Growth of US Economy

There are so many conflicting reports about the growth – or lack thereof – of the US economy.  Here we take a look at some of those and try to present them in a way that the reader can come up with their own conclusion.

In Q1 2019, there was a growth of 3.1 percent in the economy. While there has been a slight deceleration in job hiring, jobs have still been added for more than 100 consecutive months. Plus this month we are seeing more expansion than even that of the 1990s boom, making it the longest stretch of time of continuous growth.

According to economist Todd G Buchholz:

“There is a dirty little secret in economics today. The United States has benefited – and continues to benefit – from the global slump.”

Even though there is currently a Brexit-fed-UK crisis; a French yellow-vest-unrest and a Chinese fear of foreign market bombardment, this global turbulence is not impacting America in the way one would imagine.

Indeed, in 2018 when the US economy grew by 2.9 percent it was unrivalled by its European counterpart that pulled in a mere 1.8 percent in economic growth.  Buckholz puts some of this down to the “sluggish GDP outside of America…low interest rates and weak inflation…puny looking yields on bank certificates of deposits (CDs).”

US Entrepreneurial Scene: Ahead of EU

US-EU

When we look at the US against the backdrop of Europe, historically we see that America way surpasses Europe.  In size, economy, revenue, agriculture, and a whole variety of other industries.  How true is that today?  How far is Europe lagging behind?  In what areas is America making less progress than it should, pro-rata?  Here, we address some of these issues briefly.

A recent survey found that technologically speaking, the US (and China) is still way surpassing with Europe with the latter’s tech firms being valued at $240 billion since 2000 and America’s at $1,370 billion during the same time frame.  That is a gap of 31 percent.

But can we really blame Europe?  The region hardly has even close to the type of hedge funding rounds commonplace to Silicon Valley.  Ultimately no matter how great the startup idea for a company is, money talks.  And if that is significantly lacking then there is only so far a firm can go. Europeans also seem far more skeptical about handing over a check than their US counterparts.  They are more cautious with their money.  The US seemingly has a much easier time when it comes to investing.

It does not have to be like this though. And Europe is responding to change.  One example of this is TransferWise.  The UK-based money transfer service established in 2011 by Kristo Käärmann and Taavet Hinrikus is taking over The Tea Building in Shoreditch and has become extremely successful at fundraising.  Both co-founders are European, hailing from Estonia so one can’t put this fast movement down to US-genes. 

While this is not the only example of successful European technology startups there is reason to believe that they do have to up their game – especially their fundraising techniques if they want to remain on the map within the next few decades.

America’s Economy 2018-19: To Grow or Not to Grow

Trump’s 2018 goal for the economy was a growth rate of 3%.  The US economy reached 2.9%, making it “the fastest gain for the economy since 2015.”  One of the biggest aids for this impressive figure was Trump’s “largest corporate tax cut in U.S. history… as well as additional government spending on military and domestic programs.”


According to head of Trump’s Council of Economic Advisors, Kevin Hassett:

“Our policies are working. We said there would be a capital spending boom and we would get 3.1 percent growth. That is what happened.”


According to many economists, growth is predicted to slow this year though – only reaching 2.3% according to the Federal Reserve.  Perhaps even lower given what is transpiring in Europe and China.  According to KPMG’s Chief Economist Constance Hunter, while consumption remains:

“strong…[his] main concern is housing investment which fell for the fourth consecutive quarter. If this continues into 2019, it will be a worrying signal for future growth.”

In addition, statistics from the White House showed that 2018 also benefited from “output rising by $560 billion over the four quarters of the year.”  In addition:

“Gross private domestic investment, just 17 percent of GDP at the start of the year, accounted for 36 percent of the growth in real GDP in 2018.  Real investment in intellectual property products, up 10.8 percent, and grew at its fastest pace since 1999.”

Indeed, America’s economy in 2018 – while there are indicators for cause for concern – did grow at a respectable pace.

US State Budgets: A Glance

State budget proposals often fluctuate.  It can be challenging for Mayors and their teams to put together just the right combination for their needs.  That changes a lot and henceforth so do their proposals.

One example of this is Minnesota.  Over in St. Paul, an announcement was made by Governor Tim Walz of some budget modifications.  Faced with a forecast of sluggish economic growth, Walz reduced some budget requests.  But none of these impacted health and education which remain high in his priority list. Walz’s first budget proposal was based on when the situation would have given him a surplus of $1.5b.  According to Myron Frans, Management and Budget Commissioner:

“The revised budget is balanced, it is fiscally sound.  Our revised budget continues to invest in education, health care, community prosperity and provides a positive balance in ’22 and ’23.”

Over on the west coast, the focus is on the homeless situation.  Mayors from LA and other California cities have approached Gov. Gavin Newsom with a request for “hundreds of millions in additional funding” for this issue.  Last year Kevin Faulconer, Sam Liccardo and others in the area fought for $500m in state grants for homelessness prevention efforts under Jerry Brown who was governor at the time.  Meanwhile, LA has anyway set aside over 50% of the $85 million it received for its homeless shelter construction proposal nationwide. 

In Alabama, proposals were released for the 2020 state budget.  These were compiled by Gov. Kay Ivey to “reflect growth in tax revenues and priorities on how to allocate the additional dollars.”  The request includes the spending of $2.15 billion for the 2020 fiscal year.  This was an extra 4 percent compared to last year (totaling an additional $91 million).

US Economy 2019 Predictions

Road ahead for 2019

Despite the country countering perhaps its longest ever government shutdown – resulting in a projected decrease of US GDP by $8bn in Q1 2019 – the Congressional Budget Office has predicted a growth in economy of 2.3 percent this year. 

Still, that is a hit given that 2018 saw a 3.1 percent increase.  Tax cuts and federal spending increase attributed to that growth.  even though currently there are concerns due to the US-China trade tensions and concerns of an international economic slowdown, the fact that the CBO is predicting even 2.3 percent is good news.

In its Budget and Economic Outlook: 2019-2025 Report the CBO stated:

“federal revenues rise from 16.5 percent of GDP in 2019 to 17.4 percent in 2025 and then grow more rapidly, reaching 18.3 percent of GDP near the end of the decade. The projected growth in revenues after 2025 is largely attributable to the scheduled expiration of nearly all of the individual income tax provisions of the 2017 tax act.”

Still, the US economy cannot afford to rest on its laurels.  according to a recent CCN article, America’s place on the world economic throne is likely to be challenged and:

“The United States will fall to a third place in the ranking of the largest economies in the world. China and India will overtake the U.S. by 2030, and it is unlikely that we will ever get the throne back.”

2019 and Global Economic Impact

US economy 2019

Where is the US economy headed?  What impact will the global economic sphere have on this powerhouse region in 2019?  In this article we take a look at what some of the experts believe will happen – economically and geographically speaking – this year.

According to Ian Bremmer, President of Eurasia Group (a company “dedicated to defining the business of politics”), the greatest geopolitical danger we will face this year will be:

“the crises we ignore… setting ourselves up for trouble down the road. Big trouble. The geopolitical environment is the most dangerous it’s been in decades … and at a moment when the global economy is faring well.”

Together with Cliff Kupchan, Chairman of Eurasia Group, Bremmer believes that the problem is how global decision-makers are ignoring potential future risks with their over-focus on everyday crises that naturally emerge from a leaderless world. This results in “serious consequences for our collective midterm future.”  Examples of this include: the state of the EU, NATO, G20, G7, WTO, the Kremlin and Russia; US-China relations and more.  Given that all these currents are extremely negative, this is extremely problematic.

But which country is causing the biggest negative impact?  According to Matt O’Brien, a Washington Post contributor and business journalist, “China is more of a concern for the global economy than America.  It encountered a huge benchmark stock index descent, ranking it the world’s worst in 2018.  Some of this can be attributed to Trump’s embryonic trade war could significantly intensify but that’s only somewhat.  The real issue was activity in Beijing.  According to IMF reports, China’s credit stimulus has resulted in diminishing returns with a lot more new debt being used to pay back old debt or channeled into improbable growth-driven projects.

Still, Schroders Group Chief Economist Keith Wade anticipates a mid-year 3% US interest rate peak while some banks in other countries will continue the monetary policy squeeze.  What will likely be beneficial to emerging market assets however, is the likelihood of the slumping US dollar.

It’s also likely that Eurozone growth will become sluggish due to the US-China trade war as well as a drop in GDP growth by .3%.  it’s hard to predict the movement of emerging markets due to lower demands from the technology industry toward Asian business although that could be to the benefit of Latin America.

US Economy: Heading into 2019

Lowering of gas prices in 2019

How are things going to look for the average Joe in the street in 2019 in America?  Well, we can’t predict what is going to happen but herewith a few positive tidbits for money-savers.

Since close to 90% of Americans own cars (second  highest number in the world) the fact that gas prices are going to decline this year is huge. This will be the first time gas has gone down for Americans since 2016.  As GasBuddy Petroleum Analysis Head Patrick DeHaan said:

“2019 sets the stage for the first decline in the yearly national average since 2015, but before motorists drive for joy, it may be prudent to remind them that 2019 will still be the second most expensive year to fill up since then.”

The job market also continues to thrive.  According to Moody Analytics’ Chief Economist Mark Zandi, unemployment figures are very low and are set to continue to drop in 2019.  Indeed, the figures for December 2018 were just 3.7% unemployment (nationally), lowest they have been in nearly five decades.  As well, there is a staggering amount of new job openings in almost all sectors.  As such, it is anticipated that salaries will increase from around 3 to 3.5 percent by 2020.  This gives employees the “upper hand” with their bosses. 

US Economy 2018-2019: The Good, The Bad and the Ugly

Nasdaq

When reviewing America’s economic 2018 report, it is important to focus on the year in its entirety rather than look at what happened in the last month of the year. According to a recent interview held with NPR’s Scott Simon, it’s important to know this:

“The numbers for 2018 are good. The gross domestic product is growing. The U.S. economy is humming. But the numbers for December are bad. The Nasdaq, the Dow and the S&P all ended down yesterday.”

The US economy remains on its decade-long growth spurt.  It’s just that this month has seen some issues like: the partial government shutdown; continual drop in the stock market; increasing disarray in Trump’s administration; America’s trade war with China and more.  Oxford Economics Chief US Economist Gregory Daco however sees that the main attributes required for growth have not been impacted and thus we will continue to encounter expansion.  However, the stock market plunge could actually cause a domino effect with other issues.

So just because the economy took a bit of a nosedive in the third quarter should not put anyone into a panic. Growth remains on track to reach Trump’s 3 percent target for 2018 with a GDP increase at a 3.4% annualized rate (only a slight drop from the 3.5% October estimation). Still in the second quarter growth reached 4.2 percent.

Trump is blaming all of this on Jerome Powell and the hike in key short-term rate by the Federal Reserve tweeting that its officials “don’t have a feel for the Market, they don’t understand necessary Trade Wars or Strong Dollars or even Democrat Shutdowns over Borders. The Fed is like a powerful golfer who can’t score because he has no touch — he can’t putt!”