Get up to speed fast on the latest developments in the U.S. economy.

Curtis Dubay Chief Economist, U.S Chamber of Commerce

Updated periodically, Economic Viewpoints provides a snapshot of the U.S. economy from the Economic Policy Division at the U.S. Chamber of Commerce.

According to the Farm Bureau, the cost of Thanksgiving dinner is more expensive this year – $64.05 for a group of ten compared to $53.31 last year.

Why it matters: Gas and food prices continue to take a bite out of families’ budgets.

By the numbers: A gallon of gas is $3.65 on average across the country this week, up from $3.40 at this time last year. Gas prices have come down from recent record highs.

Be smart: Inflation is high, 7.7% on an annual basis, but it is even higher for necessities like gas and food.

Bottom line: Despite the pressure these higher prices are putting on consumers, they keep spending. For the economy, that’s something to be thankful for.

Retail sales – spending at retail stores and bars and restaurants – rose a surprising 1.3% in October.

Why it matters: That exceeded inflation handily. Prices rose 0.4% in October, so inflation-adjusted retail sales rose a hardy 0.9%.

Be smart: Consumers are still spending even though inflation continues to drive prices higher, stretching budgets.

Looking ahead: How long this unique scenario can continue is hard to gauge.

Bottom line: The situation could reverse quickly, but for now consumers’ surprising resilience is driving “second-hand pessimism,” which is the divergence between how consumers and businesses tell surveys they feel about the economy (bad) and how they’re acting (spending and investing).

Consumer Sentiment fell sharply in November. It hit an all-time low in June and had risen four straight months since then, albeit modestly.

Why it matters: The pronounced drop in sentiment is surprising because inflation moderated in October. With inflation being the main concern for consumers it would follow that their mood would improve, but that hasn’t happened.

Be smart: The economic data and behavior of consumers and businesses are not following expected patterns. Both consumers and businesses feel bad about the economy, yet consumers keep spending and businesses keep hiring, raising wages, and investing.

Looking ahead: Updated spending data, which we’ll get later this week, will tell us more about whether this phenomenon continues, or whether spending is finally slowing to match the poor mood of consumers.

The economy added 261,000 jobs in October. Expectations were for about 200,000, so we exceeded them. That’s the good news.

The bad news is that labor force participation is still lagging badly, even as we keep adding jobs and have so many unfilled positions.

Why it matters: If we had the same participation rate now as pre-pandemic, there would be 3.05 million more workers in the labor force.

Be smart: Also concerning is which survey in the jobs report to rely on. The 261,000 jobs gain comes from a survey of businesses. That’s usually where we get the job creation number.

Other key data points: 

Bottom line: Future revisions will shed more light. For now, it’s best to be happy with the jobs added but not be overly optimistic about what it means for the economy’s direction.

Job openings were 10.7 million at the end of September. That is surprisingly up 437,000 from August when openings were 10.3 million.

Why it matters: The worker shortage is not easing; it is worsening. There are 5 million more job openings than unemployed workers.

Be smart: A cooling economy would ordinarily cause businesses to cut back on their job postings, as they did in August. But August’s drop in postings is an outlier as openings rebounded in September.

Hiring and quits remained at roughly the same levels as in August. So businesses are still adding workers, and workers are still confident they can quit their current jobs and find better ones easily.

Bottom Line: The still-strong labor market is a big part of the “second-hand pessimism” narrative of the current state of the economy. Businesses say the economy is poor, but they’re still hiring as if it’s strong.

Income and spending rose more than inflation in September.

Why it matters: These are strong results and give another data point in favor of second-hand pessimism. The perception is that the economy is slowing (and it is), but consumers are still earning and spending. Their actions may keep the economy from a steeper decline. Be smart: Spending growth (after accounting for inflation) outpaced inflation-adjusted income growth. It was able to do that because of accumulated savings.

Bottom line: Consumers’ savings could allow their spending to keep up with inflation and keep pessimism second-hand. But that won’t last forever.

The economy grew 2.6% in the 3rd quarter (July – September). We estimated growth of 2.1%, so the economy slightly outperformed our expectations.   Why it matters: The strong 3rd quarter means the description of the current economic situation as reflecting second-hand pessimism is still accurate. 

Be smart: The strong growth in Q3 is a reversal from Q1 and Q2 when the economy contracted by 1.6% and 0.6% respectively.

By the numbers: Growth came from gains in personal spending, business investment, trade flows, and government spending:

The latest data shows the housing market is struggling. Prices fell 1.1% nationwide in August.

Why it matters: Housing prices are falling because interest rates are rising and cooling demand.

Be smart: We are not in the same situation as we were in 2006 and 2007. Homeowners in general have much more equity than in that period and fewer of them have adjustable-rate mortgages. Bottom line: The housing market is not as hot as it was a few months ago. That’s bad news if you waited to sell until now, but it is not like the housing bubble in 2007.

Second-hand pessimism is the developing watchword for our unique economic moment. Why it matters: While consumers’ and businesses’ specific economic situations remain strong, they tell pollsters they feel pessimistic about the economy because there’s a general sense it is weak. Case in point: Consumer sentiment is near a record low, even while consumers continue to spend on pace with inflation. And: Businesses of all sizes, sectors, and industries feel pessimistic about the future of the economy. Yet, according to the Conference Board’s Survey of CEO Confidence:

Be smart: These are not the actions one would expect when consumers and businesses tell surveyors the economy is bleak.

Bottom line: Second-hand pessimism tells us that if and when the economy does soften, the downside might not be as painful as many fear.

Excluding volatile auto and gas sales, retail sales kept up with inflation in September. Why it matters: This is good news. Consumer spending is keeping pace with inflation, even with economic sentiment sticking near record lows. Big picture: This persistent strength in consumer spending is consistent with the emerging trend of “second-hand pessimism.” 

Bottom line: Even as the Fed hikes interest rates to fight inflation, consumer spending remains strong. It remains to be seen whether the strength of the consumer will help avoid the “hard landing” of a recession.

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Chief Economist, U.S Chamber of Commerce

Curtis Dubay is Chief Economist, Economic Policy Division at the U.S. Chamber of Commerce. He heads the Chamber’s research on the U.S. and global economies.