U.S. Economy Showing Robust Growth for Now

At the moment, it’s pretty evident that the U.S. economy could show decent growth in the coming quarters.

How can one tell? Look at the economic data. It’s showing that the U.S. economy is waking up a bit after an awful 2020. In fact, the economic data are showing that 2020 may have just been a slight hiccup.

Look at consumer spending, for example. All the statistics tracking spending say American consumers have been spending a lot of money. Keep in mind, American consumers are a major force that can make or break the U.S. economy.

See the chart below; it plots U.S. retail sales. They’re back up after a massive decline in early 2020. In January 2021, U.S. retail sales reached an all-time high.

(Click on image to enlarge)

(Source: “Advance Retail Sales: Retail and Food Services, Total,” Federal Reserve Bank of St. Louis, last accessed March 3, 2021.)

But that’s not all. If you look elsewhere, you’ll also see upbeat sentiment.

Home prices and sales have been surging. Low mortgage rates have been helping. In January 2021, sales of new homes jumped 4.3% to a seasonally adjusted annual rate of 923,000, from 885,000 in December 2020. (Source: “U.S. New Home Sales Blow Past Expectations in January,” Reuters, February 24, 2021.)

Businesses have been spending money, too. Look at the following chart; it plots the annual rate of domestic business investment in the U.S.

(Click on image to enlarge)

(Source: “Gross Private Domestic Investment: Domestic Business,” Federal Reserve Bank of St. Louis, last accessed March 3, 2021.)

In the fourth quarter of 2020, business investments came back up to a similar level as they were in mid-2019. Impressive.

Keeping all this in mind, it wouldn’t be shocking to see a period of higher-than-normal growth in the U.S. economy in the next few quarters. It wouldn’t even be surprising to see the U.S. economy grow by well over four percent in 2021.

5 Questions Investors Must Ask

Dear reader, while this is all great, here are five questions that no one seems to be asking these days.

1. The Federal Reserve has printed an immense amount of money and the U.S. government has spent a lot of money to make sure the U.S. economy remains afloat during the COVID-19 pandemic. Could what we’re seeing now (robust economic data) just be an illusion created by loose monetary and fiscal policies?
2. We’ve seen an immense increase in debt in the U.S. economy over the past few years. Companies and the U.S. government have increased their debts. The pandemic has made the situation even worse. You see, debt essentially drags the long-term economic growth downward. Could the growth we’re seeing these days continue in the long term?
3. If the U.S. economy heats up in the near term, will the Federal Reserve try to tame it by increasing interest rates, and could the economy handle a rate hike?
4. Assets across the board have soared, and risk-taking in the financial market is at unprecedented levels. The hope is that we’ll get economic growth going forward. What if the growth we see now doesn’t last more than three or four quarters? Will investors run for the exits?
5. A large number of Americans continue to struggle financially. The economic data may be great now, but there’s a big disparity between the rich and the poor, and it continues to get bigger. Will the disparity be amplified as the U.S. economy marches ahead?