Recently Larry Kudlow, Trump’s Director of the Economic Council, presented a very rosy description of the US economy. Among other claims was that we (the US) is the best economy in the world, and where business and money wants to be. So we wanted to know more, and looked at The Balance for more info. We found an excellent (and BRIEF) summary, and the 6 factor highlighted are these:
- Jobs: A healthy economy adds 150,ooo non-farm jobs/month. In April, 2019, the economy added 263,000 jobs, and that’s rated a strong indicator. These data are from the US Department of Labor, and unfortunately, manufacturing jobs are not broken out from the total.
- Year over year core inflation was 2%, which is listed as “on target”. The Federal Reserve monitors the core inflation rate because it leaves out volatile food and gas prices, and year over year removes seasonal impacts. 2% is viewed as the target rate for economic health because consumers then expect prices to rise, and thus become more likely to buy now. Increased demand spurs economic growth—sounds like a win-win!
- Durable Goods Orders fell 1.6% in early 2019, and this is an indicator of weakness. These are machinery and equipment, and raw materials that businesses use in their operations. Commercial airplanes are the largest component of durable goods, and perhaps the Boeing problems are a depressing factor in these data? To be a durable good the equipment must last at least three years. These items are expensive, so businesses delay buying until the items are needed, and so they are a great indicator of economic health. This could be a warning sign?
- 2019 first quarter GDP growth was 3.2%, and that’s ideal! A healthy economy should show 2-3% growth quarter to quarter, so this is a very good indicator of current economic health.
- In August 2018 the stock market came out of a six-month correction. This is a sign of economic health. “The market enters a correction when prices fall 10% from their high. It is a healthy sign if the market had been setting higher highs for a long time. There’s no reason for worry if other economic indicators are robust.”
- Stable interest rates indicate a healthy economy. Of the many interest rates, the most important is the federal funds rate because it guides most other interest rates. A healthy fed funds rate is 2.0%, and currently the fed funds rate is 2.5%.
So all in all, and according to The Balance, economists called this situation the Goldilocks economy because it’s neither too hot or too cold. If we could find more customers for our durable goods…..
We plan to offer more commentary on the economy in newsletters ahead, since it’s always a political football during election season. Leading indicators, US versus other economies and the 2020 forecast are obvious subject candidates, and we’d be pleased to hear of any requests.
Speaking of durable goods, we’ve assembled an impressive group of suppliers to EOM equipment and machinery procurement professionals, which we highlighted in the last newsletter. If anyone wants a new copy of that newsletter, please let us know at charte@proficientsourcing.com.