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“It’s not just my opinion that things are strange,” Derek Thompson recently told me.
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Last week, the U.S. unemployment rate hit a 50-year low, and a report released today showed inflation slowed in July. All that is good, but economic output is also slowing in 2022, prompting economists to question if the country is in recession.
We spoke to Derek Thompson, staff writer and author of the Work in Progress newsletter, about this huge disconnect between job growth and economic growth, and why it’s so hard to understand what’s going on in the economy today. I asked if it was difficult. “If economic growth is really declining, it’s he one of the strangest recessions in American history,” he told me.
Isabel Fatal: What should a normal non-expert think about this moment in the US economy?
Derek Thompson: When thinking about economics, we need to think in terms of three categories: statistics, labels, and sentiment. Statistics such as inflation and unemployment come from government surveys and are so descriptive of what is happening to the broader economy that you should trust them.
Emotions are born from your personal experience in the economy. Is your local labor market good? How do you feel about whether your income is holding up to inflation?
Labels are provided by the National Bureau of Economic Research (NBER) Business Cycle Dating Committee. ‘Recession or not’ label Determined by eight economists. It has absolutely nothing to do with how you feel about the local economy.
Isabelle: You recently wrote, “Are we in recession?” is the wrong question. why?
Derek: There are two reasons why it’s so hard to tell if we’re in a recession right now. First, the NBER does not make decisions for months, quarters or more than a year. So why discuss now what we won’t know in a year?
Second, the GDP estimates we just got from the Bureau of Economic Analysis are just estimates, and estimates are subject to revision. The chances of the economy actually growing in the first half of 2022 are about the flip of a coin. Unfortunately, what we know about recent growth is not certain.
Isabelle: what is one of us conduct Are you sure you know about the economy today?
Derek: We know three things for sure. First, we know that inflation is historically very high, one of the highest in the last 40 years. Second, we know that the unemployment rate is the lowest in 50 years. The labor market is booming.
Third, we know growth is slowing. We know that GDP growth was very high in 2021, but we also know that it will slow down in 2022. I don’t know if some economists would call it a recession.
Isabelle: As you wrote, we are all in a strange economy because different factors are working in contradictory ways. For example, there are more jobs, but the economy is shrinking. How should people deal with these mixed messages? What should we pay the most attention to?
Derek: It’s very difficult to predict the future of the economy, so it’s convenient to look for a single indicator. The only metric I watch is inflation.If inflation starts to fall I believe it will in the coming months [it declined to 8.5 percent in July], the Federal Reserve does not need to keep hacking interest rates. If interest rates do not continue to rise, the economy will likely return to growth. So everything comes from inflation. If I’m interested in figuring out where the economy is headed, I’d be obsessed with looking at energy prices, home prices, and retail spending.
Isabelle: How do Americans feel about the economy right now? How people feel can really influence where the economy goes from here, right?
Derek: This is a very important point. Emotions are not imaginary. To some extent, emotions drive the economy. People who are optimistic about the future spend more money.
But when we ask consumers how they feel about the economy, they are increasingly ideologically divisive. Republicans say they’re sad about the economy when Democrats are in the White House. And Democrats say they’re sad about the economy when Republicans are in the White House. Asking about emotions is no longer as useful as it used to be.
in my podcast plain englishEconomist Austan Goolsbee has stressed that the entire 1992 presidential election was technically about an economic slowdown that was already over. Statistically, the recession was over, but in terms of mood and emotion, the recession deepened, and the election outcome of losing the incumbent president hung on recession sentiment that didn’t really exist. This shows that emotions have real-world consequences even when they are decoupled from statistics.
Isabelle: Is this an unprecedented moment for the economy?
Derek: Never before has there been an economy like this. It’s a cliché, but I call it the pinch horse economy. If you run water through a backyard hose and pinch the hose for a while, the water will pool and when you release the hose it will splatter violently and the hose will flap all over the place. in violent and bizarre ways. That’s what happened in the economy. We turned off the hose and said nobody flies, nobody goes to restaurants, people don’t go to the cinema. We deliberately shut down the economy because of the pandemic.
But then the demand for water surged beyond its supply capacity and could no longer be easily met. That’s why we’re seeing the economic hose thumping all over the place. It’s hose flapping. The hose is still flapping.
news of the day
- Donald Trump adopted the 5th Amendment and refused to answer questions from the New York Attorney General’s office in an investigation into his company’s business practices.
- Russian forces have launched overnight missile strikes in southern Ukraine, killing at least 13 civilians and injuring others. Ukrainian special forces also reportedly attacked a Russian air force base in Crimea yesterday, a move that marks a significant escalation in the fighting.
- The Justice Department has charged members of Iran’s Islamic Revolutionary Guard Corps with plotting to assassinate John Bolton.
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