How Bad Is The U.S. Economy In 2019?

The United States economy is growing moderately as of August 2019. Bits and pieces of economic information are released over the course of a quarter, and it’s human nature to recall the items that reinforce our prior beliefs while ignoring those contrary to our preconception. For that reason, I periodically roll through many of the indicators that I track to assess our current condition. Right, now, we’re doing okay. Not exceedingly well, but certainly not in recession.

The real gross domestic product grew by 2.1% in the second quarter, in line with estimates of the growth of potential GDP. Potential is estimated based on the available labor force and productive capital in the economy. It’s a soft number, but worth looking at. To continue growing along with our potential is better than it sounds because we are now running above potential. We should expect some decline to return to potential. The 2.1% growth figure is less than the historical average, but that average covers a period with population growth much greater than it is today. Our recent number is just fine.

The second-most-popular aggregate statistic for the economy is job growth, which at 164,000 net new jobs is just a little below the recent trend. The percentage gain in employment is well above the growth of population, though, indicating a tightening labor market. The number of job openings edged down recently, as did employee quits, but both are coming off very high levels. Call this area not quite as good as recently.

Starting through the major sectors of the economy, consumer spending has been a solid foundation for our economic growth. Consumer spending has increased by 3.9% over the past 12 months, with the most recent four months even better. Disposable income grew even faster, up 4.7%, bringing the savings rate up. This sets the foundation for solid growth in the future.

Total consumer spending includes retail sales as well as services, with retail being more discretionary and thus volatile. Retail sales increased by only 3.4% over the past 12 months, but a good bit of the gain came in the most recent four months. Car and light truck sales were 17.3 million units last month, a typical level for the last few years. Measures of consumer confidence are high, but I don’t place much stock in them, as they generally reflect underlying fundamentals of the economy, primarily unemployment, inflation and interest rates. I assess the consumer sector as moderate.

Residential construction is light at 1.253 million housing units. We used to think of 1.5 million as normal, but today’s slower population growth has pushed normal downward. Home prices are still rising, though not as fast as last year. If the recent mortgage rate decline stimulates new construction and sales, developers will only be borrowing from the future. This sector is weak.