Why So Negative?

Wow, why aren’t people celebrating? Why aren’t people popping the champagne corks? 3^rd quarter GDP was just revised upward from a very good 4.9% rate to an astounding 5.2% growth rate. Unemployment is still under 4%. The stock market is inching closer to its all time high. Housing prices are continuing to rise. Why then, according to an Investor Business Daily article dated 10/2/2023 is Biden’s approval rating on the economy only at 24% with 56% disapproving?

Let’s look a little deeper into our economy. We keep hearing that the inflation rate is coming down, and it is. Prices are only going up at a 3% annual clip now rather a 9% annual clip that we saw in 2021. Let’s look at a few examples:

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The median annual salary has not kept pace with the price increases of our sample items. Not even close. So, despite the “good news” that inflation is coming down, what the average person is feeling is that they are still seeing their daily living expenses exceed their incomes.

Because of what we see above, people are purchasing a lot of things on credit. Credit card debt went over the $1 trillion mark in October, the highest total ever. The average credit card balance is $7,951, which makes up only a small percentage of total consumer debt. (This is all debt owed by a person except mortgage debt). The total amount of consumer debt per person is a whopping $95,067.¹

With wages not keeping up and their debt load at record levels, it’s hard to maintain aa positive outlook. And sooner or later, when credit limits are reached, spending slows down and so does the economy.

Let’s take a look at housing because housing drives so much of our economy. When you own a house, you have to fill it with furniture, appliances and décor. It’s interesting that housing prices are continuing to rise as sales decline. Listings, homes under contract, new home sales are all down. Certainly, higher mortgage rates contribute to all this. But higher prices along with the higher mortgage rates meant that only 37% of the homes sold in the third quarter were affordable to families earning a typical income. Flip that over and it means that 63% of families on a typical income (see median annual salary above) can’t afford to buy a home. If you are one of the 63%, your good feeling about the economy isn’t so good right now.

New listings are at an all time low now, and that makes sense at first look. If you bought a home or refinanced before rates started going up, you are likely the proud owner of a mortgage below 4%. Why on earth would you want to sell your home, give up your 4% or below mortgage and take out a mortgage on a new home at above 7%? There is now an interesting phenomenon going on in the real estate world. During the pandemic, people migrated from the cities to the suburbs and beyond because they could work from anywhere. This migration, while interest rates were low, put tremendous pressure on the housing inventory and prices went up dramatically. People were making offers on places without seeing them. Fast forward to today and many of these people are wishing they had not made their purchase. Some are being called back into the office and not being allowed to work remotely. Others are finding that they really don’t like life in smaller communities and wish they could go back to the city. And others find themselves stuck in houses that they really don’t like or fit their lifestyle anymore. To move means paying more for less in the city and trading a low mortgage rate for a higher one. Being stuck somewhere doesn’t promote optimism.

Add to these things, thousands of people streaming over our southern border needing food, shelter, healthcare, and education for their children. What is that going to cost taxpayers? Stores, nationwide, closing because of the blatant and outright theft of merchandise is too high to bear. Delivery trucks being stopped and robbed. Shipped orders being stolen right off people’s porches. Gun related deaths in 2021 reached their highest level in over 40 years. Over a million people have been shot in the past decade in the U.S.²

While the economy seems to be performing well, the average citizen feels unsafe and unable to keep up with today’s higher cost of living. If these things don’t change, optimism in our country will continue to wane and will finally reach the point where people do start pulling back on the reins of spending and our economy will better mirror the attitude of the citizens.

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Sources:

1. https://www.usatoday.com/money/blueprint/credit-cards/what-is-the-average-credit-card-debt/#:~:text=Average%20credit%20card%20debt%20in,debt%20in%20America%20is%20%2495%2C067
2. https://giffords.org/lawcenter/gun-violence-statistics/#:~:text=Nearly%20every%20American%20will%20know,gun%20violence%20in%20their%20lifetime.&text
   =Over%201%20million%20Americans%20have,are%20rising%20across%20the%20country.&text=In%202021%2C%
   20gun%20deaths%20reached,48%2C830%20deaths%20that%20year%20alone

These are the opinions of Legacy Wealth Management, LLC and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. Mike Berry is a Registered Representative offering securities through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Legacy Wealth Management, LLC and Cambridge are not affiliated. Cambridge does not offer tax advice. Copyright ©2023 Mike Berry. All Rights reserved. Commercial copying, duplication or reproduction is prohibited.