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By Martin Liptrot

By Martin Liptrot

A week in America | 2 February 2024

This week Martin looks at the raft of economic data being shared about the US economy and wonders what it all means...


It’s all about the money.

This week was a big one for those with an eye on the U.S. economy.

The week began with big tech earnings announcements, proceeded to give us the Federal Reserve Bank’s views on inflation and interest rates, and finally, will provide us with jobs data.

Whether you are a classically trained economist, a worried investor, or just plodding through working life in the hope of sunnier days ahead – there are a few basic truisms.

Your wealth and, just as importantly, how wealthy you feel is core.

That is influenced by any savings you may have, how much income you are earning, and what that buys you. It is also a reflection of how stable your job prospects are, the impact on your housing and living costs, and how happy that lifestyle makes you – money can’t buy happiness, that’s true – but it would sure be nice to give it a go.

Americans are acutely aware of this.  It seems many who aren’t as happy as they want to be, are borrowing to cheer themselves up. Collectively we carry $15trillion in personal debt – about $97,000 each. Credit card debts, car payments, student loans – easy money options.

Is there a day of reckoning?

The week kicked off with Microsoft telling us their last quarter revenue was $62billion – up 18%, and their net income was $22billion – up 33%. Alphabet, the parent of Google, shared similar upbeat news, revenues up 11% to $76billion and net income a staggering 41% higher to nearly $20billion.

But the market wasn’t happy, good clearly wasn’t good enough.

Or perhaps because everyone had enjoyed the meteoric stock rise over the previous couple of quarters, it was already factored in. Later this week Meta and Amazon will share their numbers, and it will be interesting to see if they suffer a similar fate of not being able to live up to wild expectations.

Speaking of fantastical hopes, poor Jerome Powell, the Chair of The Federal Reserve Bank.

Mr Powell and his board had raised interest rates 11 times over the previous year – a record of hikes unrivalled since 1981. They did this to try and take the heat out of an economy which was performing well but due to a weird mix of domestic, global and external events was seeing price and wage inflation advance at speed. Inflation is bad and must be curtailed, so says popular wisdom.

Fiddling with interest rates – making money more expensive – is the tool of choice. Last time Powell addressed the markets he froze his run of interest rate hikes – widely interpreted by Wall Street and those who earn their crust speculating on the future as the natural precursor to an imminent rate cut.

But Powell had other things on his mind. While he seems happy to see inflation trending downwards from its COVID highs of 7% in 2020 – it currently stands at 3.4% – he felt it was still a-ways off the 2% he hopes for.  Until he was confident the inflation rate was tracking to hit that target, he told us he was going to leave interest rates where they are.

Boo! Hiss! – Powell was the pantomime villain again – a role he was born to play – and the market speculators who had already got well ahead of themselves in expecting floods of more money for stock buying, had to retreat a little seeing prices and markets drop too.

The magic Powell is trying to conjure up is a ‘soft landing’.

The classic response to rampant inflation is to engineer a recession. This is the equivalent of putting the patient in an induced coma to perform tricky surgery. But that involves people losing their jobs, wage growth stalling, and economic confidence taking a kicking.

Powell, it seems, wants to avoid that.

His gamble is that by a tweak here, a tweak there, he can bring the jumbo US economy safely down to earth without wrecking the whole shebang. Good luck.

Friday will see the final piece of the economic jigsaw when the Bureau of Labor Statistics – don’t you love the names of these bodies – will deliver its first jobs report of 2024.

Powell had said he anticipated the trends would be good – that unemployment would rise but not to levels which create too much fear amongst the natives.

But not so fast.

January always sees unemployment numbers rise as all those temporary workers hired for the holidays see their contracts end and the seasonal workers in warehouses, stores and restaurants are let go – that gives a bump in the figures.

And we come full circle back to the tech companies who started the story this week.

Many of these big tech firms had been on huge hiring sprees – recruiting programmers, analysts and designers in record numbers just a few years back – but are now in an ‘era of efficiency’ as they trim many of these super-salaried boffins from their ranks and let go others who don’t want to return to the office after enjoying the freedom of remote working.

If that is true, it might go some way to explain the numbers they reported, growing by trimming costs.

So, what does all this mean to John and Jane Doe?

If their job is at risk from automation – or AI – then they should be worried. While forced closures of firms and businesses seem unlikely – the economy is still growing – firms are looking for cost savings.

If they own their own home, let’s hope they took advantage of the super generous 30-year fixed mortgages on offer a few years back – eat your hearts own UK property buyers – and aren’t about to have to refinance from under 2% to nearer 6% – a trebling of their monthly dollar mortgage repayments.

And if they have credit card debts, student loans and other personal debts to manage, more of their disposable income will go on servicing these at higher rates for longer – meaning shopping sprees, holidays, new cars and dinners out may have to be trimmed.

Challenging, but with inflation trending down, the job market tightening but not squeezing, and interest rates likely to start falling later in the year – things are generally positive. That points to lower gas prices, cheaper food shopping and while they may not get that bumper pay rise, their wages will go further in real terms.

American consumers of all political beliefs were interviewed by University of Michigan for their highly regarded survey. Respondents reported feeling better about their prospects than at any time since the COVID pandemic. Consumer sentiment, UoM reported, leapt 13 points higher.

That is unless you are a Trump Republican. They’re pissed about everything from Biden to NBC to Taylor Swift at the moment.

It is worth noting there has been a bit of a reversal in US political bases in recent years. Angry, white, low income, poorly educated voters have flocked to Trump’s banner – partly as a decline in unionised jobs and organised labour has impacted political allegiances.

Democrat voters are now more likely to hold a college degree and are less fearful of losing their jobs the survey finds. Republican voters are more likely to have only a high school diploma – or less – and are more fearful they will be laid off, even though Biden’s on-shoring program – bringing manufacturing jobs back to US – is going strong.

Democrat voters also seem to make up more of the middle class – soccer moms, BBQ dads – who own their own homes and have seen exponential property price rises, which makes you feel good – and be in more stable jobs with pensions and stock funds which are still positive.

Of course, with an election looming, the economy and how you feel about it will be the campaign.

Republicans will be trying to big up what commentators are calling ‘vibe-cession’ where despite all the empirical evidence and data you just don’t feel good about it – while Democrats will try to point to the numbers and champion a ‘vibe-spansion’ to take the heat off their elderly candidate.

We can expect a long campaign of mis-information and counter-lies. Me? I’m off to Walmart – they have a sale on.

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Martin Liptrot

Martin Liptrot is a Public Affairs, PR and Marketing consultant working with UK, US and Global clients to try and ‘make good ideas happen’.

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