Luke Persichetti on Recent Economic Developments in the US
The US economy is in a “good place” Fed Chairman Jerome Powell stated in late-March, though the Fed announced that it won’t raise interest rates any further in 2019 after doing so four times last year. It’s still a possibility that the Fed could cut rates later this year.
The Fed announcement wasn’t enough to satisfy President Trump, who has been pressuring the Fed to cut rates, which currently stand at 2.25%-2.50%. Trump claims the Fed mistakenly raised rates as high as it did last year and says US GDP growth in 2018 would have been over 4% instead of the actual figure of just over 3% if it hadn’t.
The Fed is projecting GDP growth to slow considerably in 2019, to just 2.1%, as the large economic boost granted last year by Trump’s tax cuts and stimulus spending fade. Trump’s administration is slowly moving forward on a trillion-dollar infrastructure plan that it wants to complete before the next election in 2020, though it’s unlikely to have much impact this year. Yale graduate Luke Persichetti provides a comprehensive overview of the recent economic developments in the United States.
Jobs Growth Rebounds in March, Unemployment Remains Low
The US economy added 196,000 new jobs in March, relieving fears that the slowing global economy and ongoing trade war with China are devastating the US economy. Those fears hit a fever pitch in early-March after the revelation that just 20,000 jobs were added in February (the number was later revised up to 33,000).
According to Luke Persichetti, while jobs growth was strong in March, average hourly earnings growth of 0.1% was not, coming in well below the 0.4% growth in February and missing expectations. Much of the jobs growth was in low-paying work like retail sales and food services.
The unemployment rate remains near 50-year lows at 3.8%, though the figure is slightly misleading due to the high number of part-time workers looking for full-time jobs. Alternatively, the labor force participation rate sits near 40-year lows at just 63.1%. In JPMorgan’s annual shareholder letter, CEO Jamie Dimon said more needs to be done to allow reformed convicts to re-enter the workforce, which could meaningfully boost the participation rate.
Strong US Dollar Hitting Exporters
The US dollar index (DXY) has gained nearly 10% over the past year, pressuring exporters and contributing to a decline in the dollar value of exports compared to last fall. The US exported $2.5 trillion in goods in 2018, while importing $3.1 trillion worth of products. Capital goods and industrial goods were the most commonly exported category in terms of value, with aircraft topping the list of individual goods at $130 billion.
Luke Persichetti — Falling Mortgage Rates Not Boosting Housing Market Yet
Americans are more optimistic about the housing market in light of decade-low mortgage rates according to the Fannie Mae 2019 Home Purchase Sentiment Index, though that sentiment has yet to result in an actual boost to home sales.
Home sales, one of the strongest indicators of economic activity and sentiment, fell for the seventh consecutive month in February. While mortgage rates are very low, housing prices themselves aren’t, which is making affordability a challenge. A lack of low-end inventory is also preventing many first-time buyers from entering the market.