How Is the Economy Doing?

The current economy is defined by strong economic growth, a softening labor market and slowing inflation.

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Updated · 4 min read
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Written by Anna Helhoski
Senior Writer
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Edited by Rick VanderKnyff
Senior Assigning Editor
Fact Checked

Updated as of Sept. 11.

The state of the U.S. economy is strong despite inflation remaining elevated. The economy is expanding at a crisp pace, the labor market is loosening slightly and inflation is slowing from its peak. The Federal Reserve looks at several economic indicators — along with the stock market — to form a better picture of the economy and make decisions on interest rates.

Is the U.S. economy growing?

Q2 2024 Real GDP: 3%

The U.S. economy has shown steady growth since it dropped to unprecedented levels during the second quarter of 2020 due to the pandemic — and then rebounded almost as quickly. A year later, in the second quarter of 2021, the rate of annual growth hit a high not seen since the 1950s.

Gross Domestic Product (GDP) is the market value — in current dollars — of all goods and services produced within the United States in a given period. The data that shows GDP adjusted for inflation is called Real GDP. All GDP changes are expressed on an annualized basis and reports are released quarterly by the Bureau of Economic Analysis.

» MORE: GDP Report

What is the U.S. unemployment rate?

August unemployment rate: 4.2%

The U.S. unemployment rate is the share of unemployed people as a percentage of the overall labor force. Unemployed people are those who are actively seeking work. The labor force doesn’t include the entire population; it’s just the number of people who are employed plus those who are unemployed but looking for jobs.

The unemployment rate had remained low since December 2021. During this period it fluctuated between 3.4% and 3.9%. But the rate began to increase this spring and has topped 4% since May.

How fast are wages growing?

Wage growth rate: 4.7%

Wage growth is moderating from what it was at this time in 2023 and is much lower than its peak in 2022. Still, the most recent data from the Federal Reserve Bank of Atlanta shows that annual growth is pacing much faster than it did in 2020.

Below is the three-month moving average of median hourly wages over the last decade.

Is inflation going down?

August CPI Inflation rate: 2.5%

Inflation measures the rate of price increases, on an annual basis. The Federal Reserve is targeting a 2% inflation rate.

Consumer price index (CPI)

The current inflation rate is typically a reflection of the consumer price index (CPI), which is released monthly by the Bureau of Labor Statistics. The CPI measures changes in prices that consumers pay for goods and services including food, gas and rent. The core measure of the consumer price index excludes two volatile factors: food and energy. The core CPI, as of August, is 3.2%.

Personal consumption expenditure (PCE)

July PCE inflation rate: 2.5%

The Federal Reserve’s preferred measure of inflation is the core personal consumption expenditure (core PCE), which is released monthly by the Bureau of Economic Analysis. The PCE follows the goods and services consumers buy and the price they pay for them. It also tracks changes in spending habits as prices fluctuate. The core PCE, as of July, is 2.5%.

Rent vs. inflation

Rent costs are a significant factor driving inflation. That’s because rent is included within the shelter price index and shelter comprises the biggest segment of the CPI. The rent portion of the CPI has outpaced overall inflation for decades.

However, there’s a lag in how rent data is reflected in the CPI, which means rental shifts — up or down — won’t immediately be reflected in the report. The lag is due to the cycle of lease renewals. Companies that track rental prices, like the housing website Zillow, show that rent increases have slowed down for nearly a year, but that slowdown has yet to show up in the CPI report.

When will interest rates go down?

Federal funds rate: 5.25% to 5.50%

The federal funds rate, also known as the Fed rate, is the interest rate that U.S. banks pay each other to borrow or loan money overnight. The federal funds rate affects interest rates on consumer lending products like credit cards and mortgages.

The fed rate is set by the Federal Open Markets Committee (FOMC), which is the monetary policymaking arm of the nation’s central bank known as the Federal Reserve. At the FOMC’s eight scheduled meetings each year, it takes action on the federal funds rate. That means it will hike, hold or lower rates, depending on economic conditions.

Consumer confidence in the economy

Consumer confidence — or sentiment — is an index that reflects people’s perceptions about the economy in the short-term and the outlook for the future. There are two main consumer sentiment indexes: the University of Michigan’s Index of Consumer Sentiment and The Conference Board’s Consumer Confidence Index.

The University of Michigan’s early results for its Index of Consumer Sentiment went up in August from its July reading, which suggests consumers are feeling more confident about the economy from July to August. Meanwhile, the Conference Board’s Consumer Confidence Index went up from July (101.9) to August (103.3). The Expectations Index also grew from July (81.1) to August (82.5).

How’s the stock market doing?

The health of the stock market is represented by major stock market indexes like the Dow Jones Industrial Average, S&P 500 or the NASDAQ 100. These indexes include broad sections of the stock market, but aren’t entirely exhaustive. That means the performance of these indexes represents the fluctuations in the entire market. So when the stock market goes up that means stock market indexes have gained value and vice versa.

Data may be delayed and is for informational purposes only.

Latest mortgage interest rates

Mortgage rates change daily according to what’s happening in the economy.

NerdWallet’s daily mortgage rates below are calculated as an average of the annual percentage rate (APR) with the lowest points from a selection of major national mortgage lenders. The APR is based on the interest rate and indicates all of the costs of getting a loan including mortgage origination fees and discount points.

(Photo by Spencer Platt/Getty Images News via Getty Images)

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