The US economy is close to breaking the record for growth

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The US economy is close to breaking the record for growth

Monday 17 June 2019 74

 

Capitals / agencies

The US economy continues to rise for a very long time, aiming to record the longest growth in its history. Despite a weak monthly payroll report for May, which showed a slower pace of recruitment, US employers added jobs for 104 months in a row.

By July, economic growth will go beyond what happened in the 1990s to become the longest period in US history of sustained growth.

But in contrast to the boom in the 1990s - which included the addition of jobs at a steady pace and low inflation rates in the stock market - the latter expansion was like a very long gradual creep.

The recovery was not equal, as it began at different times in different parts of the country, to support some people more than others.

At the moment, questions are growing about how close the United States is to the end of this business cycle and what might push it towards the end.

A CNN report highlights 10 years since the US economy was bottom.

 

Operating booms

The unemployment rate is one of the most visible signs of a return to the US economy. Unemployment, which hit 3.6 percent in May, is near its lowest level in almost 50 years.

At the same time, consumer confidence has reached high historical levels, and CNN polls show that 7 in 10 Americans believe the US economy is in good shape or better.

Part of the reason why the unemployment rate is so low is that employers have positions that are more accessible than they can get workers to fill these jobs.

There have been more jobs available than workers required for occupancy since early 2018, which means in theory that there is a job available to everyone, if they are in the right places and have the right qualifications.

However, this does not mean that everyone has jobs as they wish. Nevertheless, the broader measure of disguised unemployment, which monitors discouraged workers and those who wish to work longer hours, has been declining at a slow pace and has yet to reach its lowest level in history during 2000 .

The labor force participation rate, which measures the share of people who either have a job or are looking for a job, remains below the pre-recession level and 2 percentage points lower than at all in 1999.

The labor market also took a long time to translate into higher wages with average hourly earnings growth of over 3 percent in 2018, excluding the impact of inflation.

Many employers have added other benefits such as better health care as well as helping pay student loans.

But the total cost of compensation is still below the 3.5 percent annual growth rate recorded in the pre-recession period.

These gains have also been disproportionately inflated into people who change jobs, while workers who stay with one employer for long periods of time do not always receive regular increases.

 

Wages and slow recovery

Economists usually refer to a decline in the number of labor unions, slow productivity growth and shift to automation, which allows employers to replace workers if they are too expensive.

Economists argue, however, that the longer the unemployment rate remains at very low levels, the more likely it will be to increase the bargaining power and bargaining power of workers, especially those historically overlooked by employers, such as black people, disabled people and former detainees.

 

Market recovery and profiteering

Most US companies - or at least those who have survived the recession - did not need much time to regain their profitability.

As a percentage of GDP, after-tax profit was much higher than in previous decades, with the share of corporate income falling to workers.

The stock market began to recover almost immediately to record high, driven in part by easing monetary policy that supported asset values.

Despite instability in China and a combination of factors by the end of 2018, the S & P 500 is still more than four times its value since it hit its lowest level in February 2009.

But the rising market did not help everyone. Fifty-four percent of Americans say they own shares either directly or through the K-401 plan, according to a Gallup poll in 2017, less than 65 percent in 2007.

Wealthier people were able to buy stocks at times of decline and take advantage of 10 years of gains, while the poor were unable to do so, which increased the wealth gap in the period following the financial crisis.

House prices have also seen a recovery but have been more frequent in technology centers such as San Francisco, New York and even Denver and Portland.

These cities also saw the survival of the area restrictions on the supply of homes, which led to a sudden jump in prices as the owners of high-tech companies to the centers of cities that have been abandoned previously.

In those places, high house prices were bad news for tenants, who faced even more steep increases in the cost of housing as a result of years of non-luxury units being built, which developers are still trying to keep away from.

Elsewhere, home valuations are still low, and smaller cities in the industrialized Midwest have been hit hard by the fall in industrial activity during the recession.

Even after the demolition of tens of thousands of vacant properties and the expiry of mortgage ownership (forcing home buyers to waive it for the value of the bank's mortgage), homes are still worth much less than in parts of Detroit, Cleveland and Erie.

 

Warning signs

For both consumers and businesses, the memories of large-scale default and bankruptcy have quickly faded, and we are living in a new era of debt.

The cheap capital paid companies to obtain standard leverage debt as a percentage of the economy.

Much of the money went to stock repurchases and acquisitions, reinforcing a step toward corporate mergers that some argue has impeded business dynamics and stifled innovation.

Despite the decline in total mortgage debt - in part because many people lost their homes due to foreclosure after the financial crisis - Americans' credit card debts have accumulated more than ever, and student debt has nearly doubled since the end of the period Economic recession.

However, more important than the amount of debt is the difficulty faced by consumers when trying to repay.

 

Students' debts

Students 'debts prove to be the biggest dilemma. Student loan defaults are higher than those for home loans, because graduates' salaries are not good enough to keep pace with rent payments, groceries and loans at the same time.

Unlike a mortgage, student loans can not be disposed of by bankruptcy declaration.

There is also growing evidence that heavy debt burdens have prevented young people from buying their first home, although the rate of home ownership has generally recovered to its historical average.

In the end, government borrowing has also ballooned as a percentage of GDP over the past decade.

Government borrowing began during the Great Depression, when the government approved several stimulus measures to revive the economy.

National debt should have fallen in tandem with the recovery of tax revenues, but the massive tax cuts of 2017 added more losses.

All of that debt can be sustained only if interest rates remain low as calculated in the long-standing strategy of the Federal Reserve to buy US Treasuries to stimulate the economy.

But a shock in the interest rate could adversely affect many heavily indebted companies in a short time.

This is important to think about the risks that are currently concentrated in international trade.

The US trade deficit with other countries is not necessarily a problem in itself, because American consumers benefit from cheap products made by other countries.

But it has proved to be a sensitive and controversial issue, with President Donald Trump imposing or threatening tariffs on countries that say they are "exploiting" the United States.

Whether it is right or not, the escalating trade war is at the top of the list of economic growth concerns, according to the National Association of Business Economics, whose latest survey showed that 56 percent of its members see trade tensions as the biggest downside risk to the economy in 2019.

 

Growth steadily

GDP is the only broader economic growth index, despite the fact that it remains an incomplete indicator. Through this indicator, the US has been growing fairly steady since 2014.

The US economy has seen only a few negative annual quarters since 2009, after four quarters of consecutive downturns during the crisis.

Moreover, US economic growth remained much higher than in most other developed countries, partly because of the oil and gas boom that boosted exports and helped revive the industry.

But even that has begun to fall, with most economists predicting a 2 percent growth in 2019, less than 3 percent in 2018 and continuing to fall. In this scenario, the best that the United States can expect is a slowdown in growth rather than a decade of painful progress.

If the United States ends up in another recession, it may not be immediately clear. The National Bureau of Economic Research, which formally defines the beginnings and end of business cycles, took 15 months to announce that the turning point had taken place in Herizan 2009.

Fortunately for the United States, research has concluded that long and deep recession periods lead to more lasting recovery rather than

 The opposite.