Through constant predictions of an upcoming downturn, it is fair to ask: how healthy is the U.S. economy?
Some of the tea leaves that economists are reading offer mixed messages. The 3.8% unemployment rate for August is higher than the previous 3.5% (bad?), but a related number, labor-force participation (the percentage of working-age people actually working) ticked upward to 62.8%, the highest rate since February 2020 (good?). More people are looking for work after being on the sidelines, which would seem to be a positive sign for economic growth. Also: average hourly earnings are up 4.3% over a year ago.
The growth rate of the economy has been anything but robust (2.0% in the first quarter, 2.1% in the second, still to be determined in the third), but it has been consistent since the roller coaster of the pandemic. Inflation? The annualized rate for the 12 months ending in July was 3.2% (as measured by the Bureau of Labor Statistic’s CPI Index), up from 3.0%—which might not be ideal, but it is certainly an improvement over the 6.5-7.0 percent rates of the past two years.
Of course, interest rates are much higher now than they were a year ago, which in theory tends to put a damper on profits and growth. However, many corporations and individuals took advantage of the lower rates and refinanced. As a result, corporate financing costs as a percentage of profits are at a 60-year low (good, for now). The Inflation Reduction Act and the CHIPS act have spurred a boom in company spending on construction of factories and facilities (good, but possibly temporary).
Of course, the old joke still applies; that economic forecasts exist to make the predictions of crystal ball readers and soothsayers look professional. Anybody who tries to tell you that they know that the markets are about to go up or down, or who dares say that a downturn will happen in this future month or quarter, should be required to wear a wizard’s hat and shawl while crouched over a crystal ball. We have, and will hear, constant predictions about all sorts of things, but the truth is that none of us know where this ride is taking us; only that patient investors have, over time, been rewarded for their ability to tune out the noise.
This article was written by an independent writer for Brewster Financial Planning LLC and is not intended as individualized legal or investment advice.