If you’ve been following the news, you might be a little confused about the state of the U.S. economy. On any given day, you can easily find reports saying the economy is doing relatively well and others claiming it’s lagging. In a recent press conference, President Trump said he’d “inherited a mess” with jobs “pouring out of the country.”
Most of our go-to economic indicators say, in Magic 8 Ball terms, “Outlook good.”
Take the unemployment rate: Last month’s report from the Bureau of Labor Statistics came in at 4.8 percent. That’s under pre-recession levels and well below the recession’s October 2009 peak of 10 percent.
An estimated 15 million jobs have been added since the recession—more than 2 million of them in the last year alone. (During President Obama’s two terms, there was a net gain of 11.3 million jobs.)
Then what’s the problem?
That’s only part of the story. Wage rates are another indicator of how the labor market’s doing—and that may be a case of “ask again later.”
In January, average earnings for private-sector employees rose 2.5 percent over the past year to $26 an hour, which is a move in the right direction. But according to the Economic Policy Institute, “it will take wage growth of at least 3.5 to 4 percent for workers to begin to reap the benefits of economic growth, and to achieve a genuine recovery from the Great Recession.”
And unemployment and wage growth are only two indicators of how the economy is doing overall—albeit two that have a direct impact on many Americans.
So, are we doing okay overall?
As the 8 ball might say: Signs point to yes. Obama, who took office during the worst recession since the Great Depression, ended his term in January with significant gains in job creation, the value of the dollar, consumer spending and the stock market.
The reason some say the economy’s not in great shape is because growth in the GDP, or gross domestic product—which looks at the combination of all goods and services produced in the U.S.—has lagged. GDP grew just 1.6 percent in 2016, the lowest rate since 2011. But the Federal Reserve Bank of Atlanta forecasts it will grow by about 2.5 percent in the first quarter of 2017.
Overall, most analysts seem to agree that the economy has been moving in the right direction and is in pretty good shape, even if the pace of growth is slower than we’d like. Where we’re headed next is tougher to predict, especially with a new administration. Although, Trump has said his economic plan will result in 3.5 percent GDP growth and millions of new jobs over the next decade.
What does that mean for us?
Economic stats can help determine inflation, interest rates and consumer prices—and influence market movements—all of which have a direct impact on us. So it’s important for us, as consumers and investors, to understand the general state of the economy.
That said, it’s best to leave forecasting to the pros. While anticipating inflation (a general increase in prices) might help us prepare with a better budget, ultimately, the best advice is the same whether the economy is doing well or not. Spend less than you make, build a savings cushion to carry you through the rough times—and help you avoid going into debt—and invest regularly over the long term. Do that and your outlook can remain good no matter how the economy’s doing.
February 27, 2017