The State of the U.S. Economy in 4 Numbers

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From “The New York Times,” I’m Michael Barbaro. This is “The Daily.”

Today, the state of the US economy so far in 2023, as explained through four different numbers. My colleague, Ben Casselman, on what those numbers can tell us.

It’s Wednesday, February 1.

Ben, welcome back to the show.

Thanks for having me.

We come to you, as we always do, today, with a curiosity about the US economy. And the meta story of our economy right now, as you and our colleagues have told us over and over and over, is that inflation is high. The government wants to lower it, and has taken aggressive action to accomplish that, which has all kinds of ripple effects across the economy, and could eventually tip us into a recession.

And since the new year began, a lot of economic numbers have been flying around, some of which feel contradictory, or at the very least confusing, when it comes to the question of inflation and recession. And so we wanted to talk those numbers through with you. That’s our mission today.

I will deliver perfect clarity and total foresight —

— as I always do.

As only you can. We’re going to see about that. I should say, I’ve come prepared. I have assembled these numbers.

You’re bringing me numbers.

I’m bringing you numbers.

Like it.

This is going to have a quiz show quality. I am the host. And the first number that I want to throw at you is about the housing market.

All right.

— which is, of course, a pillar of our economy. And that number, Ben, is $372,700, which, of course you know this, is the typical sales price of an existing, single-family home in the US, in December. And in reading about that number, I found that it’s up a lot compared with the past few years.

So the reason I bring you this number is that it seems to reflect a pretty healthy housing market. Is that the case?

Yes and no. Isn’t that always the way —

— I begin these answers?

Infuriating. So let’s take a little bit of a step back on what’s been going on in the housing market.

Sure.

[BASS MUSIC PLAYING]

In the pandemic, Americans rushed out and bought homes. Early on, they were looking for more space, as we were all working from home. Interest rates, as you may recall, were super low. And home prices soared, I mean, just through the roof.

But that $372,000 number you cited, to folks who are in New York or in San Francisco or LA may not sound that high. But before the pandemic, home prices had never been above $300,000 on a median level. So they went way, way up.

And of course, then something changed dramatically. The Fed started raising interest rates.

Right, which, of course, means it’s more expensive to borrow money and more expensive to buy a home.

Yeah, classically, the housing market is the place where Fed policy has an impact. It’s the place where you borrow the most money as a consumer. Builders borrow money to build. Everything about the housing market is driven by interest rates. And so interest rates went up, and the housing market ground to a halt.

Wait, wait, wait, but look at that nice number, $372,700. That does not sound like a housing market grinding to a halt.

This is the crazy thing about the housing market right now. Everything has ground to a halt except prices. Builders stopped building homes. Buyers stopped buying homes. Think about it. If you, in January of 2021, when interest rates were 3 percent, thought you could afford a $300,000 home, when interest rates suddenly go up to 6 percent even 7 percent, you can’t afford a $300,000 home anymore. The monthly payments are going to be too high for you.

Now what normally you would expect to happen is that prices would fall.

Right.

But here’s the thing. The sellers of those homes are all sitting there with their 3 percent mortgages also. And they’re like, you know what? Never mind giving up our nice, cheap, mortgage, and moving to somewhere else where we’re going to have to borrow money at 6 percent. So they don’t sell.

So if you own an existing home with a low mortgage, your incentive to move, and thereby create a potentially more affordable home for somebody else, is virtually nil. So you don’t. So prices don’t go down.

Exactly. So instead, what happens? Transactions go down. Nobody buys. Nobody sells. Nobody builds. The total number of single-family home sales is down by more than a third over the past year.

Wow.

So prices haven’t moved much. But every other kind of activity has really fallen off a cliff.

Hmm. OK, so is that a precursor to prices falling, this kind of stubborn cycle that you’re describing, people want prices to go down, sellers aren’t willing to make them go down. How long can that really last?

Yeah, so is it a precursor? Yes, almost certainly. Most forecasters expect home prices to start to fall. And they have started to fall. But it’s going to take time. And it’s probably not, according, again, to most forecasters, going to be a huge decline, which is good news. If you’re a homeowner, you don’t want to see the value of your home collapse. But it also shows how slow this process is.

Right, which is another way of saying that everything the government has undertaken since the economy got overheated, and we, as a country, decided we needed to do something about it, bring down prices, it takes a while to do. And that might not be the worst thing. But depending on where you are on the economy, it can be very, very frustrating. And if you’re trying to buy a house right now, it’s exceedingly frustrating.

Yeah, it’s very frustrating for would-be home buyers. And we’ve got an entire millennial generation that has been waiting for a moment to break into the housing market, to finally buy, to finally start generating wealth in the housing market. And I think many of them were sitting here, saying, hey, maybe if prices come down, I can finally buy in. And it’s not happening.

But it’s also very troubling for the Federal Reserve, for policymakers who are thinking about the larger economy because the concern there is, if the economy doesn’t slow in the way that they expect, do they have to get even more aggressive? Do they have to do even more to slow it down? And if that happens, do they run the risk of causing a recession, which is going to be much more painful for a much larger number of people?

Indeed, which I think brings us, quite naturally, to the job market. Our colleague, Jeanna Smialek, told us, back in December, about a pretty big wave of layoffs that started at the end of the year in the tech sector. But it has only intensified since January 1.

There have actually been 76,000 layoffs in that sector alone since the start of the year, which is about 2,500 tech workers a day. And those layoffs have actually expanded now, beyond tech, into media, retail, and financial companies as well. I think it’s safe to say that feels very ominous. Is that how it looks to you?

Yeah, no question. If you’re reading the headlines right now, and you’re seeing these news of some of our biggest, strongest companies, laying off, in some cases, tens of thousands of workers, that’s going to make a lot of people nervous. And as you said, this is not only in tech. But some perspective is really important here.

We still are seeing, in the aggregate, layoffs at among their lowest levels on record. Now we’ll get some new data this week. And we’ll see exactly what it shows. But so far, at least, it’s really been isolated to a few sectors, a few mostly better-paying, white-collar sectors, frankly. And elsewhere in the labor market, things still look really strong.

Can you give us some data points on that?

Yeah, so the unemployment rate is at 3.5 percent. That’s a 50-year low.

Wow.

There are 10 and 1/2 million job openings in our most recent data. That’s down a little bit from the peak, earlier last year. But it’s still enormously high. We’re still seeing a couple hundred thousand jobs added, on net, every month.

So all of our big-picture signals are that the job market still remains really, really strong, that not many people are losing jobs. If they are losing jobs, in most cases, they’re able to go and get a new one relatively quickly.

I certainly don’t want to understate the harm that it’s doing to people who lose their jobs or the fears that they’re facing. But we are not yet seeing any clear signs of mass layoffs or a huge reversal of fortunes in the job market.

And why aren’t we seeing those signs? Why is that? Why are things so healthy in the job market?

It’s a great question. And honestly, it’s been a surprise to a lot of people that the job market has stayed as strong as it has. Companies have been trying like crazy to hire for the last couple of years, and had a really hard time doing it. We’ve all heard about the labor shortage and the great resignation and all of this.

And so companies that have finally managed to bring people back are not going to be eager just to turn around and fire them all, especially if they think that this might just be a short downturn. So there’s a lot that’s encouraging companies to keep hiring, or at least to hold on to the workers that they’ve already got.

Right. Now normally, a healthy job market is an unquestionable good for the economy. But as you and many others have told us, a healthy job market gets complicated when you’re trying to control inflation.

Yeah, that’s right. I mean, look, I think there’s no question that low unemployment is a good thing. And the whole goal here is to find a way to bring down inflation without causing a whole bunch of people to lose their jobs. That’s the goal right now.

But there is a sense that in order to do that, you need the job market to cool off in other ways because when workers are able to just jump between jobs and play employers off each other, they can demand more pay. More pay tends to lead to higher prices. And so we are expecting to see, and really, in some ways, hoping to see, a bit of a cool down in the job market over time.

Got it. So as with the housing market we’re looking at a situation where the government just might need to do more to cool things down, to slow the economy.

That’s right. But the concern here is that if you hit the brake too hard, that the economy could slow more than you want. So let’s look at that tech-layoff situation that you talked about before. We saw a couple of companies laying off workers. And then all of a sudden, the whole sector — it seemed like every company was laying off 6 percent of its workforce, 7 percent of its workforce.

Right. It was almost like the layoffs from one company encouraged them in another.

Yeah, that’s right. And look, I think that there are some reasons why tech is a little bit of a universe unto itself. But it is a reminder that once the dam breaks, this can happen really fast.

[THEME MUSIC]

And so we can’t assume that just because the layoffs haven’t started yet, in a big way, that they couldn’t happen pretty quick once we reach some tipping point.

Right. And that suddenly looks like a layoff contagion. And that starts to look a lot like a recession.

We’ll be right back.

Ben, we just talked about how the job market is in a healthy place, perhaps healthier than the government might want because it helps keep prices high. So that’s where I want to turn now, consumer spending.

“The Times” Reported — and Ben, you were a byline on the story — that consumer spending fell by 0.2 percent in December. And that would seem like a good thing when it comes to inflation. But it’s such a small decline, 2/10 of a percentage, that I don’t know what to make of it. So what did you make of it?

I think what I make of it is that we’re starting to see the first early signs that consumers might be pulling back. If we zoom out a little bit here, consumer spending has been on a tear practically since the pandemic began.

[BELL MUSIC PLAYING]

First, people rushed out and bought stuff. They bought Pelotons. They bought cars. They bought like everything that they could find because they couldn’t go on vacation. And then, the economy reopened. And people went on vacation. And they went out to restaurant meals. And they spent on services. And they actually kept spending on stuff as well, because it turned out a lot of people had saved a lot of money in COVID.

Right.

And so that has been a big driver of inflation. And that was the story for most of last year. In the last couple months of the year, we started to see some signs that that was shifting. We started to see that those savings, that people had built up, were starting to dwindle.

We started to see that people were turning to credit cards because they were running out of cash. And we started to see that actual spending was falling. It fell a little bit in November. It fell a little bit in December.

Now I don’t want to overstate this. These were small declines. They were just a couple of months. Who knows what’s going to happen in January and February and for the rest of this year? But these were some of the early signs that consumers, after dealing with high prices, after hearing about recession, about hearing all those tech layoffs we were talking about before, that they might be starting to say, you know what, I better pull back my spending a little bit.

Hmm. It occurs to me that a consumer-spending drop of 0.2 percentage points might be an ideal version of consumer spending slowing. And I’m curious if you see it that way because it’s not so precipitous that it leads to entire industries undertaking big layoffs. It sounds a little bit like the housing market. You don’t want the bottom to fall out all at once. You want things to slow in a pretty gradual and gentle way.

That’s right. But I’ll push back on one thing, which is that any outright decline in spending, if it continues for any length of time, is almost certainly going to signal a recession.

Consumer spending is 70 percent the US economy. If it starts to fall, even a small amount, but consistently over time, then retailers are going to have to start laying off workers. Restaurants are going to have to start laying off workers. They’re literally selling less, each month, than the month before. And that’s when we get into a recession.

I think what we’d ideally like to see is slow growth. That would support that gradual cooling in the economy.

Right, and help us avoid the dreaded R-word, recession.

The dreaded R-word.

OK, Ben, I want to end with a number that gets kicked around a lot. And it — pretty much a national obsession. And it happens to be a measure of inflation, which is the other big, scary word in this conversation. And that’s the price of eggs.

And your friend, our editor, Lisa Chow, for some reason, keeps her receipts forever, and discovered that she had just paid $6.99 for a Carton of 18 eggs at a local suburban grocery store. A year ago, she found, in rustling through those old receipts, back in January of 2022, she paid $1.99 for that same carton of 18 eggs.

And that is a 251 percent price increase for the exact same thing. So how can that be? And what does that tell us about inflation?

So first of all, Lisa needs to shop around for eggs a little bit more because they’re up a lot. But they’re not up quite that much. But no, look, eggs are up something like 60 percent over the past year. So the price of eggs has absolutely gone crazy.

This is a huge deal right for a lot of people. On eggs specifically, there was an avian flu outbreak, which killed off a lot of chickens and led to, of course, then a shortage of eggs. There have been accusations, also, of collusion, which I have not had a chance to dig into deeply, but may also be contributing to higher prices.

Right, egg fixing.

Egg fixing. But I think there’s a larger point here, which is that inflation has been cooling. Consumer prices, overall, actually fell slightly in December. And over the past year, prices are up 6 and 1/2 percent, which is a lot, but is not nearly as high as the 8 percent and even 9 percent inflation that we are seeing in the middle of last year.

And while I don’t think we’re anywhere close to the Fed declaring victory on this, that has been encouraging to see those price increases coming down from where they were in the middle of last year.

So I just want to pull back about as far as we possibly can in an episode about four different numbers because in each of them, it does seem like the overall direction of things is pretty good, when we think about the twin threats of inflation and recession. Does that feel correct?

I think that’s right. You started out this conversation talking about how we wanted to bring inflation down without causing a recession. And inflation has come down. And we have not yet had a recession. Unemployment is still low.

And so nothing that has happened so far is inconsistent with that happy outcome. It doesn’t guarantee that we’ll get there, by any means. And the job is not done. But we have not yet veered off that course. And that’s good news.

[BELL MUSIC PLAYING]

Ben, I think it’s possible we’re going to end an episode about the economy in a happy place, which is rare.

It is rare. And I make no promises that the ending to our next episode together will be equally happy. But I think that’s right. I think that right now, the things that have been happening are, broadly speaking, the things that we want to see. And there are a lot of threats on the horizon, lots of things that could go wrong. But they haven’t gone wrong yet. And maybe we should take that moment for the moment of optimism that it is.

All right, well, Ben, thank you very much.

Thanks for having me.

On Wednesday, the Federal Reserve is expected to raise interest rates yet again in its latest effort to hold down inflation. It would mark the eighth increase over the past year.

We’ll be right back.

[THEME MUSIC]

Here’s what else you need to know today. On Tuesday, Republican Congressman George Santos, of New York, who has admitted to fabricating much of his biography and resume, told fellow House Republicans that he would temporarily step down from two congressional committees. It was the first major concession from Santos since his lies were revealed, and came just hours after he met with House Speaker, Kevin McCarthy.

In an exchange with reporters outside the Capitol, Santos denied that the decision was made under pressure from Republican leaders. Meanwhile, a poll of Santos’s constituents has found that the vast majority of them want him to resign. In the poll conducted by “Newsday” and Siena College, and released on Tuesday, 78 percent of voters in Santos’s district said he should leave Congress.

Today’s episode was produced by Asthaa Chaturvedi and Mary Wilson. It was edited by Lisa Chow and John Ketchum. Contains original music by Dan Powell, Marion Lozano, and Elisheba Ittoop, and was engineered by Chris Wood. Our theme music is by Jim Brunberg and Ben Landsverk of Wonderly.

That’s it for “The Daily.” I’m Michael Barbaro. See you tomorrow.