Commentary:
Has the U.S. economy and Americans’ perception of the economy turned schizophrenic? A poll by the Associated Press-NORC Center for Public Affairs Research shows that two-thirds of Americans say that their overall household expenses have risen during 2023, but only 25 percent say that their household income has increased during this period of time. Eighty percent say that their household debt is higher in 2023 than it was in 2022. According to the poll, during 2023, thirty percent of Americans have not made a major purchase due to higher interest rates.
Meanwhile, the Federal Reserve chose to not raise interest rates at its last Federal Open Market Committee meeting. Its current target rate will continue at 5.25 to 5.5 percent. This is the highest rate in 22 years; however, the rates not being raised again can be looked at as a positive sign.
The Associated Press poll showed that a slight majority, 54 percent of Americans, would describe their overall household financial situation as good, down from 63 percent last year. Other polls are confirming that Americans are generally expressing a doom-and-gloom feeling about the health of the economy and their personal financial situation. Inflation, which seems to be the most tangible economic indicator, as people can readily see how prices of consumer goods have increased during the past year, seems to be easing. The Bureau of Labor Statistics recently reported that inflation has fallen to 3.3 percent from 3.7 percent in September.
Automotive prices are still high, with consumers paying 30 percent more for a vehicle since the beginning of the pandemic. Incredibly, the average price of a new vehicle is approximately $50,000. The recently announced United Auto Workers’ strike resulted in a deal that will raise new wages by about 25 percent, which could cause the average vehicle price to rise even higher. Ford announced that the deal could add up to $900 per vehicle to its production costs. It is not clear whether automakers can entirely pass these extra costs on to consumers without suffering declining demand for their products. The deal could put pressure on other companies in the automotive supply chain to also raise their wages.
Meanwhile, as malaise about the economy continues to linger, U.S. GDP grew by 4.9 percent during the third quarter, higher than 2.1 percent in the second quarter and 0.6 percent higher than was expected. Despite high interest rates and inflation, Americans do not seem to be discouraged about spending their money. During the third quarter of this year, consumer spending grew by 4 percent, the highest this has been in nearly two years. Apparently, we are still buying smart TVs, new cell phones, white goods, and going to movies.
Possibly no other economic indicator reflects this spending spree so strongly as that of the volume of U.S. imports. According to a recent study by the Descartes Systems Group, which analyzes U.S. Customs data, container-loads of foreign products rose 4.7 percent in October. Imports have risen by almost 4 percent during 2023, and 33 percent since February. U.S. containerized imports are now the highest since fall of 2022, when we were still importing like crazy in an attempt to meet post-pandemic pent-up demand. October’s imports were 11.5 percent more than October 2019 before the pandemic. Automobiles make up a sizeable chunk of U.S. exports. In spite of our trade war with China, this country accounted for 38.4 percent of the U.S.’s total imports, which was the highest since August 2022.
So, what do we make of these seemingly conflicting economic indicators? First of all, Americans seem conditioned to spend. Credit to obtain items such as vehicles and consumer products is fairly easy to access. How many people do you know that have a credit card and routinely use it? How many people go into debt in order to have items immediately rather than saving up for them? Total U.S. household debt now stands at $17.06 trillion, of which credit cards (28 percent) and car loans (12 percent) account for the highest shares.
However, whether it be high interest rates or the shock of the pandemic, even the debt carried by the average American is surprisingly decreasing. According to a Northwestern Mutual poll and report conducted this year, excluding mortgages, the average American is carrying $21,800 in personal debt. While this sounds like a lot, this is actually $8,000 less than was the case in 2019. According to the report, 43 percent of Americans stated that they have the lowest debt that they have every carried. Incredibly, 40 percent of the people polled expect to pay off their debt within one to five years.
Finally, are the lingering effects of the pandemic, the fatigue of partisan politics, and the frightening instability in our world souring the perception of Americans on the U.S. economy? Probably, and the conflicting economic data can’t be helping the situation.
Jerry Pacheco's opinions are his own and do not necessarily reflect the views of KRWG Public Media or NMSU.