You could be forgiven for not noticing it, but the US economy is gaining momentum.
It may not be as dramatic as the torrent of political news out of Washington; an improving economy, after all, announces itself through a series of data releases that are just a little bit better than people were expecting. But that’s exactly what has happened.
In consumer spending, the job market and manufacturing, the economy seems to be enjoying consistent, broad-based growth to start the year.
There could always be a setback, of course, but the momentum is almost uniformly positive as the Trump era gets underway.
Some of the factors at work may turn out to be temporary. Energy prices were near recent lows a year ago, and their recovery since has meant oil exploration and related fields are recovering.
Similarly, the effects of a steep run-up in the value of the dollar from 2014 to early 2015 have now worked their way through the economy and aren’t holding back manufacturing the way they once were.
An unusually warm winter is probably a factor in some of the good numbers, as people who in a normal year would have hunkered down amid snowstorms instead went shopping. But the positive tenor of the latest data has been building for months, and includes some data sets that shouldn’t be too affected by the weather.
Think of last week’s numbers as the latest strong signals, not in isolation. Retail sales rose 0.4 per cent in January, the Commerce Department said, and a booming 0.8 per cent when volatile auto sales are excluded. American consumers are powering ahead in the eighth year of the expansion.
The Consumer Price Index rose 0.6 per cent, the Labour Department said; even excluding volatile food and energy, it was up 0.3 per cent. The index is now up 2.3 per cent over the last year excluding food and energy, suggesting that inflation is now in the ballpark of the 2 per cent mark that the Federal Reserve aims for (the Fed focuses on a different inflation number that still shows readings below 2 per cent).
And while overall industrial production fell 0.3 per cent in January, according to new Fed data, that was only because the warm winter depressed energy demand and thus output by utilities. Manufacturing output rose 0.5 per cent. To cap off a day of good data pointing to an economic surge, the Federal Reserve Bank of New York said its survey of business activity soared to its highest level in two years.
This all continues a recent theme. The economy added 227,000 jobs in January despite an unemployment rate that is already low. The number of people filing new claims for jobless benefits each week keeps hitting lows not seen since the 1970s.
The improving data — and particularly the uptick in inflation — does create a puzzle for the Federal Reserve. The Fed’s chairwoman, Janet Yellen, made clear that an interest-rate increase was on the way, though she left ambiguity on whether it would happen at the Fed’s March meeting or later in the spring or summer.
If the Fed indeed raises interest rates this spring in an effort to keep the economy from overheating and inflation from taking off, it will be the third rise since December 2015 — but would signal that a faster pace of rate increases was on tap.
On one hand, the Fed’s policies work with a lag, so it must act with an eye toward where the economy is going, not where it has been. On the other, after years of trying to slog out of a deep recession, Yellen and her colleagues don’t want to act prematurely and stop the expansion in its tracks.
“Waiting too long” to raise rates, Yellen told Congress, would be unwise because it might require the Fed “to eventually raise rates rapidly, which could risk disrupting financial markets and pushing the economy into recession.”
The stock market has reached new highs in recent days based on a mix of positive economic data and optimism that the Trump administration will bring business tax cuts and profit-friendly deregulation. Granted, a trade war or other disruptions could be damaging, and markets could turn quickly if some of the anticipated goodies don’t materialise from Washington.
But the steady flow of improving economic data is a reminder that things are looking pretty good for 2017.
— New York Times News Service
