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<\/p>\nIf there is an economy that I really consider deeper, then it is American. The situation surprises me and it’s surely not what I expected from the beginning of the year. A number of economists have revised their outlook on the U.S. economy which means that I have gone from what looked like being a pessimist to almost being a distinctive optimist. I have for years argued that the U.S. economy would not achieve a GDP growth above three pct. This year it once more seemed pessimistic because parts of the financial markets again dreamed about three to four pct. growth. My main view actually remains the same as usual, that the U.S. GDP growth will be reasonable this year, hopefully above two pct. But I might get overtaken once more, as suddenly a growing number of economists are working with the possibility of a U.S. recession in 2017 which makes my humble view looking pretty optimistic – quite fascinating.<\/p>\n
One of my original reasons for not expecting a three pct. GDP growth was the missing wage increases despite the job growth in the United States. Further, it is mainly low-salary jobs that are created. The effect has been, and remains, that the household purchasing power has not increased like prior in periods with similar job growth. During the post-financial crisis growth years, it relatively quickly became clear that business investments almost have reached a standstill, like in the rest of the world. It’s remarkable taking solid economic growth into account.<\/p>\n
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WALL STREET MODIFY’S ITS FAITH<\/strong><\/p>\n <\/p>\n The same has an increasing number of economists gradually figured out. When corporate earnings in addition began to give in towards the end of 2015, and especially at the beginning of this year it led to raised eyebrows. The growing discussion about a possible recession in the U.S. economy is the reason why I use the extra time on the American economy. And not at least try to figure out what and who actually changes? Is the economy really strongly slowing down or has Wall Street simply just been too optimistic?<\/p>\n I agree that there are factors that do not support the economy as much as has been the case in recent years. What I pay attention to is for example graphic one that is an indicator of the U.S. labor market condition (made by Fed’s branch in St. Louis). This index has been positive for a long period which corresponds well with the dropping unemployment rate. Very interestingly the index dived below the zero lines right after New Year which is extremely remarkable. The indicator has sometimes lagged as it uses different historical data that are recalculated after some time. The index includes 19 components so it takes time before the definitive pattern shows what causes the change. The worrisome development is of course the fact that the index turns negative on the labor market conditions, although the general figures for the US job market remain expansive. It should be mentioned that the indicator is partly designed to predict recessions so the negative reading wasn’t good news.<\/p>\n <\/p>\n MORE STABLE THAN YOU THINK<\/strong><\/p>\n <\/p>\n Another factor which I give attention to is the housing market as there are signs of the market cooling down. It does not mean that it can be seen as a prediction of a recession in my view. One of the key figures that I watch is the number of building permits for one-family houses that are approved (graphic two). I regard the data as a partly early indicator for the economy where it’s clear that the activity has slowed down during the past six months. But the decline is not dramatic compared to the absolute level over the past years. However, it should be mentioned that the current number of building permits is below the average for the last 50 years and the decline last month was higher than expected.<\/p>\n The U.S. economy has certain elements of development that are less strong than they have been and it’s hard to find economic indicators that leap forwards with a strong positive trend. Nevertheless, I do not yet assess the situation as extremely worrying. This is because the largest correction we are experiencing right now is simply that Wall Street has been too optimistic for several years. What I mean, is that the financial market’s expectations adjust to the macroeconomic reality right now.<\/p>\n Among private households, some positive factors are staying firm and these after all form a basic and fundamental consolidation. The debt ratio has been reduced in a majority of households since the financial crisis, including low-income households. Several studies show that many still remember the financial crisis and therefore do not dare to consume as they did before the financial crisis. This results in a better consolidation of households, which is not bad. Moreover, 70 pct. of the households in the United States have not participated in the wealth growth from the rising house prices and stock prices since the financial crisis.<\/p>\n It turns into a stabilizing factor for the economy because I expect these many households to be pretty immune against headwinds on Wall Street. Members of these households include the large group who found a new job after the financial crisis. Most new jobs are as mentioned earlier, typically low paid and therefore only a job loss will threaten the household income, which I think is a less realistic development currently. In my assessment, it contributes to very basic stability in the American economy because many households now have adapted to a low-income situation. As long as jobs are not lost in the U.S. then a slightly lower GDP growth rate does not affect the households’ purchasing power particularly negatively. A further indication of this basic stability is that private consumption grew less in the past years despite the strong labor market.<\/p>\n I doubt that the changed less correlated relations in the American economy are yet incorporated into the economic models that both the Fed and economists use. These models pointed to a higher GDP growth based on the improvement in the labor market but the effect did not materialize in a big way. Now, I believe that there is a risk that the models point to very negative results just because the GDP outlook softens, and I argue that it is too negative. I would express it as two steps forward and two backward, and at the end of the day, the GDP growth probably will be just above 2 pct. again this year…..<\/p>\n","protected":false},"excerpt":{"rendered":" A number of economists have revised their outlook on the U.S. economy which means that I have gone from what looked like being a pessimist to almost being a distinctive optimist.<\/p>\n","protected":false},"author":205,"featured_media":6279,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_exactmetrics_skip_tracking":false},"categories":[44],"tags":[42],"yoast_head":"\n![\"\"](\"https:\/\/lundgreensinvestorinsights.com\/public\/images\/blobid1630440135844.png\" "\\"3")
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