The Economy Is Still Very, Very Weird

It’s the most important economic lesson of the decade: What goes up must come down (and what’s gone down will probably go up again).

Cartoon eyes with pupils going up and down, but the pupils are actually one-cent coins
The Atlantic
Cartoon eyes with pupils going up and down, but the pupils are actually one-cent coins

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So, maybe I should start with an apology. Since the coronavirus pandemic began, my economic analysis has devolved into what I imagine must be a frustrating theme for readers: Everything is just weird, okay?

I said the rental market was being weird. I said home sales were being weird. I said consumers were being weird too. At one point, I threw up my hands and cried uncle by saying we live in the “everything-is-weird economy,” hoping to save myself some time. Then calls for a recession came pouring from the heavens, and I was forced to say those were weird too.

Good journalism ought to be honest, and I’ve honestly struggled to figure out what’s been going on with the U.S. economy. But under the theory that good journalism ought to also be descriptive even at the risk of being wrong, I think I owe readers, and myself, a general theory of weirdness.

So here’s my best shot at summarizing the past three years of perplexity: We’re living in a yo-yo economy.

Take the story of unemployment. In February 2020, the month before COVID broke the world, the U.S. unemployment rate was at 3.5 percent. Two months later, U.S. joblessness officially spiked to nearly 15 percent, shattering the highest mark since the end of World War II. Three years, several crises, and more than 1 million U.S. COVID deaths later, the unemployment rate has settled back to 3.5 percent. From historic lows to historic highs and back down to historic lows again: That’s the yo-yo economy.

The more industries you look at, the more such stories you find. The vertiginous up-and-down of these statistics has been the economic phenomenon of the 2020s.

  • Gas: In January 2022, the average gas price in the U.S. was about $3.40 a gallon. Within months, it rose to more than $5 a gallon. By December, it had fallen back to less than $3.40 a gallon.
  • Stuff: In early 2022, the inflation rate for durable goods—meaning “stuff,” such as furniture, computers, and jewelry—hit an all-time high of 18 percent. Ten months later, we may be in a kind of stuff-based recession (a self-respecting person must resist the urge to say “stuffcession”), with these durable-goods prices actually falling year over year.
  • Used cars: Since the pandemic began, the annual inflation rate for used cars and trucks has toggled from negative 2.7 percent in the summer of 2020 to more than 40 percent in both 2021 and 2022, smashing the all-time record. Since then, their inflation rate has tumbled back down to negative 8 percent, where it now sits near its record low.
  • Savings: In 2020, the personal-savings rate rocketed to (guess what) the highest rate on record. In the past year, consumers have flipped the switch, and savings rates have crashed.
  • Housing: The first year of the pandemic included both a flash-freeze recession and a blisteringly hot housing market. Take one key measure of housing construction: fixed investment in single-family homes. In early 2021, the amount of money builders spent on houses grew by 50 percent, the sharpest one-year increase since the Reagan administration. Then interest rates spiked, and housing crashed. In the last quarter of 2022, our measure of housing investment fell by 10 percent—something that happens almost exclusively in recessions. Never before has housing investment gone from boom to bust with this speed and magnitude. (And perhaps back to boom again: This year, real-estate writers are seeing signs of recovery in the housing market.)
  • Tech: In 2020 and 2021, no industry benefited from the weirding of the world like tech companies and cryptocurrency boosters. The physical world and the services economy were closed for millions of Americans, which funneled billions of dollars of economic activity online. Streaming-video use surged as entertainment companies stopped theatrical releases and sent more films straight to personal screens. Hiring rose across tech, and stock prices did too. Shares in crypto companies, Robinhood, Peloton, and more all soared. And then came the crash landing. Rates rose and layoffs followed, and the pandemic stock market now appears, in retrospect, to have been one big bubble.

What’s going on here? One theme across sectors is that people assumed the pandemic would forever change the way we live. In fact, what we experienced was more like a dramatic interruption of existing lifestyles than an acceleration of some new future. For example, demand for online gambling—sorry, I mean app-based equity and coin trading—bloomed during the worst part of the pandemic and then crashed after the physical world opened back up.

Another theme has been the consistent mismatch between supply and demand, with companies struggling to anticipate and satisfy consumer preferences. Microchips might be the best example of an industry that’s had a hard time finding a happy medium between burning in the fires of inflation and drowning in oversupply. During the peak of the pandemic, demand for microchips went berserk: People stuck inside wanted to upgrade their computer screens, and tech companies needed to keep up with an upswing in internet use. This put a strain on chip manufacturers, so prices rose. Companies such as Intel increased production of chips to meet demand. But they overshot the market, and today, there’s a glut of some computer chips. So prices for chips have fallen, and now companies such as Intel are doing layoffs just a few quarters after it looked like the world couldn’t get enough of, or pay enough for, their core product.

An economy that yo-yos in so many ways is a beast to deal with. It’s hard to manage if you’re the Federal Reserve, which was clearly late in deciding to raise interest rates to fight inflation (and might now be late in recognizing that the inflation crisis is over). It’s hard to campaign on if you’re the Biden administration, which has struggled to emphasize ascending good news (unemployment is down!) when there’s always some indicator of yo-yoing in the opposite direction (services inflation, yikes!). It’s hard to predict if you’re an investor; various indices are near their inflection point, but it’s not entirely clear when they’ll peak or bottom out. It’s hard to deal with as a procurer or an inventory manager struggling to find the Goldilocks zone between headline-grabbing shortages and profit-murdering gluts.

The legacy of the yo-yo economy could be profound. The most interesting questions in government today aren’t just about how to redistribute funds to help people pay for things; they’re about how to establish the right rules and markets to allow things to be built. I don’t think we would have these questions without the pandemic, which concretized fears of a demand-side recession only to later create problems that required a new supply-side philosophy. Today, America is reindustrializing unapologetically. The Biden administration is embracing policies to make America stronger, richer, greener, and less reliant on supply chains that run through our geopolitical nemeses.

In the short run, the up-and-down economy has resulted in a lot of weirdness. In the long run, the legacy of the yo-yo years might be an agenda of abundance.

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