The economic landscape of 2024 has been marked by a peculiar downturn, one that doesn’t fit the traditional mold of a recession. While official indicators may not signal a full-blown recession, millions of Americans are feeling the strain of a weakening economy, a phenomenon often referred to as the “quiet recession.”
It’s very easy to point to a soaring stock market as a sign of a strong economy and while that may be impactful to a small portion of Americans, the reality is that the average American is struggling. It’s great that the stock market is up more than 30% this year but how many people actually benefit from that. Sure, rich guys are even richer but does any of that really flow down to hard working Americans or does that rich guy just stuff his cheeks and fill his coffers.
The reality is likely closer to the latter as the top 10% of Americans own 93% of all stocks while the combined bottom 50% own just 1%. That ridiculous gap might be a good illustration of how both classes feel in this economy. Yes, from the perspective of a top 10% American, things might be going well but how are things going for that numerous bottom 50%?
On top of that, what’s really driving that stock market growth? Is it a reflection of a strong consumer and a great economy or just driven by exuberant spending on future technologies that will make it even harder for people to find reliable jobs and further drive a wealth and quality of life gap between the two groups of Americans.
A Silent Crisis
This silent crisis is characterized by several key factors:
- Inflationary Pressures: Persistent inflation, coupled with stagnant wage growth, has eroded purchasing power, leaving many Americans struggling to afford basic necessities. From groceries to gas, the cost of living has soared, making it difficult for families to make ends meet, not to mention other things like electricity, insurance(health or home) and others. Yes, it’s great that my company stock is up 50% and earnings have doubled but does that matter to me if my raise is yet again 2% versus costs that are increasing at a much higher rate? On top of that, despite the CPI readings, the feeling for most Americans is that cost are still increasing at a higher pace as they have to trade or trade down to hit cost increases that are in the low single digits.
- Rising Interest Rates: The Federal Reserve’s efforts to combat inflation have led to increased interest rates, making borrowing more expensive for both consumers and businesses. This has had a ripple effect, impacting everything from mortgage rates to credit card interest. While debt to income levels have declined since the global financial crisis, it’s hard to gauge how those aggregate measures are distributed across populations, income levels, race, etc. On top of that, in recent years delinquency rates have also started to climb returning to pre-pandemic(and pre-easy money) levels and exceeding them in the case of credit card debt and auto loan debt(one most likely to impact lower income people).
- Job Market Shifts: While the overall unemployment rate may remain relatively low, job growth has slowed, and certain industries have experienced layoffs. Job security has become a major concern for many workers, as they fear potential job cuts and economic uncertainty. On top of that, finding a new job has become harder as many people are now competing for fewer and fewer jobs with companies becoming more efficient. One thing to remember is that the unemployment rate can over-state how well off people are in relation to their work as it excludes discouraged workers, doesn’t account for underemployment and is based on surveys which can have sampling errors. At the end of the day, people have to do what they can to put food on the table so a struggling worker will still show up as employed but the question remains whether or not they’re actually doing anywhere close to well.
- Declining Consumer Confidence: As economic uncertainty persists, consumer confidence has flatlined and may start to decline, leading to reduced spending and a slowdown in economic activity. This decreased spending power has a direct impact on businesses, leading to potential layoffs and further economic contraction. That can spiral into a recession pretty quickly but it’s not quite clear if we’re there just yet. However, recent earnings from certain big box stores like Target, Walmart and Costco have shown that people seem to be focused more on necessities over discretionary spending in recent months.
The Human Toll
The quiet recession is far from a distant economic theory; it’s a lived reality for millions of Americans. Let’s imagine Bob, a hardworking father of two, who has been been directly affected by the downturn.
Once a steady warehouse worker, Bob found himself laid off when his company downsized due to slowing sales. On top of that, improvements in efficiency also meant that certain jobs like his no longer needed as many people as before so even a thriving company in his top was seeing layoffs making it harder for him to find a job. Despite months of diligent job hunting, he has faced numerous rejections and setbacks. The few promising job leads have always seemed to fizzle out, leaving him frustrated and disheartened.
Meanwhile, the rising cost of living has further compounded Bob’s financial woes. His rent has increased, and the price of groceries seems to rise with each passing week. He worries about how he will pay the next month’s rent, buy school supplies for his children, or even afford a decent meal.
Looking at the news and the newly minted market heights each day makes it seem like he’s missing something but he’s really not. This is the reality for a good portion of Americans who are seeing the gap between their income and costs close every day making the window for one mistake or one unplanned for expenses even smaller than before.
The quiet recession has made it increasingly difficult for Bob to find a stable job that pays a living wage. He has applied for jobs that are below his skill level, but even those opportunities are scarce. The fierce competition for limited jobs has left him feeling hopeless and anxious about the future.
The Psychological Impact
The constant financial strain has taken a significant toll on Bob’s mental health. He worries about the future, fearing that things will only worsen. The pressure to provide for his family has left him feeling overwhelmed and anxious.
Unfortunately, Bob’s story is not unique. Millions of Americans are grappling with similar challenges, caught in a cycle of uncertainty and financial hardship. The quiet recession has not only impacted people’s financial well-being but has also taken a toll on their mental health and overall quality of life.
Navigating the Storm
To weather the storm of the quiet recession, individuals and policymakers must adopt a multifaceted approach:
- Financial Prudence: Creating a realistic budget and practicing mindful spending can help individuals manage their finances effectively. While the inflation rate has come down, it’s unlikely that costs come down anytime soon leading to a new reality for most that is much harder to budget for and leading to much thinner margins within your finances. However, it’s very easy to say that a budget will help you manage your finances and save more. The reality is that many Americans are buying just the necessities and barely skating buy so no amount of budgeting will help them get on a better financial footing without a higher wage.
- Skill Enhancement and Career Development: Investing in education and training can help individuals acquire new skills and improve their job prospects. However, one must remember that not everyone has the financial capacity to easily make this happen but taking advantage of free programs in your state or even your job’s own tuition assistance programs can help this become more realistic.
- Government Support: Government policies, such as targeted relief programs and investments in infrastructure, can help stimulate economic growth and create jobs. Unfortunately, it’s unclear whether that will be a reality for many in the upcoming years as high government spending is certainly under the microscope.
- Mental Health Support: Access to mental health services can help individuals cope with the stress and anxiety associated with economic hardship. However, America’s healthcare infrastructure can make this difficult especially for those who lost their jobs and in doing so, lose their insurance as well.
By understanding the impact of the quiet recession and taking proactive steps to address its challenges, individuals and society as a whole can work towards building a more resilient and equitable future. However, it’s also important to note that there are no easy solutions to a problem that might get more difficult as investments in new technologies make companies more efficient and less reliant on labor in certain industries. Combine that with the government’s focus on cutting back on expenses and that might lead to a difficult period for many Americans who are already struggling in what may just be a quiet recession.
In the end, it’s important to note that your own personal situation might not be reflective of how things are for most people. If you own stocks and your 401k is soaring, that might feel good but that’s not the reality for 90% of Americans who barely hold any money in investment accounts. That’s a big gap between the haves and have nots and the focus we put on stock market performance these days might make it seem like things are doing well while it might not be reality for most people.
It will be interesting to see how the economy progresses in the coming years but it’s clear to me that right now, the average American is struggling and often, as the average American goes, so does the economy.
