Economy hums along

Economy hums along

Tuesday, August 6, 2019

By Sharyn Bernard from Floor Covering Weekly

The U.S. economy has gained ground on almost every metric for months, showing little signs of weakening.

The key indicator, gross domestic product, increased at an annual rate of 3.1 percent for the first quarter of 2019, according to the most recent data released by the Bureau of Economic Analysis (BEA). That followed an increase of 2.2 percent in the fourth quarter of 2018. The BEA reported that real gross domestic income also rose, up 1 percent in the first quarter of 2019.

The BEA attributes the rise in GDP to a few factors, among them: positive contributions from exports and state and local government spending.

In addition, the Bureau of Labor Statistics reports the unemployment rate — at 3.7 percent for June — remains at historically low levels and is expected to hold steady.

Other factors also point to a continued strong economy. The National Association of Manufacturers predicts that retail spending continued to improve over 2019, rising 0.4 percent for the third straight month in June. Americans increased their spending in the second quarter after being more hesitant in their purchasing in the first quarter; over the past 12 months, retail sales have grown 3.4 percent, or 3.8 percent year-over-year.

And interest rates continue to be historically low, with no sign that the Federal Reserve Board plans to raise rates anytime soon.

Causes for concern
New housing starts are down, and the housing market remains soft (see related story U.S. Manufacturing Still Strong). And the Manufacturers Alliance for Productivity and Innovation (MAPI) Foundation predicts that troubles in the financial markets signals a significant risk. Even with the market at historic highs, there has been enough volatility to cause concern, MAPI said.

Economists at Deloitte Global Economic Network reported, “The U.S. economy is likely to wake up to some uncomfortable facts,” pointing to the ongoing threat of tariffs — which they call taxes and said they will absolutely slow growth. They also reported that the low interest rates have another effect — “exotic corporate debt instruments. One thing we learned from the last financial crisis is that ‘exotic instruments’ and financial markets are not ideas that coexist together peacefully.”

According to its report, Deloitte researchers predict numerous economic scenarios. “Our scenarios are designed to demonstrate the different paths down which the Trump administration’s policies and congressional action might take the American economy. Foreign risks have not dissipated, and we’ve incorporated them into the scenarios. But for now, we view the greatest uncertainty in the U.S. economy to be that generated within the nation’s borders,” the report stated.

The majority prediction is baseline at 55 percent — “consumer spending continues to grow, fiscal stimulus from the tax bill and the budget agreement pushes growth up in 2019 but is somewhat offset by the impact of U.S. tariffs and foreign response.”

They predict a 25 percent chance of a recession — “the economy weakens in late 2019 and early 2020 from the impact of tariffs and the withdrawal of stimulus as the additional spending from this year’s budget agreement goes away. With the economy already weak, a relatively small financial crisis pushes the economy into recession.”