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Is the US Economy a Hidden Gem? Nobel Laureate Paul Krugman Thinks So

Despite whispers of a looming recession, renowned economist and Nobel laureate, Paul Krugman, is painting a far rosier picture of the US economy than what you might have been hearing.

Krugman has argued that contrary to popular belief, the US economy is in a healthier condition than many suspects. This comes in the face of a Conference Board survey revealing 93% of CEOs expect an economic downturn within the next 18 months.

But let’s take a look at the data.

The job market is hitting a high note with the US adding a whopping 6 million jobs since December 2021, putting it in the strongest position it’s been in decades. Unemployment figures are mirroring a time when the Beatles were still together, hitting levels unseen since the 1960s. As if that wasn’t enough, job satisfaction is peaking, setting an all-time high.

Inflation, the boogeyman of 2022, seems to be stepping back. The Consumer Price Index report for April shows prices have eased to 4.9%, a significant drop of over 500 basis points from the 41-year-high of 9.1% in June 2022.

“Given the false alarm of the recession calls and the current strength of the economy, it’s intriguing why public sentiment remains so negative, akin to attitudes during severe economic downturns,” Krugman observes.

Last year, the US slipped into a technical recession, defined by two consecutive quarters of negative GDP growth, leading to increased market caution. However, it’s the National Bureau of Economic Research that officially calls a recession, based on a broader set of data. As per Krugman, their indicators are giving the all-clear signal.

Krugman hypothesizes that the pessimistic economic outlook might be driven by a misperception that others are struggling financially, despite many individuals experiencing personal economic success. An echo chamber effect from repeated media reports on the possibility of a future recession could also be contributing to this negativity.

“Despite what surveys suggest, the positivity of the economic situation can’t be denied, raising questions about people’s sources of information and their responses to surveys,” Krugman remarks.

However, the possibility of an economic downturn this year can’t be completely ruled out. Strategists from Bank of America warned of a potential dip as early as this quarter, citing a bond market indicator that previously predicted 1990, 2001, and 2008 recessions. As always, the Fed’s intention to maintain high-interest rates is a significant factor to consider.

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