When President Joe Biden delivers his State of the Union address Tuesday, the economy will almost certainly be one of his biggest talking points. A poll at the beginning of the year found that two-thirds of Americans listed the economy as one of their top concerns for 2022, even more than COVID-19.
During the speech, Biden will no doubt tout indicators that make it seem like the economy has boomed in the past year: gross domestic product up, wages up, over 6 million new jobs. And his critics will almost certainly point to indicators that suggest a much grimmer picture: a trade deficit up 27%, decades-high inflation, unemployment still above 2019. So which picture is closer to reality?
USAFacts, a nonpartisan data center, has created its own State of the Union report that looks at the leading economic indicators of the past year. The truth is more complex than either party’s picture of the economy, with signs of both strong economic growth and serious economic challenges.
First, the good news: The U.S. was able to briskly pull itself out of the pandemic-induced recession. While GDP dropped 3.4% in 2020, it was able to shoot up 5.7% in 2021 – the highest growth rate seen since 1984. The U.S. remains the richest country in the world with an overall GDP of $23 trillion. Plus, average hourly wages are up 10%, from $28.56 in February 2020 to $31.40 in December 2021.
Unfortunately, that leads to the bad news: inflation. When adjusted for inflation, average hourly wages are only up 1.6%, although there is some evidence that wages rose higher than that for workers on the lower end of the wage spectrum. Prices for urban consumers were up 7.5% from January 2021 to January 2022, the largest single-year change in the past four decades. For comparison, the Federal Reserve targets consumer price growth at an average of only 2 percent, although they use a slightly different inflation index.
The biggest driver of price inflation: energy, which went up a whopping 27% in one year, according to the Bureau of Labor Statistics. Gas prices alone went up 40%, and it’s likely that Russia’s invasion of the Ukraine will add even more volatility to the global energy supply. Other inflated goods include meat, fish and eggs (up 12.2%) and used cars (up 40.5%). Rent, however, went up only 3.8%.
Other economic indicators offer a more mixed view of how the economy is recovering from the pandemic. Overall, the U.S. added 6.7 million jobs in 2021 – although that’s not quite enough to make up the 9.3 million jobs lost in 2020. The average unemployment rate for the year was 5.4%, which was better than 2020 but still higher than 2019, when the average was 3.7%. However, the jobs situation is already looking better in 2022, as the unemployment rate in January was down to 4%.
There may be fewer people being hired in part because fewer people are actively looking for work. The labor force participation rate is 1.2 percentage points below February 2020, which means about 896,000 fewer Americans are working or looking for work compared to before the pandemic. However, this may be part of a more long-term trend, as the labor force participation rate has been dropping for several decades.
At the same time, a record share of Americans are quitting their jobs. Three percent of all nonfarm employees quit their jobs in September and November 2021, a 20-year high. This trend poses headaches for employers who are trying to deal with staffing shortages, but it also suggests that employees are in a stronger bargaining position and feel confident that they can quit their current job and find a better one.
All these economic indicators together suggest that the union is growing stronger, economically speaking – but there is still definitely room for more improvement, and plenty of challenges ahead for the president to navigate in 2022. Ultimately, the true state of the economy will be seen in the pocketbooks of average Americans as they navigate the uncertain path forward out of the pandemic.