Q&A of the Day – What’s the Definition of a Good Economy?
Each day I feature a listener question sent by one of these methods.
Email: brianmudd@iheartmedia.com
Social: @brianmuddradio
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Today’s entry: @brianmuddradio Brian, regarding the current economic state, we hear so many conflicting narratives about what's happening with growth, inflation, and the job market. Given your quote that there's 'only one side of facts,' what are the key, indisputable economic metrics that you believe provide the most accurate picture of where the U.S. economy actually stands today, and what do they tell us?
Bottom Line: It’s an excellent question as politicos often attempt to spin economic numbers to fit their objectives. The answer is ultimately in the eyes of each American as to if the economy is good from their perspective. With that said, as we look more broadly at what’s playing out across the country, there are a few economic data points that matter most. The three most important in my view are these: unemployment rate, wage growth, inflation rate. That’s not to say that GDP growth and other related macro-economic measures aren’t important. They are. But what’s most important is whether the economy is growing faster than inflation and whether that’s translating into job opportunities for those in need of work, and whether the quality of life of the average American is generally improving.
The Biden presidency was a case study in the importance of that dynamic as economic growth due to the rebound from pandemic era-lockdowns was significant, however inflation was higher. Consider this:
- The total GDP growth rate was 9.25%
- The total inflation rate during President Biden’s four years was 21%
- The total wage growth rate during that time was 19.8%
The impact of ‘Bidenflation was real. Demonstrably the average American’s quality of life declined during the four years of the Biden administration with wage growth trailing the inflation rate by 1.2%. Let’s compare that record to that of President Trump's first three years preceding the pandemic for the opposite example.
- The total GDP growth was 7.7%
- The total inflation rate was 6.2%
- The total wage growth was 9.4%
Demonstrably the average American’s quality of life improved during President Trump’s three non-pandemic years as with wage growth having risen by 3.2% above the rate of inflation. On that note consider this through the first nearly nine months of the Trump administration.
- The total GDP growth was 1.6%
- The total inflation rate was 2%
- The total wage growth was 3.8%
Already, during the first three quarters of a year of the Trump administration wage growth has outpaced inflation by 1.8%. There are several factors weighing into this phenomenon, however one of the largest is a dynamic I’ve highlighted with each of the monthly job reports in recent months. There are 1.1 million fewer “foreign-born” workers amid a total of 2 million deportations that have taken place through the first nine months of the Trump administration. Effectively, illegal immigrants in the workforce were suppressing wages and taking job opportunities from legal citizens. As that process has been reversing, we’ve seen well above average wage growth occur for those in the workforce.
One of the challenges going forward, and that’s been building in recent years preceding, will be the impact of AI in the workforce. The latest ADP Private Sector jobs report showed the private sector shedding 32,000 jobs in September, although the impressive wage gains continued to accelerate with wages up 4.5% on average year-over-year. So effectively what data shows is a tale of two economies right now. One that is good, and getting better for most in the workforce, while it’s becoming more challenging for those on the outside of the workforce looking in.
Independent of my analysis the top ten economic indicators monitored by economists in determining their perspectives on the condition of the economy are these: GDP, employment, industrial production, consumer spending, inflation, home sales, home building, construction spending, manufacturing demand and retail sales.
You can see where my perspective tends to differ from the consensus. While two of the top three factors I look for are among the top five most economists look towards, wage growth isn’t among them. That, I believe, is what’s most often overlooked. Employment levels and opportunities are important; however, it’s only half of the story. The other half is whether people are earning enough to improve their quality of life. Some would consider this an oversimplification, but I don’t think so.
If the average person who needs work has it and is steadily earning more than the cost of living is increasing, it’s a good economy. If they aren’t able to achieve both of those things, it’s a bad economy. So yes, as always there are two sides to stories and one side to facts. There’s room for an honest debate about what constitutes a good or bad economy, though I’ll gladly take my approach into any related debate.