U.S. economy fundamentally strong
WASHINGTON » A wave of fear about inflation and higher interest rates has sent stock prices tumbling and raised concerns about corporate profits. On Monday, a plunge of over 1,100 points in the Dow Jones industrial average capped two days of losses that have erased the stock market’s gains for the year.
Yet the rush of anxiety has obscured a fundamental fact about the U.S. economy: It’s healthy.
Nearly nine years into the expansion that followed the Great Recession, the job market is strong. So is housing. Consumer confidence is solid, and manufacturing is rebounding. Households and businesses are spending freely. Personal debt has lightened since the financial crisis a decade ago. And major economies around the world are growing in tandem.
After Monday’s stock market swoon, Sarah Huckabee Sanders, the spokeswoman for President Donald Trump, who has frequently boasted about the stock market’s gains under his watch, said in a statement:
“The president’s focus is on our long-term economic fundamentals, which remain exceptionally strong, with strengthening U.S. economic growth, historically low unemployment and increasing wages for American workers.”
That very economic vigor, in fact, is a key reason why investors anticipate higher inflation and interest rates. Higher borrowing rates over time could undercut corporate earnings as well as stock prices. And some fear that the Federal Reserve might miscalculate and raise rates too high or too fast.
But no one is sure that will happen. And for now, the economy remains on firm footing, even with the prospect of somewhat higher inflation. The inflation concerns escalated after Friday’s monthly U.S. jobs report showed that average wages surged 2.9 percent in January from 12 months earlier — the sharpest year-over-year gain since the recession.
“What we’re seeing right now is an economy overall that is doing quite well and has strong fundamentals,” said Gregory Daco, chief U.S. economist at Oxford Economics. “The economy remains on track to expand at a fairly solid pace, and along with that comes inflation.”
Here are some key reasons why the economy remains robust despite the jitters on Wall Street:
JOBS AND WAGES ARE PICKING UP
The job market is in its best shape in a decade or more. Businesses continue to hire at a pace that could drive the unemployment rate — already at a 17-year low of 4.1 percent — even lower. Some economists think the jobless rate by year’s end could reach 3.5 percent, which would be the lowest level in a half-century.
With relatively few job seekers, many businesses are struggling to fill open positions. To attract and keep workers, many are finally offering higher pay, which helps explain why the January jobs report showed such a sharp pickup in wages. A separate measure of wages and salaries rose in the final three months of 2017 by the most in nearly three years.
CONSUMERS AND BUSINESSES SPENDING MORE
With more solid job security and rising pay in some industries, Americans as a whole are growing more optimistic about the economy’s direction. And their confidence has fueled consumer spending, the primary fuel of the U.S economy. In the final three months of 2017, consumer spending rose at its fastest pace in a year-and-a-half.
Their willingness to spend has led many to make big purchases, too: Sales of existing homes in 2017 reached their highest level in 11 years. The demand for housing helped accelerate home construction last year to its fastest annual pace in a decade.