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National Economic Outlook
By Ingo WInzer
September, 2024
In order to combat inflation, the Federal Reserve raised interest rates sharply in 2022. This was a desperate measure because this particular inflation wasn’t caused by runaway demand, as is usually the case, but by limited supply. Government interventions to boost supplies are politically difficult, so this may have seemed the only possible way to match supply with demand, but at a high cost.
Mortgage rates went to 7 percent, which made home buying unaffordable for most people. Small business loans rose to 15 percent, discouraging companies that provide half of all employment. And interest rates of 25 percent on credit cards affect the people least able to afford higher prices for food and gas.
The fall-out from these drastic actions is directly reflected in the current job situation, because consumers ARE the economy. If they can’t buy a home, they won’t buy new furniture for it. They won’t buy a new car, they won’t start a new business or expand an existing one. And if they’re spending all their money on food and gas, they’ll be pretty angry.
Even though the number of jobs in August was 1.5 percent higher than a year ago, a good chunk of the increase is just due to rehiring in the healthcare and government sectors. The pace of new (not rehiring) job additions may be closed to one half percent, which means the economy is basically just treading water.
That’s unlikely to change much in 2025, because interest rates won’t come down as fast as they rose. Nor will home prices. In the second quarter they were up 5 percent over last year, even though they’re already 30 percent higher than the average buyer can pay. Prices will come down in some markets next year but the realignment of prices with incomes will take years.
The 1.5 percent increase in total jobs includes increases of 2.8 percent in construction, zero in manufacturing, 0.4 percent in retail, 0.4 percent in finance, 0.4 percent in business services, 4.1 percent in healthcare, 1.2 percent at restaurants, and 1.9 percent in government.
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