America's economic holding pattern
Why it matters: It's hard to see what could turn sentiment around. That's largely because of Fed chair Jerome Powell, who doesn't want and won't allow some kind of economic boom — he thinks the economy is running too hot already.
The big picture: The U.S. economy continues to defy the odds. The May employment report, released on Friday morning, marked the 14th straight month that more jobs were created than economists expected.
- It's all a far cry from the misery in other countries like the U.K. — with sky-high inflation — or Germany, which is now officially in a recession.
By the numbers: The U.S. economy has created more than 4 million new jobs in the past 12 months.
- GDP continues to grow, and is up more than 5% from its pre-pandemic peak, even after accounting for inflation.
- The average U.S. employee now makes $33.44 per hour, a raise of more than 17.5% since pre-pandemic.
- The stock market is up 10% so far this year, and we're not even halfway done.
Between the lines: Americans, however, don't buy it. They're broadly happy with their own personal finances, but a majority consistently thinks (erroneously) that we're in a recession, and just 18% think the national economy is in good shape, per the Fed's most recent Survey of Household Economics and Decisionmaking.
- Part of the problem is higher consumer prices. Inflation might be coming down rapidly, but even if it goes all the way to zero prices will still be much higher than Americans became accustomed to.
- The highly visible congressional dysfunction surrounding the debt ceiling, and all the associated rhetoric about the unsustainability of the national debt, can only have had negative effects in terms of Americans' attitude to their national economy.
- More broadly, some of the feverishness of the pandemic years is beginning to wear off. What remains is a highly disconcerting "New Not Normal."
Where it stands: The Federal Reserve has been hiking interest rates aggressively to try to cool down the economy and get inflation under control. Any hint of further exuberance will be met by even more rate hikes.
- The Fed has no mandate to deliver a booming economy; its job is to just reduce inflation while keeping employment high. So far it seems to be succeeding, albeit more slowly than many would have preferred.
The bottom line: Money can't buy happiness.