The economy is always a hot talking point when elections are approaching, and this year will be no different. However, the current economy isn’t as cut-and-dry as years past. By most traditional metrics, the economy has been in very good shape, with reasonable GDP growth and unemployment bouncing around all-time lows.
That said, as all of us know, inflation has taken a big bite out of consumers’ bank accounts, as any politician looking to oust an incumbent is happy to remind you. While official unemployment is low, relative underemployment is higher, exacerbating cost-of-living options. While inflation is now near the Federal Reserve’s 2% target, high interest rates are making any credit- or debt-fueled purchases far more expensive. It has truly been a mixed bag of indicators.
However recent data from the Office of Economic Opportunity shows that that mixed bag looks to have taken a turn for the worse in Arizona. There has been nearly a 31% increase in individuals filing for unemployment insurance year-over-year. Private enterprise’s hiring rate is at its lowest point since early 2021, and the private sector shedded 63% more jobs last month than the pre-pandemic average.
How much of this is localized versus part of a national trend? It’s difficult to tell, but it is perhaps worth noting Arizona’s boom and bust nature as it related to real estate; prices and activity exploded post-pandemic, along with jobs in the real estate sector to support those activities. As the real estate boom has fizzled, it is reasonable to expect the sector to contract as well.
However, what isn’t localized is the impact of higher interest rates. While most consumers typically see higher mortgage rates and credit card interest rates as the primary impact of the Federal Reserve’s efforts to stamp down inflation, corporate America sees higher rates for borrowing, which has become an impetus for rethinking plans for growth, and in many cases shedding excess employees that they brought on during the “cheap money” low interest rate days.
The Federal Reserve has aimed for a “soft landing”: where they can bring down inflation without doing significant damage to the economy, and then bring down interest rates to a more sustainable rate. So far it has done an exemplary job, but that goal may soon be slipping away from them. While we would need more sustained data that points in the same direction to make any calls on the economy, if this current trend persists we may have our answer.
One thing is for sure: during a political campaign season, politicians will be looking to assign blame for this development whether or not it is deserved, just like if the economy was going in the right direction, they would be looking to take credit.