The U.S. economy is caught in an awkward, painful place. A confusing one, too. Here's a look at the factors at play, and what it all means.
The U.S. economy is caught in an awkward, painful place. A confusing one, too.
Surging inflation is most often a side effect of a red-hot economy, not the current tepid pace of growth. Today's economic moment conjures dark memories of the 1970s, when scorching inflation co-existed, in a kind of toxic brew, with slow growth. It hatched an ugly new term: stagflation. Economists now worry that the Fed, having underestimated inflation, will overreact and drive rates ever higher, imperiling the economy. They caution the Fed against tightening credit too aggressively.
After growing at a 37-year high 5.7% last year, the economy shrank at a 1.6% annual pace from January through March. For the April-June quarter, forecasters surveyed by the data firm FactSet estimate that growth equaled a scant 0.95% annual rate from April through June. The Labor Department's consumer price index skyrocketed 9.1% in June from a year earlier, a pace not seen since 1981. The price of gasoline has jumped 61% over the past year, airfares 34%, eggs 33%.
"There is a risk of overdoing it," warned Ellen Gaske, an economist at PGIM Fixed Income. "Because inflation is so bad right now, they are focused on the here and now of each monthly CPI report. The latest one showed no letup."Despite inflation, rate hikes and declining consumer confidence, one thing has remained solid: The job market, the most crucial pillar of the economy. Employers added a record 6.7 million jobs last year.
The weekly number of Americans applying for unemployment benefits, a proxy for layoffs and a bellwether for where the job market may be headed, reached 251,000 in the most recent reading. That's still quite low by historic standards, but it's the most since November.COVID-19 kept millions of Americans cooped up at home. But it didn't stop them from spending.
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