Does This Look Like A Strong U.S. Economy?
Ron Miller, PE, MBA, CEM, REP
Energy Industry Consultant | Conventional Power | Renewables | Decarbonization | Professional Speaker | Author | College Instructor
My article of the same name was published on 25 October 2022, but Linkedin has subsequently removed it.
The United States is enduring a difficult economy and man-made energy crisis at present. There are several indicators of how our economy is performing, which I will share in this article. As you read the graphs of U.S. economic performance below, please ask yourself one simple question:?
Are you and your family better off now, July 2024, than you were 42 months ago?
The graphs that will be shown below regarding the U.S. economy are the following:?
1.????Federal Funds Rate:
2.????Median Consumer Price Index:
3.????U.S. Mortgage Rates
4.????NAHB/Wells Fargo Housing Market Index
5.????Median Sold Price Of Existing Homes Consumer Prices
6.????Median Consumer Prices
7.????Fuel Oil Price Inflation
8.????Dow Jones Stock Market
9.????U.S. National Debt
10.??Employment Participation Rate
11.??Savings Rate
12.??Unemployment Rate?
Federal Funds Rate:?
The federal funds rate is the interest rate at which depository institutions trade federal funds (balances held at Federal Reserve Banks) with each other overnight.
The federal funds rate is the central interest rate in the U.S. financial market. It influences other interest rates such as the prime rate, which is the rate banks charge their customers with higher credit ratings. Additionally, the federal funds rate indirectly influences longer-term interest rates such as mortgages, loans, and savings, all of which are very important to consumer wealth and confidence.?
The recent bumps up in the Federal Funds Effective Rate indicates that inflation is a problem, and increasing this rate is one method to potentially lower inflation, while assuming the risk of a recession is heightened. The Fed rate is now at a 23-year-high level, on par with the level of the 2008-2009 recession.?
Graph 1 - Federal Funds Effective Rate, 1955-2024
Board of Governors of the Federal Reserve System (US)?
Median Consumer Price Index:?
Median Consumer Price Index (CPI) is a measure of core inflation calculated by the Federal Reserve Bank of Cleveland and the Ohio State University. Median CPI was created as a different way to get a “Core CPI” measure, or a better measure of underlying inflation trends. The Cleveland Fed analyzes the median price change of the goods and services published by the Bureau of Labor Statistics. The median price change is the price change that's right in the middle of the long list of all of the price changes. This series excludes 49.5% of the CPI components with the highest and lowest one-month price changes from each tail of the price-change distribution resulting in a Median CPI Inflation Estimate.?
The recent reduction in the inflation rate (CPI) after hitting highs in the 8-9% range ?is of grave concern for all of the commodities Americans use and buy each day such as groceries, gasoline, and electricity. The CPI does not include food and energy in its calculation, as if Americans do not eat or drive a car. Inflation is the cruelest of taxes levied on all Americans as it disproportionately discriminates against our fellow Americans with lower family income.
Graph 2 - Median Consumer Price Index, 2013-2024
U.S. Mortgage Rates:
The Freddie Mac? 30-Year Fixed Rate Mortgage Average in the United States provides borrowers an indication of the long-term mortgage expense to buy a home. As it has increased from 42 months ago, this higher rate makes it harder for Americans to qualify for a home loan, especially as the higher annual inflation is quickly increasing house prices, thus making home ownership more of a far-away dream than a present-day reality.?
The over-7% mortgage rates seem to have become a fixture in the housing market. The average conforming 30-year fixed mortgage rate edged up to 7.07% recently, according to the Mortgage Bankers Association.?
These mortgage rates are not high compared to the pre-QE era. From 1970 through 2001, mortgage rates ranged from 7% to 18%. What was different then that allowed those rates to function were the lower home prices. When mortgage rates dropped below 7% in 2002 and eventually as low as 5.5% in 2005, they fueled Housing Bubble I, which led to the Housing Bust from 2006-2012. So these 7% rates are fairly high rates:?
Graph 3 – Freddie Mac 30-year Fixed Mortgage Rate, 1972-2024
NAHB/Wells Fargo Housing Market Index:
The traffic of prospective buyers of new single-family houses plunged to the lowest level since 2020 and the pandemic. The early 2021 traffic number was 68 compared to the current traffic number of 27, a 60% drop-off in housing traffic per the National Association of Home Builders.
Graph 4 - NAHB/Wells Fargo Traffic of Prospective Buyers, 2019-2024
Median Sold Price Of Existing Homes Consumer Prices:?
The national median price?of existing homes – single-family houses, condos, and co-ops, declined to $379,100 in January, down by 8.4% from the peak in June 2022, according to data from the National Association of Realtors (NAR) today.?
However, current housing prices are well over $400,000.?
The year 2023 was the first year since the Housing Bust when the seasonal high in June was lower than the seasonal high and all-time high a year earlier (June 2022). Year-over-year, the median price in January was up 5.1% (historic data via?YCharts).?
Graph 5 – Median Sold Price Of Existing Homes, $ - 2013-2024
Median Consumer Prices:
Another way to look at inflation is comparing the different trackers of U.S. inflation shown in Graph 6 below, and it’s all pretty ugly since 2021.
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Graph 6 – Medium Consumer Prices
Fuel Oil Price Inflation:?
As we have seen inflation grow over the last 42 months, one additional “hit” to our economy is the unusual premium now seen for diesel fuel and California CARB gasoline.?
The diesel spike is due to continued pressure on the fossil fuel industry for refinery and infrastructure investment. As government announces (prematurely) that the U.S. will be fossil-fuel free in the near future, rational hydrocarbon investors, both corporate and individual, have been pressured away from the oil and gas industry.?
As environmental regulations have imposed historic pressure on this industry, the last 50,000+ barrel per day refinery was built in 1975, while the industry has seen many refinery closures. This development has crimped U.S. refinery capacity and its ability to produce adequate volumes of diesel fuel. This shortage is keenly to blame for increased consumer product and grocery prices as diesel is used both for rail and truck transportation.?
Graph 7 – Heating Oil No. 2 Residential/Diesel Weekly East Coast Price History, 1990-2024
Dow Jones Stock Market:
After hitting a 21-month low of 28,725 on 30 Sep 2022, the Dow Jones has rebounded to 40,539.93 on 29 Jul 2024. From the depths of the pandemic, the market rebounded from 19,174 on 20 March 2020 to 30,997 on 22 Jan 2021, a 62% climb.?
Graph 8 – Dow Jones Stock Market Performance Last 12 Months
National Debt:?
The current U.S. national debt is now a record $35 trillion as of 29 Jul 2024. It has grown over time due to recessions, defense spending, and other programs that added to the debt.?The U.S. national debt is so high that it's 98%of the annual economic output of the entire country, which is measured as the gross domestic product (GDP).?
Throughout the years, recessions have increased the debt because they have lowered tax revenue and Congress has had to spend more to stimulate the economy. Military spending has also been a big contributor, as has spending on benefits such as Medicare. In 2020 and 2021, spending to offset the effects of the COVID-19 pandemic also added to the debt. In 2022, tax increases on the wealthy and corporations decreased the future debt outlook, but student loan forgiveness increased it.?
We have not seen this high of a national debt-to-GDP ratio since World War II.?
When the debt gets so big that it hits the debt ceiling, the limit put in place by Congress, investors may worry that the?U.S. will default on the debt. In that case, the government will need to raise the debt ceiling or reduce the debt through higher taxes, spending cuts, and more. Congress could elect to continue printing money which only feeds the fires of inflation for all of us.?
Graph 9 – U.S. National Debt
Employment Participation Rate:?
The Labor Force Participation Rate is defined by the Current Population Survey (CPS) as “the number of people in the labor force as a percentage of the civilian non-institutional population. i.e. the participation rate is the percentage of the population that is either working or actively looking for work.” Even though we have seen an uptick recently, overall the LFPR is very low compared with the 2000 peak.?
US Labor Force Participation Rate is at?62.60%, compared to 62.50% last month and 62.60% last year. This is lower than the long term average of 62.84%.?
The Labor Force Participation Rate before the pandemic was 63.40%.?
Graph 10 – U.S. Labor Force Participation Rate
Savings Rate:?
Personal saving as a percentage of disposable personal income (DPI), frequently referred to as "the personal saving rate," is calculated as the ratio of personal saving to DPI. Personal saving is equal to personal income less personal outlays and personal taxes; it may generally be viewed as the portion of personal income that is used either to provide funds to capital markets or to invest in real assets such as residences. (https://www.bea.gov/national/pdf/all-chapters.pdf).?
Low savings rates could indicate Americans are strapped to keep up with living expenses in light of high inflation, so therefore, they are unable to save for retirement, or even a house.?
Graph 11 – U.S. Personal Saving Rate
Unemployment Rate:
The unemployment rate in the United States rose to 4.1% in June 2024, the highest since November 2021, up from 4% in the previous month and surprising market expectations, which had forecasted the rate to remain unchanged. The number of unemployed individuals increased by 162,000 to 6.811 million, while employment levels increased by 116,000 to 161.199 million. Meanwhile, the labor force participation rate went up to 62.6% from 62.5%, and the employment-population ratio decreased to 60.1% from 60.2%.??
Government jobs were the 2nd largest component of the June 2024 jobs report. It is doubtful these jobs help to grow the economy and increase our national GDP, as much as private sector jobs would accomplish.?
Graph 12 – U.S. Unemployment Rate
Summary:?
Every person has to decide what is best for his/her family as far as the economics that they face in the current market. As you have reviewed the graphs, it is up to you to decide what is the trajectory of your family’s economic fortunes in the near to long-term future. Ultimately all of us must face the current reality and answer this question:?
Are you and your family better off now, July 2024, than you were 42 months ago??
I welcome your comments and questions, and the opportunity to assist you with your energy questions and concerns. You are welcome to review my previous energy articles at my LI profile.? I am the principal at Reliant Energy Solutions LLC, a Professional Engineer, Certified Energy Manager, Renewable Energy Professional, and can be reached at [email protected] . My website is: www.reliantenergysolutions.com
“It is better to debate a question without settling it, than to settle a question without debating it.” Joseph Joubert
You are welcome to review my previous energy articles at the link shown below.
Copyright ? July 2024 Ronald L. Miller All Rights Reserved
infrastructure and transport systems engineer (M.Eng.)
1 个月Ron Miller, PE, MBA, CEM, REP why did Linkedin remove this article?
Energy Industry Consultant | Conventional Power | Renewables | Decarbonization | Professional Speaker | Author | College Instructor
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