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NORTHFIELD, Minn. (March 28, 2025) – As economic fluctuations continue to make headlines, such as auto tariffs dropping as of March 26, understanding the key indicators of economic health has become increasingly crucial for the everyday consumer. 

Allison Luedtke, an associate professor of economics and Department Chair of Economics at St. Olaf College, offers valuable insights into economic growth, inflation, and other essential metrics that shape our financial landscape:

What is economic growth, and how do we measure its success in an economy?

Luedtke: “Economic growth” refers specifically to “the growth rate –- the percent change –- in real per capita Gross Domestic Product (GDP). This measure reflects the change in the value of goods and services produced per person, adjusted for inflation. It answers the question, “How much of last year’s real per-capita GDP did we put on top of it this year?” 

Historically, this rate has been about 2 to 3 percent, meaning GDP per person has steadily increased over time. Other than in 2020, this number has been positive since the Financial Crisis in 2009. This means that the GDP per person has grown consistently for the last 15 years.

With news about the health of the economy pivoting everyday, which key indicators should the average person be cued into the most?

Luedtke: This depends on what you care about the most. If your primary concern is how much of your paycheck goes toward your groceries, you want to pay attention to inflation, which will tell you the percent change in prices across the country, and, more importantly, you want to pay attention to how your own income is changing.

If your primary concern is your retirement account because you will need to use it soon, you’re more likely to be focused on Stock Market indicators like the S&P 500 or the Dow Jones Industrial Average. If you are thinking of buying a home or a car with a loan, you want to pay attention to interest rates, which will tell you how much interest you will have to pay on your loan each year.

What do new terms, such as “economic detox,” mean to the average U.S. person?

Luedtke: I think the term “economic detox” is just the newest iteration of politicians trying to say anything but “recession.” There’s a whole episode of The West Wing where they refuse to use the word “recession” so they call it a “bagel.”  For example, “So if it is a… bagel, the Fed thinks it’s gonna be a mild bagel.”  

Any time you hear a politician use a word out of left field combined with “economic,” substitute the word “recession” and see if it fits. In this case, I think it does. 

We came into 2025 in pretty good economic shape. Inflation was decreasing, unemployment was staying low, interest rates were steady. However, it seems likely that increased tariffs will make the inputs in a lot of everyday goods more expensive, which makes the everyday goods more expensive. Tariffs are taxes on imported goods and someone has to pay those taxes. Maybe the manufacturers overseas will pay them or maybe they will pass on the price increase to American consumers. If it’s the latter, the prices of stuff will go up substantially and it could trigger an economic detox. A bagel. A recession.

Besides the stock market, what are other day-to-day indicators the average consumer should pay attention to when understanding how to navigate a tumultuous economic period?

Luedtke: Unless you are nearing retirement and heavily invested in stocks––rather than bonds–– you should probably ignore the day-to-day fluctuations of the stock market. Over time, the stock market tends to do well and the value of stocks taken as a whole tends to increase.  That’s why it’s good to be invested. But the day-to-day or even month-to-month is pretty volatile while not being particularly informative for your own day-to-day or month-to-month decisions.

The three main numbers we use to describe the macroeconomy are the unemployment rate, the inflation rate, and the growth rate of real GDP. The unemployment rate tells us what percentage of people looking for jobs are finding them. In January, this number was 4 percent. This is pretty low, which is what you want to see. Over the last 40 years, the average unemployment rate is around 5 percent, so a number in the 3-4 percent range is very good news. The inflation rate describes the growth rate of overall prices across the country. In January, this was 3.62 percent, which is also pretty low. While we saw big inflation numbers in 2022-2023, this has fallen sharply. The growth rate of real GDP tells us how the value of stuff we produce in the country is changing. This was 1.67 percent at the end of 2024. This is a little below average but still positive, meaning we produced more value in the U.S. in 2024 than the previous year.

How does your work at St. Olaf College support furthering our understanding of economic health and risk? 

Luedtke: The most important thing I do to further our understanding of economic health and/or risk is teach. Teaching my students – from first years taking Principles of Economics to seniors taking my Network Economics course – is the most direct way I have of helping individuals make sense of a complicated global economy.

Allison Luedtke is an associate professor of Economics at St. Olaf College, specializing in network economics. Through her teaching and research, she helps people understand and navigate the complexities of the modern economy. She has published work on how banks lending to each other can lead to financial crisis; college peer effects; and tracking how digital currency is exchanged by consumers can help us understand how different communities were impacted during the pandemic.

For media inquiries, contact Kat Dodge, Director of Public Relations, dodge2@stolaf.edu.