The two most significant changes that have taken place in the real economy over the past three months relate to the energy markets and the housing market. Retail gasoline prices peaked at $5 a gallon in mid-June and have since fallen more than $1.25 a gallon. According to Patrick De Haan of GasBuddy, American drivers are about to save $500 million a day on gas compared to what they were paying three months ago. And with gasoline futures prices continuing to decline, those savings should increase for at least the next two weeks.
In the housing market, transactions slowed as mortgage rates jumped, and home prices began to decline in some of the metropolitan areas where they have risen the most over the past two years. For the relatively small share of Americans looking to buy or sell a home right now, it’s become a headache, but for the tens of millions of Americans who are perfectly content to stay in their homes – with a rate mortgage probably less than 3% — not a problem at all.
The stock of homes for sale is now down as homeowners are under no financial pressure to sell their homes as their job prospects remain strong with persistently low unemployment.
Inflation always hurts, especially at the grocery store. And as the housing market cools, rental prices continue to rise.
But overall, Americans are encouraged by the recent turn of economic events as measured by a variety of surveys. Consumer confidence rose in August after three months of decline and returned to May levels, according to Conference Board data. The University of Michigan’s consumer mood measure rose in July and August after hitting a multi-decade low in June.
Internet polling and data analysis company Civiqs shows a similar improvement since June, with falling gasoline prices and a stable labor market seemingly offsetting the general tightening of financial conditions in terms of perceptions of the state of the economy by Americans.
The same cannot be said for investors. Strategists from Morgan Stanley to Bank of America still expect stock prices to remain under pressure given their views on the trajectory of earnings and economic growth. In the dismal S&P services sector survey released this week, the financial sector reported the most negativity.
Wall Street is focused on rising interest rates that are squeezing financial markets and what they think it means for the economy, while Main Street overall sees a stable job market and falling jobs. gasoline prices as signs that conditions are no worse than they were in June. , and maybe even better.
For so long, we’ve grown accustomed to looking at Wall Street as a guide to what’s likely to happen on Main Street. If investors did well, maybe some of that would trickle down to workers. And if Wall Street was in trouble, that inevitably meant stagnation or worse for workers. This mentality was behind the bailouts during the 2008 financial crisis – banks, corporations and investors were supported rather than workers.
But in the current economic environment, the relationship is not so simple. The stock market is poised for its worst year in more than a decade as the US economy added 3.5 million jobs. So the next time you see a negative economic outlook, stop and ask yourself if this is really likely to affect workers and consumers, or if it’s just investors frustrated not making money. as easily as they have done in the past.
We may be just in the middle of a transition period in which consumers and workers get some relief before the grim reality of tighter financial conditions spells doom for the labor market and economic growth. But most of the compression happening right now is on Wall Street rather than Main Street, and it’s also possible that inflation will come down without any dire economic scenarios unfolding.
More other writers at Bloomberg Opinion:
It’s a real estate crisis, not a financial crisis: Jared Dillian
Powell eyes good on next CPI report: Jonathan Levin
Ready to work until you die? America Needs You: Stephen Mihm
This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
Conor Sen is a Bloomberg Opinion columnist. He is the founder of Peachtree Creek Investments and may have an interest in the areas he writes about.
More stories like this are available at bloomberg.com/opinion