Optimistic outlook for the U.S. economy 2023

How Is the U.S. Economy Doing in 2023?

As an economist and realtor, staying updated on the state of the U.S. economy is vital. These key indicators and trends show how the U.S. economy is faring in 2023.

Unemployment Rate Remains Low

The unemployment rate in June 2023 is 3.6%, which has remained consistently low throughout the year. June 2022’s unemployment rate was also 3.6%. 

Source: U.S. Bureau of Labor Statistics

 

By historical standards, this rate is low. It shows a strong labor market and robust economic activity.

It also shows how much the economy has rebounded from the pandemic. Unemployment in April 2020 peaked at 14.7%, the highest recorded rate in two decades, from June 2003 to June 2023.

Companies have continued to hire steadily. According to the jobs report by the Bureau of Labor Statistics, the U.S. economy added 209,000 people to the workforce in June 2023 alone. This statistic does not include farmworkers because agricultural work is seasonal.

Chart-Employment by industry, monthly changes, with confidence intervals

Source: U.S. Bureau of Labor Statistics

 

The job rate in the manufacturing sector is a key indicator. When businesses start laying off employees, it may signal that a recession is about to hit. The industrial sector of the economy lost 1.3 million jobs in April 2020. Since then, manufacturing employment has increased steadily and is now marginally higher than it was before the pandemic.

Unemployment is a lagging indicator. As such, it can be used to validate trends. Before laying off employees, businesses typically wait until the recession is well underway. It takes time to reduce the unemployment rate, even if hundreds of thousands of new jobs have been generated.

Steady Growth in Gross Domestic Product (GDP)

Real gross domestic product (GDP), which measures the overall economic performance, increased by 2.0% in the first quarter of 2023

This slight slowdown from Q4 2022's 2.6% GDP growth rate shows moderate expansion but remains within the ideal GDP growth rate range.

Economists use GDP, among other measures, to assess the economy's health. GDP is the monetary value of all goods and services generated in the previous year. They compare GDP growth from quarter to quarter.

 

Note: The economic outlook is deemed healthy when GDP growth is between 2% and 3%. When the expansion rate goes over this limit of 3%, it may become an overheated economy. Conversely, the economy can contract when growth crawls at a pace of less than 2%. If growth shows less than 0%, the economy may experience a recession.

 

Decrease in Durable Goods

The Bureau of Economic Analysis (BEA) reports that orders for durable goods, such as machinery and equipment, decreased by 0.38% in Q1 2023. Nondurable goods, including pharmaceuticals, food, and lodging, also experienced a fall of 0.23%. 

However, increased growth in agriculture, forestry, fishing, and hunting partially offset these reductions.

 

Source: Bureau of Economic Analysis

 

Durable goods are items that last over three years. An item must last three years or more to be deemed a durable good. Electronics, autos, furniture, household appliances, and jewelry are consumer durable goods.

As these purchases are costly, people buy them only when necessary or when they are optimistic about the future. This makes data on durable goods an excellent economic indicator.

 

Interest Rates on the Rise

At the latest FOMC meeting on June 14, 2023, the Fed raised the fed funds rate to 5.25% from 5.0% set on March 22, 2023. The current fed funds rate indicates the Federal Reserve’s proactive approach to combat rising inflation and ensure sustainable economic growth. 

Rising interest rates affect borrowing costs for businesses and consumers, influencing spending and investment decisions.

The Fed wants inflation to move at a rate of only 2% in the long term.

 

Note: The federal funds rate target range is significant because it sets the tone for most other interest rates. The yield on the 10-year Treasury note is the second most important rate. It directs fixed-rate loans such as 15-year mortgages. 

 

Inflation Rates Increase

The Consumer Price Index (CPI) reveals that prices on all items increased by 3.0% over the last twelve months, with a slight increase of 0.2% in June 2023. 

The Fed, however, prefers to use the PCE Price Index, as it deems this a more accurate picture of consumers’ spending habits. The PCE index measures May 2023’s inflation rate at 3.8% year over year. 

The Federal Reserve closely monitors inflation rates to gauge economic stability. While a moderate level of inflation is healthy for the economy, higher inflation can erode purchasing power and impact consumer spending patterns.

Stock Market Resilience

The stock market reflects how profitable the nation's corporations have been. It also gives you a picture of how investors feel about the economy.

The stock market finished strong in the first half of 2023. The S&P 500 posted an increase of 6.47% in June. Similarly, the Dow Jones increased 4.56% for the same month.

 

Note: The Dow Jones Industrial Average, the S&P 500 Index, and the Nasdaq Composite Index comprise the three most essential indices that track the United States stock market performance.

 

The positive performance of the stock market shows renewed investor confidence in the U.S. economy.  Investors were concerned about the bear market in 2022, which faced significant dips.

Much of the growth in stocks for 2023 is driven by the tech industry, with the surging interest around AI contributing most to the momentum.

 

In a Nutshell

As of the first half of 2023, the U.S. economy shows favorable indicators and trends, including low unemployment and steady GDP growth.

Interest rates, however, have risen but are within a manageable range. The increase shows the Federal Reserve's proactive approach to combat inflation and ensure sustainable economic growth. 

The stock market has recovered and indicates restored investor confidence in the U.S. economy. 

Overall, the U.S. economy in 2023 demonstrates stability and resilience, providing a healthy tone for numerous sectors and indicating a favorable outlook for continuing economic growth throughout the year.

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