Is the Economy Getting Better?
While it may be hard for some Americans to confidently say the U.S. economy is getting better, it's also difficult to have an entirely pessimistic view of the current economy. First and foremost, the nation's economic output is growing steadily. The gross domestic product was $20.87 trillion in 2018, according to the Bureau of Economic Analysis. That represents a year-over-year improvement in real GDP of 2.9%. That puts the economy in the healthy 2-3% growth range.
Despite analysts' concerns over trade tensions, the most recent GDP data shows that the U.S. GDP grew at an annualized rate of 2.1% in the third quarter of 2019. That growth was thanks to consumer spending, among other factors, according to the BEA.
As a result, employment is rising and unemployment is falling. The Bureau of Labor Statistics pegged the unemployment level at 3.5% in November 2019. That's the lowest figure in 50 years, and it falls well below the natural rate of 4.5%. While this is good news for the average worker seeking a job, it also means that companies are having a harder time finding workers to fill open positions. Over time, this shortage could slow business and economic growth.
Digging into the GDP data a bit, one of the first things an analyst will notice is how important consumer spending is to the overall economy. Of the $21.54 trillion GDP measured in the third quarter of 2019, more than $13 trillion came from consumer spending. In other words, average Americans buying products and services for themselves and their families make up roughly two-thirds of the entire U.S. economy.
As a result, consumer spending is one of the most closely watched data points within the GDP. This is especially true as other areas, like manufacturing production, struggle to maintain positive growth.
Data That Points to an Improving Economy
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 2019. Granted, higher stock prices may not immediately benefit many Americans, 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 have recovered from their recession lows, although there was relatively little growth through 2018 and 2019. Like with homes, car sales enjoy a low-interest-rate environment that makes it easy to find low-interest loans.
Why Some Feel the Economy Is Getting Worse
Even though these data points suggest that the economy is getting stronger, 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% a year or more. Here are five reasons why it seems to many people like things are getting worse.
Wage growth was slow to take effect. For years after the recession, even as stocks recovered, people weren't feeling any better off because their incomes hadn't improved since the recession. In 2012, the real median household income was $55,900. That's about the same as it was in 1988, once you've adjusted for inflation. In August 2018, wage growth rose above 3% for the first time since 2009.
While the unemployment rate is only around 3.5%, the real unemployment rate is much higher. The official rate only counts people who are actively looking for work, and many unsatisfied or would-be members of the labor force aren't included in the figure. Former Federal Reserve Chair Janet Yellen pointed this out in January 2017, saying, "A broader measure of unemployment isn't quite back to its pre-recession level. It includes people who would like to have a job but are too discouraged to look for one and people who are working part-time but would rather work full-time."
Government spending is increasing, especially when it comes to "entitlement" programs like Medicare. Medicare accounted for 16.8% of the total federal budget for the fiscal year 2019. Altogether, federal spending was roughly $6.9 trillion, compared to $6.6 trillion in 2018, and $6.4 trillion in 2017.
As spending increases, the U.S. debt is becoming increasingly unsustainable, meaning it's more than America's total economic output. When the debt-to-GDP ratio is so high, lenders could begin to worry about repayment. The situation is made worse by stagnant tax revenue. While spending has increased every year, both 2017 and 2018 saw roughly the same amount of tax revenue. Predictions for 2019 anticipate a roughly $100 billion year-over-year boost in revenue.
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. While many highways, water utilities, and railroads are aging, federal spending on these crucial pieces of infrastructure remains below pre-recession levels.