This past semester I have had the pleasure of teaching labor economics to a talented group of juniors and seniors at the University of Minnesota Duluth. In addition to learning about labor supply and demand, wage determination, and occupations in demand, we’ve been reading and interpreting the Bureau of Labor Statistics Monthly Jobs Report. This report, which is closely watched by labor-market analysts and others interested in the national economy, provides the unemployment rate, job gains and losses, wages, and other important measures. Together, the students and I have interpreted each month’s report and listened to podcasts where experts predicted what the results might mean for the likelihood of a recession.
As an economist, I typically pay attention to the reports and listen each month to the headline numbers. But I fully admit I don’t typically scour the full report each month or listen to professional analysts dissecting the results in detail. This careful, repeated examination of the monthly jobs reports was a new experience for me.
In short, what I have seen over the past few months has given me a lot of optimism for the economy in the coming year. A year ago, headlines were suggesting a recession was imminent. But throughout 2023 we have seen businesses adding jobs, consistently low unemployment rates, rising wages, strong GDP growth, and declining inflation. There is growing hope among economists that the Federal Reserve might be able to pull off its goal of a “soft landing” — or, reducing inflation back to 2% while avoiding a recession and high levels of unemployment.
So, it may be surprising to read recent polls showing that most Americans (roughly six in 10) feel like the U.S. economy is already in a recession. Younger generations are most likely to feel the economy is contracting, but sentiments are consistently negative among all age groups and income levels.
What is the reason for the disconnect between mostly positive economic indicators and negative consumer sentiment? The answer is likely related to consumers’ earnings. A recent U.S. Census Bureau report found that, after correcting for inflation, the earnings of most U.S. households declined significantly in 2022 compared with the previous year. With consumers being especially sensitive to changes in their purchasing power, many have likely maintained a negative view of the economy despite improving economic conditions.
The good news is that, if current trends continue, the rate of inflation looks like it will be significantly lower in the next few months while the pace of wage increases will be higher. This suggests that consumers might finally begin to feel some relief as household incomes start to outpace inflation.
As a side note, my classroom experience also provided me with a sense of optimism for the long-term health of the economy. I know employers are eagerly anticipating this new cohort of workers, and for good reason. In working closely with this group of young adults, I witnessed a future workforce that is intelligent, curious, hard-working, and kind. They asked interesting questions and challenged conventional wisdom. I’m excited to see how they change and transform the economy in coming years.
In short, while I can’t say with certainty that 2024 will be recession-free, my deep dive into the monthly jobs reports this past semester has given me confidence in the health of the economy, hope for continued relief from high inflation rates, and optimism about the quality of our future workforce. Happy New Year!
The original article was published in the Duluth News Tribune on Monday, December 25.