As I sit down to write this, the presidential election has not taken place yet, but we can be assured of one thing: When you read this, we will have a new President-Elect. And that election will have very little effect on our companies, our customers, and our vendors, as daily life will go on, and we will continue to batch concrete and cast concrete products.
But leading up to the election, there was extensive reporting by the popular press of one of the greatest conundrums of voter unhappiness, which is the state of the economy. What? I call it the Great Economic Disconnect. In my 51-year career, I have never seen the American consumer so disconnected between their perception of the economy, and the reality of our prosperity. All the polls reflect dissatisfaction on the part of voters with the economy, but the facts and figures just don’t square with that view. Gross Domestic Product, or “GDP,” measures all the goods and services produced in the economy; it expanded at an annualized rate of 2.8 percent in the third quarter, which was a slightly weaker pace than the second quarter’s 3 percent rate, but above the 2.6 percent rate economists projected.
STRONG INDICATORS
The latest quarterly report comes after earlier data showed the economy added a whopping 254,000 jobs in September, inflation is a whisper away from the Federal Reserve’s 2 percent target, and consumer confidence jumped last month by the fastest clip since March 2021—all signs of a robust economy. One former regional Fed president even stated that we should declare a soft landing now, as economists have been predicting for weeks. Many economists and government officials have acknowledged the economy has finally pulled off that scenario, in which inflation is tamed without a recession, an exceptionally rare achievement.
Despite all that, consumer moods remain gloomier than in pre-pandemic times according to some surveys. One popular explanation for that paradox is simply that price levels are now much higher than what they were in 2019 before the pandemic. While the Fed’s aggressive action to slow that inflation has pulled down the pace of price increases since reaching a four-decade peak in 2022, the lingering trauma of high inflation remains. But to me, the most puzzling fact is that all the statistics show wage gains have more than offset the cost of food and fuel inflation in all but a very few income ranges and geographies. But reports also show the wage gains have been redirected to other discretionary spending, including automobiles, household goods, and leisure travel instead of covering the cost of inflated essentials. That is the real story in my opinion, so it appears voters have not mentally dug out of the now-tame inflationary cycle we have just been through.
A recent study from the Brookings Institution argued that Americans also feel so gloomy amid a strong economy because society is more partisan these days, and media outlets have a bias towards bad news. Regardless, American shoppers continued to fuel economic growth in the third quarter with their spending as reflected in the latest GDP report, which marked by far the biggest contributor to growth in the period. As I have reported many times before, consumer spending accounts for about 70 percent of GDP, and that spending accelerated sharply in the third quarter, driven by purchases of big-ticket items while spending on services eased a bit. And businesses continued to invest during the July-through-September period, though at a slightly softer pace than earlier in the year, while government spending at both the federal and state level also contributed to third-quarter growth.
So despite the facts regarding the state of the economy clearly at odds with the perception—and mood of voters who keep spending despite their complaints about the economy—there is no doubt we will continue to witness a flourishing economy in the months ahead.
Pierre G. Villere serves as president and senior managing partner of Allen-Villere Partners, an investment banking firm with a national practice in the construction materials industry that specializes in mergers & acquisitions. He has a career spanning almost five decades, and volunteers his time to educating the industry as a regular columnist in publications and through presentations at numerous industry events. Contact Pierre via email at [email protected]. Follow him on Twitter – @allenvillere.