You Can't Eat GDP

In March, employers added 303,000 jobs, marking the 39th consecutive month of job growth and surpassing expectations by over three million jobs. Talk of a looming recession among economists has become increasingly rare.

“This is another really strong report,” Lauren Goodwin, economist and chief market strategist at New York Life Investments told CNBC. “This report and the February report showed some broadening in terms of job creation, which is a very good sign.”

Meanwhile, U.S. gross domestic product grew 2.5 percent in 2023, significantly outpacing that of other developed economies, according to a January report from the International Monetary Fund. The IMF projected that the U.S. will hold that lead in 2024, though it expects the rate to come down to 2.1 percent.

Two other large advanced economies, Canada and Germany, lagged with 2023 GDP growth at 1.1 percent and negative 0.3 percent, respectively.

“The U.S. economy is leading the way for the global economy. It’s driving the global economic train,” Moody’s chief economist Mark Zandi told CNBC.

Mohamed El-Erian, an economist and adviser at Allianz, told Bloomberg TV that the latest job figures “confirm U.S. economic exceptionalism.”

Bidens Conundrum

However, America's better-performing economy offers no assurance that President Joe Biden will remain in office after the November elections, as his approval ratings remain low, particularly on his handling of the economy.

“When it comes to the economy, emotions clash with reality, and emotions seem to be prevailing,” wrote Greg Ip of The Wall Street Journal this week.

Indeed, the red-hot labor market could potentially worsen two of Biden’s major vulnerabilities: inflation, fueled by strong wages leading to increased spending and higher prices across various sectors like gasoline and entertainment tickets; and sustained higher interest rates aimed at curbing these price hikes.

A growing number of Wall Street analysts now predict that the Federal Reserve will not be quick to lower borrowing costs. Meanwhile, Americans continue to worry about their retirement savings and are grappling with credit card debt while seeing their savings dwindle.

The Labor Market Remains a Bright Spot

Wages are increasing, accompanied by a rise in the labor participation rate, which climbed from 62.5 percent to 62.7 percent as 469,000 people joined the workforce last month.

Overall, this resilient data supports the notion that the U.S. economy has achieved a healthy balance where sustained commercial activity, employment growth, and rising wages can coexist, despite the elevated interest rates of the past two years.

After a period from late 2021 to early 2023 when inflation outpaced wage gains, there has been a notable shift, even as wage growth moderates from the rapid rates seen in 2022.

In March, average hourly earnings for workers increased by 0.3 percent from the previous month and were up by 4.1 percent compared to March 2023.

Perception Not Aligning With the Data

In The Wall Street Journal's latest poll of swing states, 74 percent of respondents believed that inflation has worsened over the past year.

However, this widespread perception, shared across all seven states polled, does not align with the hard economic data. In fact, according to the century-old consumer-price index, inflation over the 12 months through February was 3.2 percent, down from 6 percent a year earlier.

Even when excluding food and energy prices, inflation remains on a downward trend. Yet, the prevailing sentiment is that inflation has risen.

This disconnect will no doubt challenge President Biden's re-election prospects.

The misunderstanding may stem from conflating inflation with the overall level of prices, leading people to believe that inflation is worsening because prices continue to rise.

A recent Brookings Institution study sheds light on these perceptions, with half of respondents correctly defining inflation as rising prices, while the other half mentioned "price gouging" or "overpriced everything."

This gap between perception and reality extends beyond inflation.

A notable portion of respondents believe that their investments or retirement savings have declined over the past year, despite record-high stock market performance, stable or rising home values, and increased interest on savings.

Similarly, most respondents feel that the economy has worsened over the past two years, despite strong employment growth, historically low unemployment rates, and accelerating gross domestic product (GDP) growth.

But as the old saying goes, "You can't eat GDP." Despite claims of reduced spending on groceries and dining out, the data shows that Americans are spending more on food, both at home and in restaurants, contributing to the GDP.

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