US economy strong despite uncertainty
THE United States economy is going ‘‘gangbusters’’, despite the political uncertainty with President Donald Trump in charge, Kiwibank chief economist Jarrod Kerr says.
The US had an ‘‘interesting president’’ in charge, to use a gentle euphemism, who was disliked by many, yet business confidence was strong and the data supported the surveys.
‘‘In New Zealand, we have a very likeable prime minister [Jacinda Ardern], no need for a euphemism, in an awkward coalition — and business confidence is very weak.’’
One leader was a Republican, so probusiness, and one was
Labour. One had cut taxes, the other was reviewing taxes and industrial relations.
Uncertainty killed business confidence unless people believed the government was probusiness, Mr Kerr said.
The US payrolls result at the weekend was a ‘‘cracker’’. Employment growth was strong and 201,000 new jobs had been created.
The tightening of the labour market had finally led to a lift in wages growth.
The Phillips curve — a supposed inverse relationship between the level of unemployment and the rate of inflation — looked like it might be resurrected in coming years, Mr Kerr said.
The important point was US wages were rising, yet business confidence remained high because the outlook was firm.
Firms were happy to pay for the right workers if they believed they could either pass on the costs or boost productivity.
The ISM surveys — the best US business surveys of activity — showed a spike in new orders to an elevated 65 points, well ahead from break even for growth/ contraction of 50, he said.
Craigs Investment Partners head of private wealth research Mark Lister agreed with Mr Kerr’s assessment, saying the good news out of the US just kept coming.
The economy was firing, and no matter what anyone thought of Mr Trump, it was difficult to argue he was not at least partly responsible for some of the progress.
Economic growth in the US was running at the strongest pace in four years while the headline unemployment rate was sitting at 3.9%, the lowest in nearly 50 years.
Consumer confidence was the highest in 18 years, and small business optimism had not been as good since Ronald Reagan’s first term in office, some 35 years ago, Mr Lister said.
All of that had flowed through to corporate profitability. Earnings growth from the Standard & Poor’s 500 was running at more than 20% a year over the last two quarters.
‘‘We haven’t seen those sort of numbers since 2011, when earnings were rebounding from the global financial crisis lows.’’
The sharemarket had been a stunning performer. US shares had returned almost 40% in the last two years, ahead of most other global markets, including New Zealand.
Mr Trump could not take all of the credit, Mr Lister said.
Things were improving before he took office. But cutting taxes, reducing regulatory burdens and providing some much needed infrastructure spending had pushed things along.
‘‘The big question from here is whether it’s sustainable. Lower taxes and higher spending is a recipe for rising debt levels and the US already has enough of that.
‘‘But for the time being, we should be happy the world’s biggest economy, and our third biggest export market, is in pretty good shape. The global outlook would look a lot uglier if it weren’t.’’