Is the Economy Getting Better?

Group of workers
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The U.S. economy is getting better. How can you tell? First, and most important, the nation's economic output is growing steadily. The gross domestic product was $19.7 trillion in 2017. It was a 2.6 percent improvement over 2016. That puts the economy solidly in the healthy 2-3 percent growth range.

As a result, employment is rising and unemployment is falling. In fact, the current unemployment level is 4.1 percent, which is below the natural rate of 4.5 percent. This means companies can't find enough good workers. Over time, this shortage will slow business and economic growth. 

Consumer Spending

In 2017, consumer spending was a robust $12 trillion. It grew 3.8% over 2016. Consumer spending is important since it drives 60% of the economy. It is the demand for goods and services that makes companies hire more workers. 

Housing prices are headed in the right direction. Prices in many areas have exceeded their 2005 highs. Houses are selling at the same rate as they were in 2007, nearly 5.5 million units a year.

Stock market prices are rising. The Dow set closing records in 2017. Granted, most people won't personally benefit from higher stock prices, but it is a leading economic indicator. When stock prices rise, corporate CEOs feel confident and, as a result, they are more likely to invest. They will expand their businesses, buy new equipment, and hire more workers. The increase in income will lead to more demand. It creates a virtuous cycle that drives further economic growth.

Auto sales are up, thanks to low-interest rate loans. American automakers benefited the most, creating more well-paying jobs.

Why It Seems the Economy Is Getting Worse

Even though the economy is getting better, many people feel discouraged and frustrated. The economic recovery from the 2008 financial crisis has been slow and unsteady. This is unlike previous recoveries, where U.S. GDP growth was 4-5 percent a year. There were also lots of employment ads in the newspapers. Both housing prices and the stock market took off, and people felt like the future was bright. Here are five reasons why it seems to many people like things are getting worse.

Most people aren't feeling any better off because their incomes haven't improved since the recession. In 2012, the median household income was $51,017. That's about the same as it was in the 1980s once you've adjusted for inflation. But those making more than $190,000 a year are making the same as they did before the recession. This figure has been adjusted for inflation. 

While the unemployment rate is only around 4 percent, the real unemployment rate is much higher. The official rate only counts people who are actively looking for work. Many people have dropped out of the labor force. Former Federal Reserve Chair Janet Yellen pointed out that there are too many people with part-time jobs that would prefer full-time ones. Even the full-time jobs that are available are in lower-paying industries, such as retail and restaurants. Most Americans have yet to regain their pre-recession income, household wealth, or 401(k) levels. For these reasons, there are just as many people pointing to a coming collapse as there are saying things are getting better.

The greatest increase in government spending is “entitlement” spending, mostly Medicare and Medicaid. Our national goal has been to reduce healthcare costs, not increase healthcare spending. Unfortunately, we’ve only accomplished the latter, not the former. Medicare now accounts for 15 percent of the total federal budget and 21 percent of total national health care spending. The Affordable Care Act promised to reduce health care costs. So far, the report is mixed.

The U.S. debt is unsustainable, meaning it's more than America's total economic output. When the debt-to-GDP ratio is so high, lenders wonder whether they will get repaid. They also worry that taxes will need to rise to pay off the debt, slowing economic growth. This debt burden makes a country's economy more vulnerable to weakness.

The United States is letting its infrastructure rust. This includes roads, dams, and bridges. Many of these were built as part of the New Deal in the 1930s. Investment in the American labor force is also slipping. It's sad but true, but the United States isn't graduating enough software engineers to meet the needs of Silicon Valley. Many of these high-paying tech jobs are being outsourced to foreign-born workers instead. That makes it harder to support the entrepreneurship that is America's No.1 competitive advantage.