Merry Christmas. The economy is recovering.
In assessing our economy or, really, any economy, you want to know if the economy is growing, that there are enough jobs for people, that people can borrow at reasonable rates and that the dollar you hold today is worth about the same as it did a year ago. If those four metrics are solid, we are good. Using Pareto’s 80/20 principle—the idea that 20% of any set of numbers constitutes 80% of the value of the entire set—we know that real GDP, the unemployment rate, interest rates and inflation drive the vast majority of what is important.
If those four numbers are excellent and all other economic metrics are falling apart, we still get a B grade. If all other numbers are great and those four numbers are bad, we get an F.
These four pillars are the best antidote to the idea of the “vibecession”—a state defined by persistent negative “vibes” and a sense of malaise about the economy due to factors like high grocery prices and housing costs, with no regard to what the hard data says.
When rhetoric gets loud in politics, look at the basic math. First, consider gross domestic product (GDP). GDP is simply the value of all the goods and services a country produces within a time period. Think of GDP as a country’s sales or revenue, just like the top line for a company. After a minus 0.6% growth rate at the start of the year, the second quarter bounced back with a 3.8% increase. New data this week showed third-quarter GDP growth accelerating to 4.3%—the highest rate in two years. Historically, a real GDP growth rate above 3% is outstanding. Real GDP—check.
