UPDATE: A Tale of Two Economies: How’s the U.S. Doing?

UPDATE — August 30, 2018: The following article, which was originally published on August 29, 2018, has been updated to add the section on inflation.

• With so much seemingly contradictory news at the moment, you’d be forgiven for being unsure of the current state of the economy.
• On the one hand, we’re seeing the longest bull market of all time, low unemployment, and record-high consumer confidence. On the other, wages are stagnant, and many Americans are struggling to get by.

Deeper dive

Bull market

Last week, the bull market in U.S. stocks became the longest in history, and many economic strategists see plenty of room for that to continue.

Just days later, the S&P 500 and the Nasdaq closed at record highs.

Other analysts are less optimistic that this trend will continue. In analyzing the basis for the current bull market, Morgan Stanley predicts growth to slow later this year and next, because “this is a more dangerous set up than most recognize.”

GDP growth

Also last week, the Bureau of Economic Analysis (BEA) revised second-quarter gross domestic product (GDP) up to 4.2 percent, the strongest since the second quarter of 2014. GDP Now, an up-to-date tracker monitored by the Federal Reserve Bank of Atlanta, is now forecasting third-quarter growth of 4.6 percent.

Inflation

The Federal Reserve's preferred measure of inflation reached a six-year high of 2.3 percent annualized gain in July, according to the BEA.

This was slightly higher than the Fed's target threshold of 2 percent, all but guaranteeing that it will continue with its plan to gradually raise interest rates.

Fresh interest rate hikes are unlikely to sit well with President Donald Trump, who has openly criticized the Fed for raising rates.

Employment and wages

The U.S. unemployment rate sits at 3.9 percent, near a 20-year low.

Wages are growing at an annual rate of 2.7 percent after plateauing for a long time. That said, for most U.S. workers, real wages have barely budged in decades. According to the Pew Research Center:

“today’s real average wage (that is, the wage after accounting for inflation) has about the same purchasing power it did 40 years ago. And what wage gains there have been have mostly flowed to the highest-paid tier of workers.”

In July, The Nation published an overview of the working poor and underpaid. Among the piece’s conclusions: Having a job doesn’t exempt anyone from poverty anymore.

About 12 percent of Americans (43 million) are considered poor, and yet they’re employed. They earn an individual income below $12,140 per year, and slightly more than that for a family of two. If you include housing and medical expenses in the calculation, it raises the percentage of Americans living in poverty to 14 percent, or 45 million people.

At that level of income, there’s almost no way to pay for food and shelter in any sizable American city. That means people can be both employed and homeless. The piece explains:

“In America’s big cities, chiefly because of a widening gap between rent and wages, thousands of working poor remain homeless, sleeping in shelters, on the streets, or in their vehicles, sometimes along with their families.”

Additionally, fewer and fewer people have savings to weather time between jobs or an emergency expense. A third of the U.S. population has no savings, and another third has saved less than $1,000. Two-thirds of American households, by this measure, are scrambling to make ends meet from check to check. Nearly half the American population earns too little to live on comfortably:

“One-third of all workers earn less than $12 an hour and 42% earn less than $15. That’s $24,960 and $31,200 a year. Imagine raising a family on such incomes, figuring in the cost of food, rent, childcare, car payments (since a car is often a necessity simply to get to a job in a country with inadequate public transportation), and medical costs.”

Reinforcing the above conclusions, an Urban Institute study published yesterday found that about 40 percent of American families struggled to meet at least one of their basic needs last year, including paying for food, healthcare, housing, or utilities.

“Economic growth and low unemployment alone do not ensure everyone can meet their basic needs,” the authors wrote. Food insecurity was the most common challenge: More than 23 percent of households struggled to feed their family at some point during the year.

Confidence and optimism

Nevertheless, consumer confidence soared to an 18-year high this month. Moreover, consumer spending – which accounts for more than two-thirds of total economic output – grew at a 3.8 percent annual rate in the second quarter of this year. 

Additionally, small business optimism reached its second highest level since 1973 last month.

What do you think?

Is the economy doing well, poorly, or somewhere in between? What, if any, economic initiatives do you want regulators to pursue? Hit Take Action to tell your reps what you think, then share your thoughts below.

—Sara E. Murphy

(Photo Credit: iStock.com / matejmo)