Everyone has their own idea about the economy right now.
According to others, the numbers were terrible. Inflation was higher than expected. People are working longer hours, but making less in inflation-adjusted terms than they were a year ago.
It’s the best of times, the worst of times, the spring of hope, the winter of despair. Everyone is looking at the same set of numbers and somehow coming to opposite conclusions.
Of course, politicians and their allies always cast new developments in whatever light is most favorable. That’s how politics works, and economic numbers lend themselves especially well to this kind of spin. Anyone can squint at four data points and construct whatever narrative suits their interests.
I’m here to tell you: Don’t trust anyone who says they know for sure what’s going on in this economy — including, umm, me.
It’s difficult to make predictions, the saying goes, especially about the future. But right now it’s tough to say exactly what is happening even in the present. Key economic metrics are pointing in all different directions.
Hiring in January was crazy strong (maybe because the job market is hot — maybe because the weather has been unseasonably hot, too). Services prices and overall output are growing quickly, also usually a sign of a booming economy. Other signs are less clear. The manufacturing industry is adding jobs, even though, by some measures, it looks like it’s in recession. Shipping firms, often a bellwether for a turn in the economy, are making big profits but expressing pessimism. So are executives in other industries that are nonetheless in the black.
If you are confused about the economy, take comfort. Things genuinely are confusing.
And beware: The puzzling nature of the current moment makes it fertile ground for partisans. When numbers are cacophonous, that cacophony can be pared down into multiple plausible tunes. Democrats can point toward the favorable datapoints (job growth in particular) and claim credit; Republicans can point to the unfavorable ones (still-too-high inflation) and lay blame.
Even when everyone seems to agree on the general tenor of things, different factions can come up with different causal explanations for what’s happening. If the economic numbers are unequivocally good, that must be because of the policies I recommended. If they’re unequivocally bad, it’s surely due to strategies I had warned against. (The same is true for interpretations of election outcomes, by the way.)
We all have the same tea leaves we try to read, hopefully with the benefit of a useful framework for how to read them. Whether things look “good” or “bad” in the economy also depends on the fraught question, “compared with what?” If we hadn’t had an energy shock that supercharged inflation last year, for example, few would be gloating about experiencing “only” 6.4 percent inflation now. On the other hand, if you’re comparing the post-covid job-market recovery with that following the financial crisis, things look pretty spectacular.
Understanding the economy is also to some degree a very personal and specific thing. If you lost your job, then good macroeconomic data provides cold comfort. If inflation is killing your small business, the fact that it’s sometimes a fraction of a percentage point lower than market expectations is meaningless.
With all those caveats in mind, people still want to know what the heck is going on. So, my best, humble guesses about the big economic questions of the day:
Are we headed for recession? I’m less worried today about an imminent downturn than I was a few months ago, particularly as labor-market numbers have come in better than expected month after month. I don’t think the risk of recession is gone, though. There are too many unknowns. The path of Russia’s war on Ukraine, for instance, or a possible default on U.S. debt (accidental or otherwise).
I’m less worried about inflation than I once was, too — at least, I think it’s unlikely price growth will accelerate in the months ahead. But inflation has been pretty “sticky,” and recent data revisions have shown it to be higher than initially estimated. Wringing the last bit of inflation out of the system might be challenging, since we’ve already done some of the relatively easier stuff (untangling some snarled supply chains, for instance, and cooling housing demand). Which means likely we’ll be dealing with uncomfortably high price growth and Federal Reserve rate hikes for some time to come.
No doubt we will be arguing about all of this for much longer, too.