11/16/2022 | Press release | Distributed by Public on 11/16/2022 10:12
Updated periodically, Economic Viewpoints provides a snapshot of the U.S. economy from the Economic Policy Division at the U.S. Chamber of Commerce.
Consumer Sentiment Falls
November 15, 2022
Consumer Sentiment fell sharply in November. It hit an all-time low in June and had risen four straight months since then, albeit modestly.
Why it matters: The pronounced drop in sentiment is surprising because inflation moderated in October. With inflation being the main concern for consumers it would follow that their mood would improve, but that hasn't happened.
Be smart: The economic data and behavior of consumers and businesses are not following expected patterns. Both consumers and businesses feel bad about the economy, yet consumers keep spending and businesses keep hiring, raising wages, and investing.
Looking ahead: Updated spending data, which we'll get later this week, will tell us more about whether this phenomenon continues, or whether spending is finally slowing to match the poor mood of consumers.
Jobs Added in October, But Labor Force Declines
November 8, 2022
The economy added 261,000 jobs in October. Expectations were for about 200,000, so we exceeded them. That's the good news.
The bad news is that labor force participation is still lagging badly, even as we keep adding jobs and have so many unfilled positions.
Why it matters: If we had the same participation rate now as pre-pandemic, there would be 3.05 million more workers in the labor force.
Be smart: Also concerning is which survey in the jobs report to rely on. The 261,000 jobs gain comes from a survey of businesses. That's usually where we get the job creation number.
Other key data points:
Bottom line: Future revisions will shed more light. For now, it's best to be happy with the jobs added but not be overly optimistic about what it means for the economy's direction.
Job Openings Rose Again in September
November 3, 2022
Job openings were 10.7 million at the end of September. That is surprisingly up 437,000 from August when openings were 10.3 million.
Why it matters: The worker shortage is not easing; it is worsening. There are 5 million more job openings than unemployed workers.
Be smart: A cooling economy would ordinarily cause businesses to cut back on their job postings, as they did in August. But August's drop in postings is an outlier as openings rebounded in September.
Hiring and quits remained at roughly the same levels as in August. So businesses are still adding workers, and workers are still confident they can quit their current jobs and find better ones easily.
Bottom Line: The still-strong labor market is a big part of the "second-hand pessimism" narrative of the current state of the economy. Businesses say the economy is poor, but they're still hiring as if it's strong.
Income and Spending Up in September
November 1, 2022
Income and spending rose more than inflation in September.
Why it matters: These are strong results and give another data point in favor of second-hand pessimism. The perception is that the economy is slowing (and it is), but consumers are still earning and spending. Their actions may keep the economy from a steeper decline.
Be smart: Spending growth (after accounting for inflation) outpaced inflation-adjusted income growth. It was able to do that because of accumulated savings.
Bottom line: Consumers' savings could allow their spending to keep up with inflation and keep pessimism second-hand. But that won't last forever.
The Economy Grew 2.6% in Q3
October 27, 2022
The economy grew 2.6% in the 3rd quarter (July - September). We estimated growth of 2.1%, so the economy slightly outperformed our expectations.
Why it matters: The strong 3rd quarter means the description of the current economic situation as reflecting second-hand pessimism is still accurate.
Be smart: The strong growth in Q3 is a reversal from Q1 and Q2 when the economy contracted by 1.6% and 0.6% respectively.
By the numbers: Growth came from gains in personal spending, business investment, trade flows, and government spending:
Housing Prices Fall in August
October 25, 2022
The latest data shows the housing market is struggling. Prices fell 1.1% nationwide in August.
Why it matters: Housing prices are falling because interest rates are rising and cooling demand.
Be smart: We are not in the same situation as we were in 2006 and 2007. Homeowners in general have much more equity than in that period and fewer of them have adjustable-rate mortgages.
Bottom line: The housing market is not as hot as it was a few months ago. That's bad news if you waited to sell until now, but it is not like the housing bubble in 2007.
Digging Deeper into Economic Pessimism
October 20, 2022
Second-hand pessimism is the developing watchword for our unique economic moment.
Why it matters: While consumers' and businesses' specific economic situations remain strong, they tell pollsters they feel pessimistic about the economy because there's a general sense it is weak.
Case in point: Consumer sentiment is near a record low, even while consumers continue to spend on pace with inflation.
And: Businesses of all sizes, sectors, and industries feel pessimistic about the future of the economy. Yet, according to the Conference Board's Survey of CEO Confidence:
Be smart: These are not the actions one would expect when consumers and businesses tell surveyors the economy is bleak.
Bottom line: Second-hand pessimism tells us that if and when the economy does soften, the downside might not be as painful as many fear.
Retail Sales Hold Steady with Inflation
October 18, 2022
Excluding volatile auto and gas sales, retail sales kept up with inflation in September.
Why it matters: This is good news. Consumer spending is keeping pace with inflation, even with economic sentiment sticking near record lows.
Big picture: This persistent strength in consumer spending is consistent with the emerging trend of "second-hand pessimism."
Details:
Bottom line: Even as the Fed hikes interest rates to fight inflation, consumer spending remains strong. It remains to be seen whether the strength of the consumer will help avoid the "hard landing" of a recession.
Jobs Up but Labor Force Shrinks
October 11, 2022
The economy added 263,000 jobs in September. That's good news.
But: The labor force shrunk by 57,000.
Why it matters: Employers continue to hire workers, but not enough of them have returned to the labor force. We are in a unique economic period where growth is slowing because of inflation, but hiring remains strong and could even be stronger if more workers took jobs.
Be smart:
Bottom line: To buttress the slowing economy, we need to get more workers to fill the historically high number of job openings.
ICYMI: Last week, I joined Politico for a Twitter Spaces conversation on September's jobs report.
Job Openings Plummet in August
October 6, 2022
In August, we saw the economy cool and the jobs market soften because of inflation-fighting interest rate hikes. Businesses cut back on job openings by more than 1.1 million.
Why it matters: Despite the big drop, there are still 4 million more job openings than unemployed workers. Finding workers continues to be a big worry for businesses across industries.
By the numbers:
Be smart: Workers still feel confident they can get new jobs even as job postings are dropping.
Dig deeper:
Higher Interest Rates Mean More Deficits and Debt
October 4, 2022
Rising interest rates are increasing federal government spending. It costs more to finance government debt, which means bigger budget deficits and more debt.
Why it matters: More spending to finance debt squeezes out spending on national priorities.
What's happening: The Federal Reserve has been raising interest rates steadily since March to combat high inflation. This has increased the interest rate on 10-year Treasury Bonds.
By the numbers: Earlier this year, the Congressional Budget Office (CBO) analyzed how much higher interest rates will cost the government.
Be smart: The extra spending on the debt is money that Congress won't be able to spend on infrastructure, national defense, and other modernizations the economy needs to reach its full potential.
Bottom line: Higher interest rates are out of Congress' control for the time being. But it can avoid more pain from higher rates by lowering spending now so higher rates do not crowd out necessary spending to keep the economy competitive.
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About the authors
Curtis Dubay
Chief Economist, U.S Chamber of Commerce
Curtis Dubay is Chief Economist, Economic Policy Division at the U.S. Chamber of Commerce. He heads the Chamber's research on the U.S. and global economies.