Don’t panic just yet
Despite jitters on Wall Street, U.S. economy remains robust
WASHINGTON — A wave of fear about inflation and higher interest rates has sent stock prices tumbling and raised concerns about corporate profits. 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.
That very economic vigor is a key reason why investors anticipate higher inflation and interest rates.
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. 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.
CONSUMERS AND BUSINESSES SPENDING MORE: With more solid job security and rising pay in some industries, Americans as a whole are growing more optimistic. And their confidence has fueled consumer spending, the primary fuel of the U.S economy.
Businesses, too, are buying more computers, machinery and other equipment. Such purchases increased faster in the second half of last year than in any six-month period since 2014. Companies typically accelerate their investments when they foresee an improving economy.
GLOBAL ECONOMY: The U.S. economy now has something supporting it that it hasn’t had for nearly a decade: Solid growth around the world. Roughly 120 countries experienced faster growth in 2017 than in 2016, according to the International Monetary Fund. That’s the most since 2010.
SO WHAT’S NOT TO LIKE?: Even good economic news can prompt some troubling concerns. As companies raise pay, they typically increase prices to help cover their extra costs. That cycle can speed inflation. The Fed is then likely to raise the key short-term rate it controls to help reduce borrowing and spending and hold inflation in check.
Fed officials have indicated that they expect to raise rates three times this year. But after Friday’s robust report on jobs and wages, some economists think the Fed might accelerate its rate hikes.
There are also the wild cards of a possible government shutdown, President Donald Trump’s efforts to restrict global trade and the potential sour investor reaction if the federal budget deficit tops $1 trillion next year because of tax cuts and increased funding for the military and disaster relief, among other expenses.