Saturday , April 17 2021

The US economy feels like the 1990s, but with more inequality, less preparedness for a crisis



The US economy expanded at a strong annual rate of 3.2 percent in the first quarter of 2019, the government announced on Friday, which exceeded expectations and sparked a celebration between President Trump and his advisers.

Better than expected growth, the current labor market force and the new high stock market this week are stifling fears of recession and inviting comparisons to the current economy with the 1990s record.

Trump links the success of his job presidency and the success of the stock market, which can be much thought out, but is currently on the rise, with the Standard & Poor's 500 index of shares, which closed Sunday at a new level.

"We spend it from the park," Trump said Friday before the speech at the Nationalapolis National Missile Association convention. "We have a lot of growth and also very, very low inflation. Our economy is great."

Many economists predict anemic growth at the beginning of the year, as partial shutdown of government, markets and extremely cold weather has caused many businesses and consumers to hit the break button for large purchases. But forecasters have increased their estimates, as it became clear that some single factors will temporarily abolish the economy.

More than half of the growth in the first quarter was driven by an unusually low trade deficit and stockpiling, with companies boosting their reserves after they were impoverished last year.

"It was impressive GDP until you dig in some of the numbers," said Lindsey Piegga, chief economist at fixed income "Stiefel". She pointed to the key consumer and business demand indicator – the final sale of private home buyers – which was only 1.3 percent, the weakest in more than three years.

Economists are divided over how the economy is likely to perform the rest of this year and the beginning of next year, a time when many Americans are likely to form their own opinions on how Trump's economy is doing before the 2020 elections.

Some experts, including the Federal Reserve, forecast growth will slow to about 2 percent, similar to Obama years, while others see growth gluing closer to 2.5 percent, which would be significantly above the trend. But there is broad consensus that the recession looks more unlikely before the November elections.

In some ways, today's economy feels like 1998 or 1999, with strong growth, low unemployment and low inflation that shows several signs of jumping. Trust in the economy is high, and the stock market, like in the late 1990s, is on a bullish drive led by technological reserves.

"It seems that the scenario for strong growth and benign inflation is still going on, similar to the 1990s," said Neil Dutta, head of the economy in Renaissance Macro Research.

It seems that more Americans feel the benefits, with 53 percent of consumers saying they personally experienced improvement in their finances in the past month, according to a survey by the University of Michigan for consumers published on Friday, the highest average since 1999.

The results of the Gallup poll showed similar results with half of Americans giving the economy a "great" or "good" rating recently, the most cost-effective rating since 2001.

But there are two main differences between the current economy and the late 1990s, which policy makers could worry: Inequality is now greater, and the government is much more limited in its ability to act if a crisis arises.

"Another recession will certainly come at some point and we will enter the next recession in a difficult position," said Christina Romer, a professor of economics at the University of California at Berkeley and former President Barack Obama's Council of Economic Advisers.

The federal government is under way to make a deficit of almost $ 1 trillion this year, due to government spending and trump price cuts, placing a very unusual situation for debt accumulation in good economic times. The United States is the only large economy that is projected to increase its debt as a percentage of GDP over the next five years, according to the International Monetary Fund, which could provoke a greater challenge to increase federal spending in a crisis.

The other typical time-of-trouble response is for Federal Reserve to cut interest rates but has a much smaller scope to do so now from had 20 years ago.

In the late 1990s, interest rates sat at about 5 percent. Today, they are only shy of 2.5 percent, and Trump calls for further cuts, accusing the "high" interest rates for retention growth.

"If we kept the same interest rates and the same quantitative easing that the previous administration had, that 3.2 would be much higher than that," Trump said on Friday.

Wage growth, albeit higher during the past year, is also below the levels of the late 1990s, when wages increased by 4 percent annually, due to large technological investments that increased productivity.

"Today's economy is nowhere near the late 1990s," said Joseph Bruselas, chief economist at the accounting firm RSM. "We do not see increases in productivity and wages we saw in that period when everyone called Alan Greenspan" a maestro. ""

While salaries for many low-income Americans are rising faster than cost of living as companies increase wages to attract and retain workers, inequality increases. Rich Americans benefit much more from the increase in the stock and house prices of the working class, many of whom do not own their homes or have much, if any, invested in the market.

How voters assess these economic issues against other considerations in the ballot box remains to be seen.

Trump promised to increase the US economy at an annual pace of 3 percent – or better – for the next decade, the independent scenario forecasts do not believe it is viable.

But the president's chief economic advisers say they are revising their growth forecasts even higher after the survey data. They believe that growth would be 3.5 percent in the first quarter without disconnection and that consumption would rise later this year.

"Right now we will be inclined to increase our forecasts. Not only was sugar not sugar last year, but it seems the economy is accelerating," said Kevin Hassett, president of the Council of Economic Advisers at Trump.

Growth in the first quarter is typically the weakest year in the year, but this year may take place differently, as the one-off effects disappear.

"The number of the first quarter exaggerates the strength of the economy," said Ben Hertzon, executive director of Macroeconomic Advisers. "Businesses built censuses like crazy. It will not last."

After a major attempt to buy in the winter, companies are unlikely to continue expanding their inventory this spring, which means that growth in the second quarter could be a hit. The unusual leap in US exports is also difficult to maintain. If the trade deficit widens in the second quarter, this would also mean growth in growth.

The jump in state and local government spending also boosted growth in the first quarter for the largest amount in three years.

US consumers are likely to be a key factor in whether the economy has a normal, splash or a remarkable year, as consumption consumes about 70 percent of growth.

The Americans sharply withdrew spending by the end of last year, but there are signs that they have started shopping again in March, which should create a spring bounce to keep the economy at a fair pace. In the past few years, this trend has been accompanied by weaker spending in the first quarter and a stronger spending in spring and summer.

Hassett said the president's main economic priority now closes trade agreements with China and Europe and gets Congress to adopt an agreement between the United States and Mexico-Canada, the revised trade agreement in North America.

The International Monetary Fund recently predicted that growth would increase in the second half of the year for the world economy, and probably the United States, ranging from the expected resolution of a US-China trade war, and the Federal Reserve's decision to keep rising interest rates.

"The economy does not slow almost as much as people think," said Duta of the Renaissance Macro Research. "The pace of 3.2 percent can not be sustained, but the Federal Reserve and markets have probably reduced their growth estimates too much for this year."


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