Who Should We Believe?

Share to Facebook Share to Twitter Share to Linkedin According to the government bean-counters, the economy is doing well. But GDP has posted solid gains for the past year and job growth is strong, with a historically low unemployment rate. But, not all the major indicators of economic performance agree. The University of Michigan’s Index of Consumer Sentiment was as high as 88 in April of 2021 and as low as 59 in May of last year. In the second quarter of 2020, the Index reached 101, the recent peak, and has trended down as the economy “improved” according to GDP statistics and jobs numbers. Index of Consumer Sentiment. University of Michigan Another group of important size that doesn’t agree with the official numbers is small business. The National Federation of Independent Business (NFIB) has surveyed a random sample of their approximately 300,000 member firms about their economic circumstances for over 50 years. Based on responses to 10 prospective questions, NFIB compiled the Index of Small Business Optimism. Table 2 summarizes the data presenting annual averages comparable to the Michigan Index data in Table 1. All that reported growth in real GDP and employment didn’t find its way into the small business sector. The percent of owners increasing employment remained historically low, adding an average of 0.05 workers per firm since 2020 compared to the addition of 0.15 workers per firm in the four years prior to 2020, three times as many jobs created. More firms reported reducing employment than increasing it since 2019, in 17 of the 18 quarters through the first quarter of 2024. Since 2020, successful hiring has been lacking, leaving job openings at historically high levels. NFIB Optimism Index NFIB There are many other economic indicators relied upon for predicting future economic conditions, including the “inverted yield curve” and the Conference Board’s Index of Leading Economic Indicators, both of which have “predicted” a recession for over a year (and they may eventually be right). In 2023 the LEI made a recession call while the GDP numbers showed the economy headed up solidly. In a similar fashion the inverted yield curve plunged into “recession territory” while the GDP posted above-trend growth. MORE FOR YOU See A Total Eclipse Of A Star As Manhattanhenge Returns The Night Sky This Week The Acolyte Episode 3 Review One Of The Most Disappointing Star Wars Episodes Ever Made Apple’s New Security Update Exposes Samsung’s Biggest AI Problem In 2019, short-term loans were cheaper than long-term, but the “yield curve” inverted, with short rates moving well above that on 10-year Treasuries. Historically, an inverted yield curve has been a reliable predictor of a recession. No recession has materialized yet, but there’s plenty of time. Overall, it is clear that private sector measures of economic activity are clearly weak when compared to the government’s measures of GDP and employment growth. Main Street remains pessimistic, with the percent expecting better business conditions in the next six months at 50-year low levels. Like the Federal Reserve, we’ll have to look at the incoming data each month for more clues. William Dunkelberg Following Editorial Standards Print Reprints & Permissions