Growth And Predictions For The US Economy In The Third Quarter

Tweed-Economics-US-Economy (1)
Tweed-Economics-US-Economy (1)

Overview of the US economy

The United States of America runs a multi-faceted, free market economy. With a GDP of $21 trillion, the US has the largest national economy in the world. The largest component of the US GDP comes from consumer spending, government expenditure, investments and net exports. According to an article published on the Balance (1), consumer spending accounts for close to 70% of the GDP, while government spending contributes about 17% of the total. Business investment is an important promoter of the GDP since it covers key drivers of the economy, such as intellectual property, manufacturing and real estate construction. The US budget is largely funded by income taxes obtained from tax payers.

What are the economic growth projections for 2019?

The US economy has been on a steady recovery following the devastating effects of the 2008 financial crisis. The renewed hope is evident in the strong unemployment numbers, durable goods orders and stable GDP growth. The economy is also showing a lot of resilience when you look at the inflation and deflation statistics. However, the rate of economic growth is expected to slow down from 2019, albeit gradually.

Most economists expect this trend to prevail in the foreseeable future owing the existing economic climate. According to Balance (2), the GDP growth rate for 2019 is projected to grow at between 2% to 3%. In the next two years, the US economy is expected to grow at 2% in 2020 and 1.8% in 2021. Economists expect the unemployment rate to remain stable since the market isn’t moving towards inflation or deflation. The number is likely to rise slightly in the coming years to stand at 3.7% in 2020 and 3.8% a year after.

In spite of the impressive figures, there is concern that a significant number of workers are only engaged on a part-time basis and most would desire high-paying, permanent placements. The report shows the inflation rate will remain low in 2019 to stand at 1.5% and rise steadily thereafter to 2% in 2021. The Fed may also lower the interest rate on the back of stable, core inflation rate, whose index doesn’t feature the highly volatile gas and food prices. Lastly, the manufacturing sector is expected to grow faster than the overall economy.

Growth and economic policy predictions: An expert view

A lot of the things expected to shape the economy from Q2 all through to Q4 and beyond will hinge on policy implementation and positive sentiments from leaders. A Washington Post report by a former Chief Economist, Jared Bernstein sees the federal deficit rising and the economic growth slowing in 2019. The likelihood of Federal deficit rising is as a result of President Trump’s tax cut and the consistently rising government spending.

According to the author, the economic growth will be weighed down by the fading stimulus package. It important to note that the deficit-funded tax cuts and spending contributed a whole percentage point to GDP growth in 2018. The economist also predicts zero increase in the interest rate; rise in wages and inflation and escalation of the trade war. Fears about China’s slowing economy and a simmering trade war with the US remain a big concern to the economy.

The politics of the economy

America has been at loggerheads with China and other trading partners. The trade war could escalate since it is part of Trump’s campaign pledge and bedrock of his “America First” economic policy. When he assumed office in 2017, President Donald Trump promised to grow the economy by a staggering 4%. If these growths were to be realized, economists fear this would fuel “overconfidence irrational exuberance”, which could be detrimental to the economy.

The growth could seriously interfere with the fundamentals of the business cycle, such as capital availability, supply, market perception and demand. However, the President’s policy statements are not expected to hugely impact the unemployment numbers, which is expected to stand at 3.6% in 2019. Looking at the overall performance of the economy, a deduction can be made that changes are less stark compared to the day to day intricacies of the stock market.

In his assessment of the economy, Alenjandro Chafuen, a policy contributor at Forbes magazine also sees a slowing economy; one that will eke 2% growth in 2019. The forecast stems from the current push for lower taxes and stricter regulations from the new, Democrat dominated Congress. The push is expected to face headwinds from the Republican led Senate and the government bureaucracy. More internal pressure will come from increased protectionist policies and rising government deficit.

Will The G20 Summit Help The Global Economy? Facts You Need To Know

Tweed-Economics-Global-Economy
Tweed-Economics-Global-Economy

All eyes were on the G20 Summit in Osaka, Japan in June as the world held its collective breath about the trade war between China and the United States.

Some of the most important talks that were the focus of the 2019 G20 were actually conducted before the G20 began. Other important discussions and agreements did not get fully aired in the mainstream media. This article will examine the important business of the G20 that will actually have an impact upon the lives of many around the world.

What is the G20?

According to the BBC, the G20 economic summit is a meeting with leaders from the 20 largest economies in the world. These countries make up 86 percent of the global gross domestic product (GDP) and contain two-thirds of the world’s population. Notable countries that are a part of the G20 include the United States, Russia, China, India, the United Kingdom, Germany, France, Japan, South Korea, Brazil, Australia, Canada and Mexico. The idea for the meetings began in 1999 when there was an economic crisis in East Asia that was threatening to expand to other areas of the world.

What Were the Important Issues Discussed This Year?

Discussions included trade discussions and the Iran Crisis, this is what happened:

The U.S./China Trade War

According to The Guardian newspaper, both the U.S. and China have been engaged in an escalating war of trade tariffs imposed upon the other country. The Guardian stated that Japanese Prime Minister Shinzo Abe, E.U. President Jean-Claude Juncker and Russian President Vladimir Putin were among others that are urging the U.S. and China to find commonalities and reach agreements because their trade war is endangering the world economy.

According to CNBC, U.S. President Donald Trump and Chinese President Xi Jinping put their teams of advisors to work before the G20 and began to come up with a bit of a compromise. At the G20, both leaders announced they would forego further tariffs.

Also, Trump announced that he would allow Huawei, the Chinese telecommunications giant, to buy products from U.S. firms. Trump also stated, though, that the issue of American firms selling products to Huawei is not totally closed. According the CNBC, the International Monetary Fund has calculated that the proposed tariffs between the two countries and those already being implemented will cause a half of a percent decline in growth in the world economy.

Macron Makes a Line in the Sand on Paris Accords

According to the New York Times, French President President Emmanuel Macron issued what amounted to an ultimatum to 19 of the 20 countries that comprise the G20. He stated that France will not be a part of any agreements brokered at the G20 that do not honor the Paris Climate Treaty. Macron has given up hope of convincing the lone hold-out of the G20 on the Paris climate accords, the United States, to sign on.

The French government is also angry at the U.S. for leaving the JCPOA anti-nuclear pact with Iran and also angry at the U.S. government’s belligerent stance towards Iran. Macron is very displeased that the U.S. stance towards Iran could lead to war.

Politico reported that Trump lobbied the Saudi Arabian, Australian, Turkish, and Brazilian leaders to oppose or weaken the climate agreement language from the previous G20 summits.

Meanwhile, Reuters reported that Macron also placed some direct pressure on Brazilian President Jair Bolsonaro, stating the French would not sign onto an upcoming trade deal between the E.U. and the Mercosur group that consists of the countries of Argentina, Brazil, Paraguay and Uruguay if Brazil did not honor the Paris climate accord. France is concerned about competitiveness between the farmers in France and those in the South American countries. French farmers are prohibited from using pesticides and must reduce their carbon footprint. Macron is demanding that the Mercosur countries follow strict E.U. environmental guidelines. Macron is also concerned about the expansion of the devastation of the Amazon rain forest.

This development continues to illustrate that multi-country alliances and trade deals can spill beyond the borders of one country to others. In this case, the South American countries will be required to follow E.U. guidelines for the farming industry if they hope to trade with the E.U.

Russia, China and India Agree on Trade

The National reported that Russian President Vladimir Putin, Chinese President Xi Jinping and Indian Prime Minister Narendra Modi made a strong statement at the G20 that they oppose countries engaging in unilateral actions, protectionism instead of fair trade and unlawful sanctions against other countries. The three countries urged all G20 members to respect the sovereignty of other countries and the rule of law.

No Real Progress on Iran Crisis

Although German Prime Minister Angela Merkel and Russian President Vladimir Putin urged the United States to step back from threats of war with Iran, little progress appeared to be made in this urgent matter.

Overall, an easing of the U.S./China trade war, an effort to bolster the Paris climate accords and a strong statement from three of the BRICS member nations on free trade and sovereignty issues highlighted the 2019 G20.

What the Numbers Are Saying About the US Economy

Tweed-Economics-US-Economy
Tweed-Economics-US-Economy

President Donald Trump inherited an economy with an admirable trajectory, thanks to solid job growth, low unemployment and sound economic fundamentals. However, in the last one year job gains and wage growth have been less steady. This has fueled talk on whether the US economy is bouncing back or losing steam two years after Donald Trump took over the reins of leadership from President Barack Obama. According to NBCNews.com, the US economy created 196,000 jobs in March 2019, beating the 175,000 forecast that analysts had projected.

Figures

This figure was a big leap from the dismal 33,000 jobs created in February. The worrying job statistics sent jitters across Wall Street, but the White House dismissed it as an outlier instigated by the 5-week long government shut down and a string of bad weather. The drop raised fears that the Federal Reserve could step in to rein in the interest rate as it did in 2018 when it announced an unprecedented four rate adjustments. President Trump was among those who decried the adjustments. The 3.8% unemployment rate recorded in March was the lowest in 50 years.

Wages

According to the Bureau of Labor Statistics (BLS), the wages took cue with a 1.14% rise, which was an impressive 3.2% year on year growth. It will be remembered that the US economy created 225,000 jobs monthly in 2018. Economists expect the economy to ease somewhat this year as the President’s $1.5 trillion fiscal stimulus package doubles down. The tweaking of the economy follows the tepid growth being witnessed around the world. Fears have also been raised regarding continued trade spat between two global economic powerhouses, the US and China.

Leadership

In spite of the uncertainty, there is a reason to believe Trump has a lot to with the economic vibes reverberating across the country. According to a USA Today report published on October 2018, economic growth under Trump averaged 2.9% at the time. The Trump’s economy has also added 3.6 million jobs and pushed the unemployment rate down to 3.9% from 4.8% when he took over as president. It should be noted that people of color, including Latinos and African Americans are witnessing some of the lowest unemployment rates in decades.

Small Business Owners

Lots of optimism is also coming from small business owners. Another key indicator of fair economy is the 3% growth in real disposable income that is up from a flat rate under Obama’s presidency. In spite of the prevailing positive outlook, some analysts say it is too soon to make conclusive proclamations regarding Trump’s initiatives in the wake of hot button issues like taxes and regulatory cuts. There is also nervousness as to whether the growth will be sustained over the coming years. Optimists are pointing to growth in government spending as a sign of a strong future.

Government Spending

The government spending rose to 7% over the 2017 figures, which shows the GDP is growing and might maintain the momentum. On the downside, the deficit is expected to hit $1 trillion and the national debt, a staggering $30 trillion by 2025. Matters might come to head if the debt begins to pull down the economy. The other fears come from Trump’s tough immigration stance and trade policies. As workers, employers and poly makers ponder over the future, there are a few fundamental questions that need to be asked to gauge the health of the economy.

Tax Reforms

According to Forbes magazine, stakeholders need to question how much growth the tax reforms will generate and what Trump’s trade agreements like NAFTA portend for the economy. The answers to these questions will go a long way to impact economic growth and the direction of the stock market indices. The magazine lists the key indicators for assessing the US economy as:

• DOW 30 and S&P 500 Index

• GDP growth figures

• Monthly and annual jobs growth

• Manufacturing jobs growth and future outlook

• Unemployment rate

• Growth in hourly wages

• Federal deficit

• Trade deficit

Reading Economic Indicators

The performance of key economic indicators can make or break investor confidence and investment prospects. Rusty Tweed has spoken and written many articles about market indicators. The highly regarded economist recently commented about the housing market, specifically how the rising market can affect the sector the stock market.

His assertions centered on financial institutions lending and interest rates; the imbalance in the housing supply and demand and the impact of higher down payment and its repercussions on real estate investors. Tweed sees an eerie correlation between investment in the housing sector and stock market. For instance, investors are often drawn to a rising market, but fall back on their positions when things begin to look down.

Market Indicators That All Finance Experts Should Be Looking At

Tweed-Economics-Market-Indicators
Tweed-Economics-Market-Indicators

Finance experts have to look at a wide variety of metrics to do their jobs and properly understand trends in the economy. They have to be aware of both macroeconomic and microeconomic factors at the company level in order to make these analyses. Here are three of the most critical market indicators that any financial expert should know in order to do their jobs.

Volatility

Volatility is perhaps the most important factor that any financial expert should know. This concept is the clearest way to understand how an individual can predict the movements of financial markets. Volatility is measured by the VIX index and other factors. In many ways, volatility is more damaging than a simple downturn in the market. Financial experts know how to transfer their assets and pick counter-cyclical industries if they see that a downturn is coming.

They are not able to make those same bets if there is a considerable amount of volatility in one or more sectors. Knowing volatility is helpful for understanding what factors influence the decisions that financial experts make. One decision that many experts have to make is whether or not they want to take short-term or long-term positions in securities.

Having a short-term outlook may push financial experts to recommend more short sales and limits on trades. Financial experts also may focus more on the bond or real estate markets than stock markets at times of high volatility. High volatility often means a greater chance of losing money for anyone invested in the stock market. Times of steady growth are the best possible times for investment and often do not go along with high ratings on the VIX index.

Value Pprojections

Value projections are the most common market indicators that most individuals use to understand markets. They are the essential facts behind the performance of companies. Most companies release a wide variety of statistics about their performance over the previous year or quarter. But they also issue predictions about how those same companies will perform over the next year. These predictions are more informative to a financial expert than the previous year’s numbers because they help show expectations and assumptions by professionals from a wide variety of companies.

Expectations and assumptions about trends in the market drive the market more than almost any other fundamental. Financial experts can buy, sell, and hold based directly on these predictions. Their job is to show the predictions that matter and the predictions that are based on poor forecasts or guidance. By picking the most influential ideas about the performance of the stock market, a financial expert can use value projections to greatly aid their analyses.

Real Estate

Financial experts need to make sure that they are considering other asset classes outside of bond and stock markets. One of the most common other asset classes to consider is real estate. A wide variety of new, used, individual, and commercial real estate metrics is released every month. This information can point to the success of consumer spending and the economy in general. Real estate is vastly more influential than information about nearly every other industry. Buying a home is often the most consequential purchase that any family will make. It involves a transfer of hundreds of thousands of dollars over a period of years or even decades. As a result, moves in this market show the financial ideas and security of millions of Americans.

Every financial expert needs to become as familiar with this market as with any other. They need to better understand how the real estate market influences the amount of money that individuals spend on technology products and staples. In addition, financial experts need to learn the amount of time it takes for moves in the real estate market to translate to moves in equities markets. Such an understanding is critical for financial experts to make recommendations about the prices of stocks or the performance of the bond market.

No finance expert can perfectly predict every movement of the market. But following critical financial indicators can help ensure that an individual is as informed about markets and market developments as possible. Knowing about volatility and other asset classes helps experts stay informed and make financial plans that are likely to generate considerable returns over a period of time.

Can The Global Debt Cause Another Financial Crisis?

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Global debt has reached new heights according to recent news reports. S&P is out with a new study arguing that the amount of global debt has increased by over 50% since the Great Recession. This number has created understandable worry among a large number of economically-minded individuals who are concerned about the global economy’s ability to handle massive quantities of debt. But there is also concern about what countries do with the debt that they accumulate. Using debt properly, as well as keeping it low, needs to be the main priority of developed nations around the world.

Debt and financial crises

The relationship between debt and financial crises is not direct. It is true that debt at certain levels cannot be sustained. Large interest payments lead to a considerable amount of stress on a country’s economy. Countries do not have the money that they need to pay for infrastructure or social programs. If countries are placed in a difficult position, they may not have the extra cash needed to pay creditors regularly.

There is the looming chance of a default like the one that harmed Greece during the Great Recession. It is possible that countries will have their credit rating downgraded as well. Countries with lower credit ratings will be unable to borrow as cheaply as before and their budgets will take a hit as a result.

Major Defaults

Major defaults could certainly cause a worldwide financial crisis. But at the same time, some countries can use small amounts of debt to do an extraordinary amount of good. Debt needs to increase in times of economic depression and hardship. Government debt can then be used to put people back to work and provide a general amount of economic stimulus.

Then, governments need to work hard to pay off at least a portion of that debt in times of economic prosperity. It is clear that much of the world is reaching that period now. International leaders need to be devising taxation and spending plans that can start to reduce the world’s debts and deficits before another recession occurs and they need to rise again.

What needs to happen

Countries have to gain control of their deficits during periods of sustained economic growth such as this one. They should raise taxes on their citizens and, if that is politically impossible, they should step up enforcement and eliminate as many loopholes as possible. Countries around the world are starving for revenue. They have hundreds of billions of dollars stored away in tax shelters that are completely immune from the influence of countries. There are many steps that the nations of the world can take the reduce the influence of these tax havens.

Currency Structure

In addition, countries need to look closely at their currency structures. Some currencies like the euro need to become more flexible in order to help smaller European countries pay off their massive deficits. Finally, countries have to be careful with their massive spending projects. They should primarily spend money in order to build up their own countries and the potential of their citizens. Debt should only be taken on to pay for the poor or to rebuild the roads and bridges that countries need to thrive.

Global debt may not be the catalyst to another financial crisis. There were almost seven decades without a major global recession and there is little indication that there will be another one anytime soon. But global debt can still become a major problem for the country and its economy. Global debt could mean the difference between a flourishing global economy and one that is constantly teetering on the brink of budget cuts and collapse.