Why are Americans Feeling Poorer?
1. Trust in Economic Data
Many Americans are losing trust in government-provided economic data, feeling misled about the true state of the economy. Despite reports of economic strength, such as low unemployment and GDP growth, many do not feel these positive impacts, leading to a period of economic dissonance.
2. Economic Indicators
Official data shows unemployment levels have fallen to 4.1%, among the lowest in history. Wage growth is reportedly faster than expected, and inflation has been cooling steadily, according to the Federal Reserve. GDP growth remains strong, with recent numbers indicating a robust economy.
3. Discrepancy Between Economic Data and Public Sentiment
Despite these positive indicators, many Americans feel left behind due to rising credit card debt, high auto loan delinquencies, and low savings rates. The average person’s income has not kept pace with inflation, leading to a sense of economic disparity.
4. Wage Growth vs. Inflation
Between 2019 and 2024, wage growth was 18%, while reported inflation was 23%. However, real inflation, as felt by many, is higher than reported, with housing costs up significantly, car insurance rising over 50%, and grocery prices increasing as well. Meanwhile, the S&P 500 stock market grew by around 85%, highlighting the disparity between income growth and asset price increases.
5. Historical Economic Trends
From 1971 to 2021, household income grew by 600%, but the cost of new cars increased by 840%, median home prices by 1,200%, and college tuition by 2,000%. Despite two-income households becoming the norm, income growth has not kept up with the rising costs of essential goods and services.
6. Government Spending and National Deficit
Government spending has increased significantly, with the largest national deficit occurring in 2020 due to the pandemic, followed by substantial deficits in subsequent years. This spending, funded by the Federal Reserve creating money, leads to inflation and increased national debt, now exceeding $35 trillion.
7. Impact of Government Spending
While government spending stimulates the economy by funding projects and paying contractors, it also leads to inflation and higher interest expenses on national debt. The fastest-growing expense in the U.S. is the net interest expense due to the high national debt and increased interest rates.
8. Future Economic Outlook
There is hope that wage growth will outpace inflation in the coming years, making the average person wealthier. However, the discrepancy between reported inflation and wage growth from 2021 to 2024 may take a long time to correct, if at all.
9. Importance of Investing
The economic system tends to benefit investors, with the S&P 500 up by around 85% since 2021. To succeed in this system, individuals need to become investors, as market downturns can create opportunities for financial growth. Despite economic challenges, the economy continues to grow, and financially savvy individuals can capitalize on these opportunities.
Conclusion
Understanding the disparity between economic data and personal financial experiences is crucial. While macroeconomic indicators may paint a rosy picture, individual experiences often tell a different story. By becoming informed investors, individuals can better navigate this complex economic landscape and work towards financial stability and growth.
Jaspreet Singh is not a licensed financial advisor. He is a licensed attorney, but he is not providing you with legal advice in this article. This article, the topics discussed, and ideas presented are Jaspreet’s opinions and presented for entertainment purposes only. The information presented should not be construed as financial or legal advice. Always do your own due diligence
