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3 Key Signs the Economy Is Actually Improving

KanawatTH / Getty Images/iStockphoto
KanawatTH / Getty Images/iStockphoto

The U.S. economy was approaching $22 trillion when the pandemic hit in 2020. The virus sent the country’s gross domestic product (GDP) cratering below $19.5 trillion for the first time since 2017. But starting in the second quarter of the pandemic’s first year, the massive American economy — the biggest and most complex in world history — reversed course and started climbing skyward again.

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GDP, however, is just one of the key economic indicators that give economists and laypeople alike an idea of whether things are moving in the right direction. If you’re curious about the country’s economic direction, these are the indicators to watch.

Also see which states are doing well and which are struggling.

The Importance of the US GDP

Gross domestic product (GDP) is the yardstick that measures economic growth. Perhaps the most important of all the economic indicators, GDP represents the combined market value of all finished goods and services produced within a specific geographic region — in this case, the United States — in a certain period of time.

GDP serves as an economy’s report card. When the GDP is growing, businesses and employees alike generally do better. When it’s stagnant or receding, the economy is contracting and headed toward a recession.

Profits from 2023’s latest quarter — taking into account corporate profits with inventory valuation and capital consumption adjustments — went up $6.9 billion.

“Despite all the curveballs that COVID-19 threw our way, the economy has held its ground remarkably well,” said Joe Camberato of National Business Capital. “When you put it all together — businesses eager to borrow for growth, companies still in hiring mode, low unemployment, the housing market standing tall and people traveling — none of these indicators shout ‘recession.’ They scream ‘growth’ if you ask me.”

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Unemployment Rate Matters

Like the GDP, the unemployment rate is one of the most important lagging economic indicators. It represents the percentage of the labor force that is not currently employed, although the definition of “labor force” is controversial.

Despite the millions of workers who left their jobs during the Great Resignation of 2021, the unemployment rate fell by 2.5 percentage points in 2021, according to FactCheck.org, from 6.4% at the start of last year to 3.9% in January 2022. The economy added 6.2 million jobs during that time.

Camberato points to the fact that unemployment is currently holding steady at 3.8% in 2023 and does not look to be taking a hit any time in the near future.

Consumer Price Index Helps Measure the Rate of Inflation

The consumer price index (CPI) tallies the average change over time of specific “baskets” of consumer goods. Economists use it to measure the rate of inflation. Runaway inflation is always bad, but some inflation can be a sign of an economy on the mend.

When businesses expand and hire more workers, unemployment falls, more people have more money and consumer confidence rises. Consumers then spend more money and buy more things, which sends demand — and prices — up.

The markets and trading indexes can be the leading economic indicator that reflect on overall economic activity, how investors feel about the economy and the profitability of corporations. A bull market can be misleading, but generally, the stock market enjoys sustained periods of growth when businesses are profitable, when unemployment is low, when GDP is up, when consumers are confident and spending money and when the economy is strong.

People Are Still Borrowing

Camberato calls the economy in 2023 “among the most intriguing economic scenarios I’ve seen in a long time.”

“We process thousands of loan applications every month, and the top request is still for funding to expand a business,” Camberato said. “People are borrowing, even at these sky-high interest rates. When rates are soaring, people typically only take that plunge when they have a golden opportunity to grow. So, this tells me there are some real growth prospects for those willing to bet on themselves, even with the higher borrowing costs.

“And, despite mortgage rates creeping up, housing prices haven’t budged much, and in some areas, they’ve even climbed,” Camberato added. “Yes, home sales dipped by around 2%, but that was entirely expected with the higher rates.”

Jake Arky contributed to the reporting for this article.

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This article originally appeared on GOBankingRates.com: 3 Key Signs the Economy Is Actually Improving

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