by Jade Thomason
Equity and Fixed Income Trader
The summer season is fast approaching, and this typically brings feelings of excitement and relaxation; a time of year that many people spend months looking forward to. However, these positive feelings may not translate to all facets of life. Based on a recent Harris poll, most Americans (wrongly) believe the United States is in an economic recession, a misconception, among others, that is worth examining.
56% of respondents said they believe the United States is in a recession.
A recession is an extended period of economic decline – more specifically, it is designated when the Gross Domestic Product (GDP) has declined for two or more consecutive fiscal quarters, among other more subjective economic factors. Based on this definition, the U.S. is not in a recession. In the first quarter of 2024, GDP grew by 1.3%, a decelerated rate from the 3.3% growth of the fourth quarter of 2023, not recessionary. In fact, U.S. GDP has been outpacing that of other developed nations. The Bureau of Economic Analysis stated that the first quarter growth metric reflected a downward revision to consumer spending – personal consumption in the first quarter grew at 2%, down from a prior reading of 2.5%. This data suggests that the economy is slowing, but not in a recessionary period.
72% of respondents indicated they think inflation is increasing.
It is no surprise that there are misconceptions around inflation. Inflation rates have fallen sharply from their post-COVID peak of 9.1% in June 2022, and have now been trending toward 3%. This is close to the Fed’s preferred inflation target of 2%.
Based on that data alone, inflation has been down, but prices are at staggering levels compared to a few years ago. In this same survey, 70% of Americans said their biggest economic concern was the cost of living. Consumers are likely focused on the “stickier” elements of the economy such as rent, that are harder to decrease in price once an increase has taken place.
49% of respondents believe the S&P 500 stock market index is down for the year.
Perhaps the largest disconnect is around the performance of the stock market - the S&P 500 was up about 24% in 2023 and is up more than 12% this year. These statistics, and even the fact that the Dow Jones Industrial Average had its first close above 40,000, has generated little enthusiasm around the state of the economy. If the gains alone are not enough to excite the average American, the foundation of this rally should provide comfort. Just like the stock market, corporate profit expectations are sitting at an all-time high. Over the long term, markets move with earnings. Therefore, if earnings expectations continue to increase, these market gains are justified. We expect to see normal stock market volatility, however, we are not seeing a change in the economic cycle that is often accompanied by a bear market.
Money is a sensitive subject that evokes a wide range of emotions, so it is no surprise that these same feelings can mold our perception of investing and the economy. The three misconceptions above can contribute to the negative sentiment surrounding the United States economy, but we hope the data will leave Americans feeling reassured.
Takeaways For the Week:
The personal consumption expenditures price index (PCE) was in line with expectations for April. On an annual basis, core PCE (excluding food and energy costs) was up 2.8%. This is the Fed’s preferred inflation gauge and one of the data points used to evaluate interest rate moves