In the month of September, there has been both a decrease in the U.S. unemployment rate, currently 5.9 percent, and an increase in U.S. existing home sales. An increase in existing home sales indicates the housing market is recovering.
A recovering housing market may indicate consumer confidence is rising. This is because a mortgage is a long-term liability. When consumers are confident about both the state of their current job and their future, they will be more willing to take on long-term liabilities.
However, even in the presence of positive economic indicators, a problem continues to exist in the U.S. economy, and that is income inequality.Income inequality refers to the unequal distribution of income across the various participants in an economy. Last week, Janet Yellen mentioned that income inequality in the United States is close to its highest levels when compared to the previous 100 years. This statement is supported by the fact that two-thirds of all assets are still held by the wealthiest 5 percent.
Later this month the Federal Reserve is expected to end its quantitative easing (QE) program. An end to quantitative easing will push interest rates higher. With such a large income gap in the United States, questions arise as to whether QE has helped widen the gap or has helped shorten the gap. Critics mentioned that while stock prices have increased substantially since the beginning of QE, the economic recovery has otherwise been slow. However, supporters of QE have said the program helped families, referring to the lower unemployment rate.
When the Fed is making decisions regarding when to end QE, economic data such as the unemployment rate, the rate of GDP growth and the inflation rate have received significant attention. We just saw that supporters of QE say QE helped lower the unemployment rate. However, the unemployment rate is not an accurate number because it neglects to include discouraged workers from the calculation.
Also, GDP growth does not give an indication of how equally the increased income has been distributed across the various participants in the economy.
Because economic data can be misleading and misinterpreted, it will be interesting to see if and how the Federal Reserve will adjust current and future programs to try to manage the current income inequality problem in our economy.