Good economic news continues to roll in, but you wouldn’t know that from mainstream reporting. Moving from 2018 GDP growth of 3.1 percent, down to projected growth of 2.4 percent for 2019, professional economists have begun musing over a coming recession. Put away this recession obsession. That is not what history suggests on current data.
What lies ahead, for the foreseeable future, is continued growth. Let’s take the data, piece by piece. First, the economy is slowing, but marginally. Between late 2016 (directly after President Trump’s election) and end of 2018, the economy popped to quarter-over-quarter growth of 4.2 percent, a rarity.
Calendar year 2018 enjoyed other benefits, from a dramatic drop in personal and corporate tax rates to a rollback of Obamacare penalties, elevated defense spending to improved bilateral trade positions – all of which showed up as good news on technical and fundamental stock charts. And in paychecks.
But wait: 2018 had unacknowledged headwinds, too – including multiple interest rate hikes by the Federal Reserve, transactions costs from alerting the international community that unfavorable multi-lateral trade agreements would be replaced by favorable ones and bilateral accords.
Afoot in 2018 were political “doubt-creators,” like uncertain US-China relations, hard-nosed negotiations with North Korea, withdrawal from an unbalanced Iran accord, uncertainties over Brexit, pressures tied to winning against ISIS and downsizing the US military footprint abroad. Do not forget the market overhang created by the seemingly interminable Mueller Russia Investigation. Nevertheless, the US economy roared in 2018.
So, what does early 2019 foretell? To hear mainstream media, a US-China deal will never happen, North Korea is lost, the Federal Reserve’s resistance to rate hikes in 2019, solid wage growth, low inflation, record unemployment and labor participation, high worker productivity and healthy sectors from energy and finance, to real estate – are reason for dread.
Really? Look hard at the numbers. U.S. home sales for existing stock jumped up by 11.8 percent last month, and spring selling has not begun. More people are working, looking for work, and being paid more than any time in recent history. The multiplier effect of tax cuts continues to be felt, and tax refunds – which may be smaller – have not yet come back.
Let’s get into nitty-gritty. Each year, the University of Michigan offers monthly assessments – on non-partisan algorithms – of consumer sentiment. Remember: recessions are averted, and recovered from, by consumer spending. Guess what: Positive consumer sentiment for March 2019 actually increased to 97.8 from 93.8 in February 2019, “beating market expectations of 95.3” according to public reporting.
Notably, average American consumers drive the US economy. Their sentiment matters more than all the high-minded economic guesswork. March’s consumer sentiment reading was the highest in three months, reflecting rising incomes, higher wages, more job options, as well as lower inflation and objectively “positive growth prospects.”
In historical context, how good is that sentiment reading? Very good. By way of a reliable baseline, the average between 1952 and 2019 was 86.49, that is, 11.31 points lower than we experienced this month.
One last thought. We stand at a “glass half full or half empty?” moment. Without question, I am in the “half full” crowd. Here is why. The Wall Street Journal just reported the Federal Reserve is “unlikely to raise rates this year” and “may be nearly finished with the series of increases”, begun three years ago. In effect, we are at a “new neutral rate” – which balances high employment and low inflation. This equipoise is a good thing, giving confidence not just to consumers but also to businesses.
The Journal adds: “This change of tactic by the Fed has divided the market,” causing some to predict prolonged growth while others foresee doom, based on slowing foreign markets. Let’s call a spade a spade: China’s growth is slowing, but a big trade deal will help both countries, and is likely in 2019. Europe’s growth is slowing, but Brexit will soon be over – one way or the other, re-stabilizing that market. Fundamentals of the US economy, with lower taxes, less regulations and a pro-business President remain strong.
Will we see another 4.2 percent growth in 2019, another 3.1 percent annual rate? Probably not. But is robust growth at 2.4 percent, with record employment, low inflation, rising wages, rebalanced trade and a pro-growth President reason for optimism? Yes.
Ronald Reagan once quipped, after creating 18 million new jobs, boosting growth and markedly lowering federal taxes that leading economists suddenly pivoted – after he did what they thought impossible. They no longer pointed to validating numbers. Instead, they said, “Ok, it works in practice, but does it work in theory?” He just laughed – and kept creating jobs.
