The monthly indicators relied upon by economists to determine the state of the economy reveal it has entered the sixth year of an economic expansion that began in May 2020.

These include nonfarm payroll employment real personal income less transfers, manufacturing and trade sales, and industrial production, the NBER’s business cycle dating committee notes. The nonpartisan NBER is recognized within economics as a leading business cycle arbiter.

The Federal Reserve Bank of St. Louis, whose region includes Arkansas, publishes a one-stop page of these coincident indicators that show the economy in month-old, near real-time.

But the economy may not appear to be expanding to Arkansans struggling with inflation, questioning job security or facing uncertainty about policy changes such as tariffs. Another way of describing this sentiment: Yes, monthly indicators are expanding on economists’ technical charts but higher prices, job insecurity, and policy uncertainty give off a different vibe.

The following is a brief discussion of these issues.

Inflation

In late 2023, I noted “one possible explanation for this perception” is inflation. Last May, I wrote that the percentage of consumers citing high interest rates or tight credit in the University of Michigan consumer survey is higher than the 2020-2022 period, early in this expansion.

Inflation expectations remain elevated in the survey’s latest reading. The Fed’s latest reading shows inflation continues increasing at a rate greater than the bank’s two (2) percent inflation target. In sum, inflation remains an issue, and a potential drag on future growth.

Job Insecurity

There is generally good news on the jobs front. Arkansas’ 3.7 percent unemployment rate (May) is near multi-decade lows. Job losses can be devastating on a micro household level, but they do not translate into macro-level recession unless monthly payroll employment declines with other coincident indicators.

Job losses can be devastating on a micro household level, but they do not translate into macro-level recession unless monthly payroll employment declines with other coincident indicators.

Policy Uncertainty

Policy uncertainty is the greatest aberration from a year ago. A government economic policy that changes hour-by-hour or from day to day is a more arbitrary and uncertain climate to navigate than one where there is multi-year, long-term future certainty.

Established businesses and entrepreneurs are future-looking by necessity: they serve the market sovereign, i.e., the consumer, and must always be sensitive to future supply-and-demand calculations.

“Every act of government interference with business must indirectly affect consumption,” economist Ludwig von Mises noted in “Human Action.” (Yale University Press, 1949).

The average postwar (1945-) U.S. expansion is 64 months. In August, the economy will reach that mark. Further growth could depend on policymakers’ ability to solve inflation and policy uncertainty.

Editor’s note: Economist Greg Kaza is executive director of the Arkansas Policy Foundation, a market-based think tank founded in 1995. The opinions are those of the author.