US & World Economies US Economy Is the Economy Getting Better? By Kimberly Amadeo Kimberly Amadeo Kimberly Amadeo is an expert on U.S. and world economies and investing, with over 20 years of experience in economic analysis and business strategy. She is the President of the economic website World Money Watch. As a writer for The Balance, Kimberly provides insight on the state of the present-day economy, as well as past events that have had a lasting impact. learn about our editorial policies Updated on September 6, 2021 Reviewed by Erika Rasure Reviewed by Erika Rasure Erika Rasure, is the Founder of Crypto Goddess, the first learning community curated for women to learn how to invest their money—and themselves—in crypto, blockchain, and the future of finance and digital assets. She is a financial therapist and is globally-recognized as a leading personal finance and cryptocurrency subject matter expert and educator. learn about our financial review board The economy is getting better, although not fast enough to create enough well-paying jobs. Photo: Photo: Tetra Images/Getty Images While it may be hard for some Americans to confidently say that the U.S. economy is getting better, others say the worst of the COVID-19 pandemic is behind us and the country is now on a path of steady improvement. On one hand, the gross domestic product (GDP) was $20.93 trillion at the end of 2020, according to the Bureau of Economic Analysis (BEA). That represents a year-over-year decrease in real GDP of 3.5%. Yet, on the other hand, in the first quarter of 2021, real GDP increased by 6.3%. Data shows that the U.S. GDP grew at an annualized rate of 4% in the fourth quarter of 2020, a promising sign compared to prior quarters. That growth was attributable to an increase in exports, among other factors, according to the BEA. The first-quarter results in 2021 suggested continued improvement, and in the second quarter of 2021, real GDP increased to 6.6%. According to the BEA, this reflected the continued economic recovery, reopening of establishments, and continued government response related to the COVID-19 pandemic. Unemployment peaked in April 2020 at nearly 15%, but by July 2021 that rate had fallen to 5.4%, coinciding with a decrease in the amount of Americans filing for unemployment benefits in August 2021. If the trend of economic recovery continues, the U.S. could soon return to the natural rate of 4.5%. Consumer Spending Digging into the GDP data a bit, one of the first things an analyst will notice is how important consumer spending is to the overall economy. An analyst can typically expect consumer spending to make up roughly two-thirds of the nation's overall GDP. That's partially why the pandemic hit the economy so hard—when people stayed home to prevent the spread of the virus, they were less likely to spend as much as they otherwise would have. In December 2020, personal consumption spending accounted for roughly $12.92 trillion (in chained 2012 dollars), compared to $13.36 trillion in December 2019. That's a troubling decrease in year-over-year data, but it doesn't tell the whole story of the economic recovery after the initial hit of the pandemic. In April 2020, personal spending bottomed out at just under $11 trillion. Note Consumer spending is one of the most closely watched data points within the GDP. As spending recovers, analysts expect to see other areas of the economy recover, as well. Data That Points to an Improving Economy Despite the widespread downturn in the spring of 2020, some aspects of the economy sprang back quickly. Housing prices, for example, never saw a significant pullback. Price growth stagnated in the spring, but it never decreased. By June, prices resumed growing, and December's home price index reflected more than 11% year-over-year growth. Sales of existing homes did dip into the negative territory in the spring, but the rates of sales resumed year-over-year growth by July 2020. The trend continued, and total existing-home sales grew to a seasonally adjusted annual rate of 5.99 million in July 2021. This represents a 1.5% year-over-year increase from July 2020's seasonally adjusted rate of 5.9 million. Despite the widespread downturn in the spring of 2020, some aspects of the economy sprang back quickly. Housing prices, for example, never saw a significant pullback. Price growth stagnated in the spring, but it never decreased.5 By June, prices resumed growing, and December's home price index reflected more than 11% year-over-year growth. Sales of existing homes did dip into negative territory in the spring, but the rates of sales resumed year-over-year growth by July 2020.6 The trend continued, and total existing home sales grew to a seasonally adjusted annual rate of 5.99 million in July 2021. This represents a 1.5% year-over-year increase from July 2020's seasonally adjusted rate of 5.9 million. Stocks crashed hard in the spring, but they recovered remarkably quickly. The Dow set closing records in November 2020 and has continued to set record highs in the months since, including reaching record closes for the year in August 2021. Granted, higher stock prices may not immediately benefit many Americans, but it is a leading economic indicator. When stock prices rise, corporate CEOs feel confident and, as a result, they are more likely to invest. They will expand their businesses, buy new equipment, and hire more workers. The increase in income will lead to more demand; it creates a virtuous cycle that drives further economic growth. Why Some Feel the Economy Is Getting Worse Even though there are data that suggest that the economy is getting stronger, many people feel discouraged and frustrated. The economic recovery from the 2008 financial crisis was slow and unsteady—unlike previous recoveries, in which U.S. GDP growth was 4% per year or more. It was in the midst of this sluggish recovery that the pandemic hit, and many fear that existing problems will be exacerbated for an extended period. Note The stark difference between the swift recovery of stock prices and the lagging recovery of other economic measurements has led some to call the current situation a "k-shaped recovery." In other words, some are doing very well in the current economy, while others are still struggling to recover from the initial impact of the pandemic. Wage growth has been slow for more than a decade. Since 2008, even as stocks recovered, incomes haven't significantly increased. In 2012, the real median household income was $56,912. That's about the same as it was in 1988, once you've adjusted for inflation. Due in part to the sharp impact of the pandemic in the spring of 2020, wages did grow during the second half of 2020. However, year-over-year wage growth began to fall steadily into 2021, with growth significantly declining by April, then showing signs of improvement throughout the summer of 2021. If the year-over-year wage growth had been more healthy, the average hourly employee in the U.S. currently earning $30.54 per hour would earn an hourly wage closer to $33.80. Even before the pandemic, the real unemployment rate had consistently been high. The official unemployment rate before the pandemic hovered around 3.5%, which was historically low, but that rate only counts people who are actively looking for work, and many unsatisfied or would-be members of the labor force aren't included in the figure. When she served as Federal Reserve Chair, Treasury Secretary Janet Yellen pointed out this discrepancy between "real" unemployment and the figure many economists reference. A speech she gave in January 2017 included the comment, "A broader measure of unemployment isn't quite back to its pre-recession level. It includes people who would like to have a job but are too discouraged to look for one and people who are working part-time but would rather work full-time." The U.S. debt, as a percentage of GDP, has been well above historical norms for more than a decade. The debt-to-GDP ratio spiked during the 2008 recession, and that trend never reversed. The debt-to-GDP ratio first surpassed 100% in 2012—meaning that the total public debt was more than the country's total economic output. The ratio later fell below 100%, but it grew again and in recent years has been worse than ever before. Since 2016, debt has consistently outpaced economic output. The pandemic only further exacerbated this issue, and the debt-to-GDP ratio peaked at more than 135% in the second quarter of 2020. The good news is that it is down to 125% in the second quarter of 2021. U.S. infrastructure is old, and the government is dragging its feet on updates and maintenance. Many of the roads, dams, and bridges that we depend on to keep the economy humming along were built as part of the New Deal in the 1930s. By some estimates, traffic congestion alone costs the economy $120 billion every year. While many highways, water utilities, and railroads are aging, total government spending on these crucial pieces of infrastructure has been on a declining trajectory since 2001. Of the government spending on infrastructure, more than three-quarters of the funds come from state and local governments rather than the federal government. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Bureau of Economic Analysis. "Gross Domestic Product, 4th Quarter and Year 2020 (Advance Estimate)." Bureau of Labor Statistics. "Civilian Unemployment Rate." Congressional Research Service. "Introduction to the U.S. Economy: Consumer Spending." Bureau of Economic Analysis. "Table 2.3.6U. Real Personal Consumption Expenditures by Major Type of Product and by Major Function." Freddie Mac. "Freddie Mac House Price Index." National Association of Realtors. "Summary of December 2020 Existing Home Sales Statistics." National Association of Realtors. "Existing-Home Sales." Federal Reserve Bank of St. Louis. "Real Gross Domestic Product." Atlantic Council. "U.S. Economy: V Shape or K Shape Recovery?" Census Bureau. "Real Median Household Income." Economic Policy Institute. "Nominal Wage Tracker." Board of Governors of the Federal Reserve System. "The Goals of Monetary Policy and How We Pursue Them." Federal Reserve Bank of St. Louis. "Federal Debt: Total Public Debt as a Percent of Gross Domestic Product." The Council on Foreign Relations. "The State of U.S. Infrastructure." Peter G. Peterson Foundation. "State and Local Infrastructure Spending: A Closer Look."