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.