There are lots of crosscurrents in our economy. It complicates coming up with candidates for the captioned article to choose which ones stand out for this article. That said, the following are my choices for the month of February.

The Good. Retail sales grew a robust 3% in the month of January as the American consumer kicked off the new year with a bang. The increase offset two consecutive down months in the final two months of last year which is unusual since the holidays typically boost year end spending.  The 3% growth was the largest in almost two years, since March of 2021.  In fact, the Atlanta Fed, which does GDP growth forecasts, increased its first-quarter GDP growth from 2.2% to 2.4%.  Interestingly, the consumer spent more modestly on consumer staples such as food and gasoline and spent more lavishly on big-ticket discretionary items.  Retail sales grew in almost every category including restaurants, car dealerships, department stores, furniture sellers, and appliance outlets.  Conversely, grocery store sales were up slightly while gasoline sales were flat.  Some of the possible reasons for the increase were people using gift cards received during the holidays (gift card sales are booked when they are spent, not when they are purchased), high-income earners could have spent on luxury items from their ample savings and the new year brought those on Social Security a raise of 8.7%, the largest adjustment in decades.

The Bad. Inflation continues to outpace wage gains reducing everyone’s standard of living.  In the U. S. nominal wage growth which means adjusted for inflation, has slowed sharply since the middle of last year. Average hourly earnings for private-sector non-farm workers rose 4.4% for the 12-month period through January this year.  The rate of growth for the same timeframe last year was 5.6%.  Further, the rate of inflation for the 12 months through January of this year was 6.6% accounting for a 2% decline in real wages.  Why do wages never seem to catch up with inflation?  One of the reasons is that wages move more slowly and sluggishly on typically an annual basis.  Prices can jump quickly with gasoline being a good example.  The price of gas can vary with the supply, which can be affected by production snags like the weather. They can be affected by geopolitical issues like the Ukraine War and sanctions against Russia.  Gasoline prices have been all over the place as we transition to renewable energy.  Getting back to wages, companies are loathed to raise wages rapidly as they want to avoid having to cut them later at a greater cost to their employee's morale. Consumers today have probably been a bit more tolerant of slower wage increases because many of them received stimulus payments during the pandemic. The bottom line is we have gone through a period that has reduced our standard of living and inflation continues outpacing wage growth.  Until the government gets the inflation rate at or below its 2% goal, the reduction of our standard of living will continue and it will affect those at the lower and middle-income levels the most.

The Ugly. The latest 10-year projection for the non-partisan Congressional Budget Office (CBO) is a train wreck for our deficit and resulting national debt.  The CBO regularly publishes reports presenting the baseline projections of what the federal budget and the economy would look like in the current year and over the next ten years if current laws governing taxes and spending generally remained unchanged.  This was the latest report issued in February.  In its projections, the federal deficit totals $1.4 trillion in 2023 and averages $2.0 trillion per year from 2024 to 2033.  Real GDP growth comes to a halt in 2023 and rebounds averaging 2.3% from 2024 to 2033.  The deficits start at $1.4 trillion as previously mentioned and balloon to $2.7 trillion in 2033.  The gross public debt which will end this year at $34.5 trillion ends the 2033 year at $52 trillion.  Assuming an average interest rate of approximately 3%, annual debt service goes from a projected $640 billion this year to $1.429 trillion in 2033, accounting for over half of the deficit that year.  Other interesting numbers in the study, Social Security payments go from a projected $1,336 billion this year to a projected $2,355 billion in 2033.  Medicare goes from a projected $998 billion this year to $2 trillion in 2033.  Medicaid goes from a projected $589 billion this year to a projected $879 billion in 2033.  We are reaching a point where we cannot afford and yet no one seems to care or recognize the problem.  The foregoing numbers are egregious and unsustainable.

In summary, retail sales driven by the consumer indicate a fairly strong economy, inflation is eroding our standard of living and our fiscal house is in disorder.

This article originally appeared on Columbia Daily Tribune: MacLellan: The Good, The Bad, The Ugly – February 2023