Aug 27ย โขย 4 min read
Is the Economy Actually as Bad as It Feels?
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Ask most people how the economy is doing and you'll get some version of the same answer: not great. The K-shaped economy. The lingering effects of inflation. Supposedly stagnant wages. The coverage is relentless, and many people are convinced things are falling apart. But when you set the headlines aside and look at the actual data, a very different picture shows up. In today's email:
As always, I'll wrap up with a few of the best retirement and investing articles I read in the past week. *** Before we dive in, did you catch this week's podcast? ๐ The $70 Trillion Story(Note: all sources are linked at the end of this newsletter.) Let's start with the strength of the consumer balance sheet. At the end of 2019, U.S. households had roughly $109 trillion in assets. Today, that figure is about $174 trillion โ an increase of roughly $70 trillion. Debt has grown too, but nowhere near as quickly. Household liabilities increased from about $14 trillion to $19 trillion, with housing debt accounting for roughly $4 trillion of that increase. Put the two side by side:
In other words, asset growth has outpaced debt growth by roughly 14 to 1. That has to be one of the biggest, and perhaps most overlooked, financial stories of the decade. Credit Cards: Headlines vs. MathNext up: credit card debt. Credit card balances recently crossed $1.25 trillion, up from about $930 billion at the start of the decade. A $300 billion increase sounds alarming on its own. But compared with roughly $70 trillion of asset growth, it looks much less dramatic, even if each new record still generates plenty of scary headlines. More important is whether households can actually afford the debt they carry. Today, household debt service payments equal about 11% of disposable income. That's lower than every pre-COVID quarterly reading going back to before the Great Financial Crisis, painting a very different picture than the headlines. Jobs, Wages, and GrowthThe same pattern shows up in the broader economy. The most recent unemployment rate was 4.1%, lower than it has been for most of the past 50 years. And employment among prime-age workers, ages 25 to 54, remains within 2% of its all-time high. Wages have held up too. Real median weekly earnings for full-time workers, meaning after adjusting for inflation, are higher than they were at the start of the decade. That doesn't erase the pain of the inflation spike, but over this stretch, wage growth has ultimately outpaced inflation. Real GDP growth has also been positive in nearly every quarter over the past decade, while the latest inflation reading of 3.4% is almost exactly in line with the 3.5% average since 1950. We may have gotten used to the ultra-low inflation and interest rates of the 2010s, but today's environment is much closer to the long-term historical norm. Finally, corporate earnings continue to grow in the U.S. and abroad. That growth has helped drive average annual stock market returns of more than 15% since the start of the decade. And as earnings have risen faster than prices, valuations have moved back near where they stood in early 2020. So Why Does Everyone Feel Terrible?Despite all of the data we just walked through, consumer sentiment has spent most of this decade below its long-term average, and it remains deeply depressed today. Some of that disconnect is understandable. National averages don't describe every household, and many people are dealing with very real challenges around housing, affordability, and their own finances. But our natural negativity bias likely plays a role too. Bad news grabs our attention, generates clicks, and dominates the airwaves far more easily than stories about steady progress. None of this means everything is perfect, or that today's favorable trends will continue forever. It simply means the economic reality is more nuanced, and in many ways much stronger, than the prevailing mood would suggest. Bottom LineTaken as a whole, the data suggests things are pretty darn good, and that probably reflects your actual lived experience over the past few years more than the nightly news does. That doesn't mean everything is perfect, and it certainly doesn't guarantee that the years ahead will be easy. But if your retirement decisions are being shaped by a story the data doesn't support, that's worth noticing. The headlines will always give you something to worry about. Your job is to keep those risks in perspective, build your plan around your goals and a rational view of history, and avoid letting the mood of the moment derail a sound long-term strategy. Then let the headlines be headlines. ๐ What I've Been Reading
Thank you for reading! Please reply to this email with comments, questions, and/or feedback. Stay wealthy, Taylor Schulte, CFPยฎ Sources:
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