Treasury Secretary says, 'We have a very strong economy,' but Americans disagree

America’s policymakers and the rest of the population seem to be living in alternate realities
By Sam Bourgi
•
30 July 2024
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Treasury Secretary

Treasury Secretary Janet Yellen thinks the U.S. economy is firing on all cylinders thanks to robust consumer spending and investment, but ordinary Americans don’t seem to agree.

“We have a very strong economy,” Yellen said in a recent interview with Bloomberg.

“Consumer spending and investment spending are robust. The programs that we’ve put in place—the IRA, infrastructure and then the rest of it—all of that is creating a lot of manufacturing jobs.”

Yellen, who served as Chair of the Federal Reserve between 2014 and 2018, also shrugged off a growing concern that a strong U.S. dollar is undermining exports and factory jobs.

“A very strong dollar can discourage exports and contribute to imports,” she said. “But there’s a lot more that’s involved. And I think you have to ask, why is the dollar strong?”

Yellen’s confidence stands in stark contrast to how ordinary Americans perceive the economy. In fact, more than half of Americans believe the economy is already in a recession.

According to a new CNN poll, nearly four in ten Americans worry that their income won’t be enough to cover expenses. That’s up from 28% in December 2021 and is higher than the peak during the Great Recession.

The same survey showed that 65% of respondents viewed the rising cost of living as their biggest economic problem.

A recession isn’t so far-fetched

The U.S. economy expanded at a 2.8% annualized pace in the second quarter, well above expectations and a significant jump from the first quarter. But that doesn’t mean the economy is out of the woods.

According to the New York Fed’s analysis of Treasury Spreads, the probability of a recession in the next 12 months has reached 55.8%.

The estimate is based on the difference between the 10-year Treasury note and the 3-month Treasury bill, which has historically been a reliable recession indicator.

In the meantime, analysts at JPMorgan believe the economy is already in a “selective recession” that disproportionately affects lower-income households.

JPMorgan equity research analyst Matthew Boss described lower-income Americans as a “melting ice cube” who took a massive hit to their purchasing power because of inflation and slower income growth.

“You focus on that low- to middle-income consumer, they’re under pressure, and the pressure is really that the inflation continues to last,” Boss explained.

Economists are also concerned that the year-long uptrend in unemployment has put the U.S. “one step closer” to a recession.

That, combined with weaker personal income growth and uneven consumer spending, suggests that “the core engine of the economy is slowing,” said Oxford deputy chief U.S. economist Michael Pearce.

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