Do you feel like the economy isn’t making a lot of sense right now? Is there a mismatch between the headlines and how you’re personally feeling? If so, you’re not alone. There’s a big divide between the current data and the perception of many Americans. Here’s what I mean:
When you look at the data, the economy is actually looking pretty good. Many economists think the Fed will be able to cut interest rates by mid-2024.1
The labor market is surprisingly strong, adding 336,000 jobs in September, up significantly from the 200,000+ added in both July and August.2 Manufacturing, which slowed earlier in the year, looks to be rebounding as factory output rises.3 And Americans are still spending online, in stores, and in restaurants2 – right when a lot of analysts worried we’d see a slowdown.
In fact, it was just reported today that the real gross domestic product (GDP) increased at an annual rate of 4.9% for Q3 (more than double the rate for Q2).4
But why does it FEEL like the economy is teetering? When it comes to the economy, the data and our perceptions often don’t match. Here’s a few reasons why:
1. Humans come with inborn negative bias. Our brains are wired with a “positive-negative asymmetry”, which means we tend to remember negative news and react more strongly to negative stimuli.
2. Our circumstances impact our perception. If you’ve gone through a layoff or are watching folks around you struggle, it’s going to give you a different perspective on the economy.
3. We keep seeing headlines about the “uncharted waters” we’re swimming in. The pandemic upended everything and we’re still feeling the effects.
All told, there are a number of reasons why you might not feel positive about the economy.
There are definitely potential headwinds ahead for the economy – there always are. The wars in Israel and Ukraine inject pain and uncertainty. The excess savings Americans built up during the pandemic have largely been spent, which could slow future spending.5 The effects of high interest rates are still percolating throughout the economy. It’s not clear that we’ve seen the full effects yet.
Bottom line: The U.S. economy is still going strong from where the data stands, but it’s not surprising if your perception doesn’t match. What’s important is staying flexible and acting with confidence, not fear. Rest assured, we’re watching the data closely and will continue to keep a balanced perspective.
Sources & Disclosures
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