Analytics.

Curtis Dubay, chief economist at the US Chamber of Commerce, calls it “second-hand pessimism” and says the economy may not be doing as badly as you think.

Yes, inflation at nearly 40-year highs is biting into family budgets. But Americans are booking air travel and visiting 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 over 10 million jobs open and 1.7 jobs available for anyone looking for one (or looking to change jobs).

“The labor market is incredibly strong again,” Federal Reserve Chairman Jerome Powell said in a speech last month. “It’s too great, in a way, because it’s going to add to inflation.”

So what’s the next step?

The truth is, no one knows what will happen next. Forecasting is notoriously unreliable in the post-Covid economy. (Remember “passing” inflation?

The Fed has tried to rein in the highest inflation since the 1980s, raising interest rates six times this year and even rolling out an exceptional three-quarter point hike not once but four times in a row.

This means that next year will no doubt be a challenge as all that tightening continues to work its way through the economy.

But household finances are in better shape to deal with it, with a $1.7 trillion surplus of savings as a cushion – although people will likely have to dip into more of their savings.

And even if the housing market is cooling, it is not collapsing. After a very strong 2021, the industry 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 was hard to measure. Tens of millions of jobs were lost overnight. Schools closed, factories closed, over a million lives lost. More than two years later, we are still struggling to gauge the strength and durability of the recovery.

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