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.

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.