U.S. economy still in good shape for the moment

In the United States, economic growth was 2.1 percent annualized in the final quarter of 2019. In January of 2020, the U.S. and China signed a first limited trade agreement. However, tariffs on Chinese imports (and tariffs on U.S. exports to China) remain high overall with little signs that they will be either lowered or raised before the presidential elections in November. For the moment, uncertainty regarding the U.S. trade policy has decreased. One may expect that business investment will regain some momentum. However, strong economic growth is not to be expected in the further course of the year. In the first quarter, U.S. and global growth will be negatively affected by the coronavirus. At the moment, however, it is too early to precisely assess the economic consequences of the coronavirus. Obviously, economic growth may be considerably reduced under a serious scenario.

Private consumption continues to make a solid contribution to economic growth. In the last quarter, consumer spending rose 1.8 percent annualized compared to the previous quarter. Private consumption is supported by the continuous improvement in the situation on the labor market. 225’000 new jobs were created in January, which is slightly below the average growth of 175’000 over the previous twelve months. The unemployment rate stood at 3.6 percent in January 2020. The labor force participation rate increased by 0.2 percentage points to 63.4 percent. In the course of this labor market development, disposable incomes show a moderate upward trend. The recovery in residential investment continued in the last quarter of 2019 against the backdrop of the solid state of the U.S. labor market. In the fourth quarter of 2019, corporate investment decreased. Investment had already decreased in previous quarters probably against the backdrop of trade policy uncertainty. I now expect a moderate recovery of business investment in 2020.

Fiscal policy remains expansionary. The Congressional Budget Office (CBO) expects a deficit of 4.6 percent of gross domestic product for the current fiscal year. The U.S. Federal Reserve (Fed) has shown no intention to alter its interest rates in the coming months. Depending on the severity of the economic impacts of the coronavirus, a decrease in interest rates is conceivable. The Fed continues to provide liquidity to the financial system through repo market operations. Given that the level of capacity utilization has decreased in 2019, price pressure is likely to remain low. The inflation rate will not significantly rise above two percent this year and next.

All in all, the US economy will grow by 2.0 percent this year. The annual unemployment rate is expected to be at 3.5 percent. As mentioned above, economic growth will be negatively affected by the coronavirus in the first quarter. Recovery effects can be expected in the second and third quarter of 2020. Let me repeat, however, that it is too early to fully assess the economic consequences of the coronavirus. Obviously, economic growth may be considerably reduced under a serious scenario.

Success! You're on the list.

WordPress Cookie Plugin by Real Cookie Banner
%d bloggers like this: