If you haven’t already, please read the first part of this series which discusses how today’s news presentation leads to pessimism and an overall misunderstanding of how the world is today. This blog is going to put some meat on those bones, and offer some data-driven insights that contrast with popular financial news narratives. Part 3 in this series will cover more social issues that are misunderstood.
Narrative 1: Crippling Inflation is Crushing Americans
There are a couple points I’d like to hit on when it comes to inflation.
First, inflation hits everyone different. If you own your home, and about 66% of American households do, your shelter inflation has been 0% compared to the roughly 7% in today’s CPI. That is the single largest component of CPI (35%) and without it, inflation is about 1.4%. Another big factor that drove inflation higher was automobiles. If you haven’t bought a car, your inflation is also lower than average.
In addition, homeowners have had significant price appreciation in their homes leading to a jump in net worth over the last 3 years.
Gasoline and Food prices drive our impression of inflation, because we see the prices when we shop and drive everyday. It’s hard to sugar coat food inflation (pun not intended), it’s too high, although with corn and gas prices falling, next year will likely show price declines. Gasoline on the other hand is back down to prices we saw in 2007! Inflation adjusted, that means gas has gotten about a third cheaper in the last 15 years. In addition, Americans spend less in gas as a % of their budget than they used to (about 3% today). So it’s taking up more brain space than it is wallet space.
The other side to inflation that people discount are incomes. If inflation is 5% but your income rises 7%, you are better off. It might not feel like it every time you buy eggs or pump gas, but on the whole you’re better off. In the last few years, wages have generally exceeded or kept up with inflation. Even for retirees, social security benefits have gone up 8.4% and 3.2% in the last 2 years, exceeding inflation.
Narrative 2: Americans are Worse Off Financially
This poll has been making the rounds this week.
I regret that the question mentions Biden, because it leads people to answer the question under a political lens. It should just be, “Are you better off in the last X Years?” Bad question framing is one of many reasons why polls are notoriously wrong. Regardless, the majority of respondents in both political parties answer, “no”.
This is hard to reconcile with the fact that in the 3 years ending 2022, median and inflation adjusted net worth’s have exploded higher, up 37%! This is primarily the result of price appreciation in financial assets such as housing and stocks, as mentioned earlier. But its not just a homeowner phenomenon, the increase is across every demographic cohort (by age and income level).
And it shows in people’s spending patterns. US GDP recently came in at a red hot 5.2%, and the biggest component of that was consumer spending. This shows up in several different data points, but a couple I found interesting are in some softer data shown below.
More people than ever are planning a trip to a foreign country in the next 6 months.
In addition people are spending more money than ever on dining out.
There are other anecdotes but you get the point. Leisure activities are the first to go when people are financially stressed. These charts are not indicative of an economy where everyone is struggling.
Narrative 3: The US is Falling Behind the Rest of the World
I find that much of the consternation about the state of the US could be alleviated with some context about the rest of the world.
First economic growth (GDP). It’s hardly close, relative to other developed nations (“the G7”), we are growing faster.
What about inflation compared to the rest of the world? US is still the best, which is somewhat amazing considering how much Americans have continued to spend. You can thank being a resource rich country for much of that (particularly in oil and food commodities).
How are our companies doing? Are they being strangled by unnecessary regulations and poor governance? I guess I’d answer, “compared to what?”. I found this chart staggering.
America, despite its strengths, is not without problems. Government debt for example, is a pressing risk that needs to be addressed. Although this too is a topic that’s heavily misunderstood. I planned to discuss it in this blog, but it really needs its own post which I’ll save for a later date.
So we’ll end it here. My hope is not to convince you that everything’s great, but that media often withholds facts that counter whatever grim narrative its pushing at the time. If you simply hesitate next time you see a doomsday headline, I’ll consider that a success. I’m going to add one more part to this series that adds context to non-financial maligned headlines, such as crime, health outcomes, education, etc.
