Even with inflation, a stock-market slump and general rancor, here are 5 reasons to give thanks
This was an economically challenging year, for sure. A combination of rising inflation and a steep stock-market slump against the backdrop of political rancor will tend to do that. But there are still many reasons to give thanks. Here are a few:
1. The banking system is sound
Despite some pressures from rapidly rising interest rates and a modest increase in loan delinquencies, banks, credit unions and other mainstream financial institutions appear overwhelmingly solid.
Unlike in the 2007-2009 recession, when banks suffered big losses from too many bad loans, there are few signs of that yet. For example, the latest scorecard from the Federal Deposit Insurance Corp. portrays a generally healthy industry that has stayed profitable the past 50 quarters. If more loans go bad, that would be a major negative, but meanwhile higher interest rates allow for rising bank profit margins. No banks have failed since 2020, and the FDIC classifies fewer than 1% of them as problems.
Consumers also seem to view banks favorably, if they think about them much at all. In one recent survey by the American Bankers Association, 99% of consumers rated their banks' online or mobile apps as favorable, with good access and technological improvements and wider financial inclusion. More people are making payments or transferring money using these tools, without thinking twice.
2. The midterm elections are over
Now that that November elections have concluded, the seasonal political/economic headwinds turn into a tailwind. "History points to favorable equity market developments following midterm elections," said John Lynch, chief investment officer at Comerica, in a recent commentary.
Since 1950, stocks in the Standard & Poor's 500 index have risen 15% on average over the 12 months following midterms, he added. Perhaps just as important, the two traditionally weakest years in the four-year presidential-election cycle are now in the rearview mirror.
A now-divided Congress suggests we will get the type of political stalemate that investors tend to favor, with less chance of one party pushing through overreaching legislation.
Curiously, the economy rarely has had a recession during the third year of presidential terms. The next year will test that tendency, with low economic growth and widespread expectations that a recession might start.
3. Inflation numbers are improving
The sudden emergence of rising inflation is the big, and worrisome, economic story of the year.
The readings still are high enough to trigger more Federal Reserve interest-rate hikes, dampening economic activity, but the bitter medicine seems to work. National inflation has trended lower from a recent peak of 9.1% in June to 8.5% in July, 8.3% in August, 8.2% in September and, most recently, 7.7% in October.
This recent improvement trend has revived talk of a "pivot," the latest economic buzzword, cited in expectation that the Fed will shift its position on rate hikes like a basketball player changing direction on the court. That will happen eventually, though returning to inflation in the Fed's target range of 2% might prove elusive.
"Just like (COVID-19) morphed from a pandemic to an endemic, investors would be wise to prepare for a future in which inflation readings remain elevated above central bank targets for several years," wrote Jack Ablin, chief investment officer at money-management firm Cresset.
4. Some job losses could help
Recessions are best avoided for many reasons, from higher businesses failures to reduced manufacturing output. But the most painful aspect associated with economic downdrafts — rising unemployment — might actually help amid the current cycle.
Christopher Waller, a member of the Fed's board of governors, emphasized the need to get the employment situation into better balance with modest increases in the unemployment rate. The central bank normally pursues a dual mandate of keeping a lid on inflation while promoting employment growth. But with nearly two open positions for every jobseeker and businesses struggling to find enough workers, the Fed has shifted its focus, he said.
"At any other time, I'd be pretty unhappy with slower growth, but not now," Waller said at at an economic forecasting forum sponsored by Arizona State University. The current Fed goal, he said, is to bring labor supply and demand "into better balance."
It's still an open question on whether a recession is needed to achieve that. A prolonged stretch of subdued growth — a "slowing expansion phase," as another speaker put it — might do the trick.
5. The U.S. is still a good home
Despite all the griping over seemingly everything lately, it's still difficult to beat the United States as a place to live. We enjoy so many advantages here that it's easy to take them for granted. The benefits become more apparent when viewed through the prism of international travel as I did, having recently returned from two foreign trips, one to Costa Rica and the other to Thailand.
However, most Americans don't do much traveling abroad. Granted, 71% of U.S. adults have left the country at least once, but relatively few pursue travel regularly. according to a Pew Research study released in August. Only 11% of Americans have visited 10 or more foreign nations. People with higher incomes and educational levels tend to travel more, as do men. Nearly three in five respondents said they had visited just one or two other nations or have never ventured abroad.
Foreign travel is rising again in the wake of the pandemic and the reopening of most international destinations. Perhaps that will provide new insights about the merits of this country and encourage more Americans to appreciate what they have at home.
Reach the reporter at russ.wiles@arizonarepublic.com.
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This article originally appeared on Arizona Republic: Inflation improvements, 4 other reasons for thanks this economic year
