American economy feels like in the 1990s, but with greater inequality, less preparedness for decline
The US economy expanded to a strong 3.2 percent annual rate in the first quarter of 2019, the government reported Friday, blew past expectations and led the celebration among President Trump and his advisers.
Better than expected growth, ongoing strength in the labor market, and a new all-time high on the stock market this week tamper down the fear of a recession and invite comparisons of today's economy to the record 1990s boom.
Trump has tied the success of his presidency to the jobs and stock market performance, which can fluctuate widely but is currently on the rise, with the Standard & Poor's 500 index index closing the week on a new high.
"We knock it out of the park," said Trump on Friday before a speech at a National Rifle Association convention in Indianapolis. "We have good growth and also very, very low inflation. Our economy is doing well."
Many economists had anticipated anemic growth at the beginning of the year, as the partial government shutdown, market jets and extremely cold weather caused many businesses and consumers to turn the pause button on big purchases. But the forecasts claimed their estimates that it became clear that one-off factors would temporarily lift the economy.
Over half of the growth in the first quarter was driven by an unusually low trade deficit and an increase in inventories, with companies increasing their supplies after emptying them last year.
"It was impressive GDP until you dug in some of the numbers," said Lindsey Piegza, chief economist at Stifel Fixed Income. She pointed out a key target for consumer and business needs ̵[ads1]1; final sales to private domestic buyers – which was only 1.3 percent, the weakest for more than three years.
Economists are divided on how the economy is likely to perform the rest of this year and early next year, a time when many Americans are likely to form their opinions on how Trump's economy progresses to the 2020 election.
Some experts, including at the Federal Reserve, are predicting growth to slow to about 2 percent, similar to the Obama years, while others see growth sticking out to nearly 2.5 percent, which will be noticeably over trend. But there is broad consensus that a recession looks increasingly unlikely ahead of the November election.
In some ways, today's economy seems like 1998 or 1999, with strong growth, low unemployment and low inflation showing few signs of spiking. Confidence in the economy is high, and the stock market, as in the late 1990s, has been on a bullish route led by technology stocks.
"It looks like the Goldilock scenario of strong growth and benign inflation is still going on, much like in the 1990s," said Neil Dutta, Renaissance macro-research economics.
Several Americans seem to feel the gain and 53 percent of Consumers say they have personally experienced an improvement in their finances in the last month, according to the University of Michigan Survey of Consumers released Friday, the highest average since 1999.
The Gallup poll found similar results with half of the Americans who gave the economy a "excellent" or "good" rating in the past, the most remarkable assessment since 2001.
But there are two major differences between today's economy and the late 1990s that may worry police officers: Inequality is higher now and the government is far more limited in the ability to act if a downturn hits.
"Another recession will surely come at a time, and we will enter the next re the session in a difficult position, "said Christina Romer, an economics professor at the University of California at Berkeley and former head of President Barack Obama's advice for financial advisers.
The federal government is about to run a deficit of nearly $ 1 trillion this year due to government spending and Trump's tax revenue, and create a very unusual debt search situation in good economic times. The United States is the only major economy expected to increase its debt as a percentage of GDP over the next five years, according to the International Monetary Fund, which may make it more challenging to increase federal spending in a crisis.
The second typical response in times of trouble is for the Federal Reserve to cut interest rates, but there is much less opportunity to do so now than it was 20 years ago.
In the late 1990s, interest rates are around 5 percent. Today, they are just shy of 2.5 percent, and Trump has been calling for further reductions and blaming high interest rates to hold back growth.
"If we kept the same interest rates and the same quantitative easing as the previous administration, the 3.2 would have been much higher than that, Trump said Friday.
Wage growth, but higher over the past year, is also below levels at the end of the 1990s, when wages grew 4 percent a year due to massive technology investment that increased productivity.
"Today's economy is not near the end of the 1990s," said Joseph Brusuelas, chief economist at the accounting firm RSM. "We do not see the increase in productivity and wages that we saw in the period when everyone called Alan Greenspan" maestro. "
While wages for many lower-income Americans are rising faster than the cost of living as companies increase wages In order to attract and retain workers, inequality has risen, rich Americans enjoy far more of rising stocks and housing prices than the working class, many of which do not own their homes or have much if anyone invested in the market. 9659024] How voters weigh these economic problems against other considerations of the Voice is still to be seen.
Trump has promised that he can grow the US economy at an annual rate of 3 percent – or better – in the next decade it doesn't look like a scenario of independent forecasting.  But the president's top economic advisers say they are revising their growth forecasts even higher after examining the data . They believe that growth would have been 3.5 per cent in the first quarter without closure and that consumption will pick up later this year.
"We will now be inclined to increase our forecasts. Not only was last year not high sugar, but it seems that the economy is accelerated," said Kevin Hassett, Trump's financial adviser chairman, in an interview.
Growth in the first quarter is usually the weakest of the year, but this year may develop differently as the one-off effects fade. building stocks like crazy. It won't last. "
After a large purchase trip in the winter, companies are unlikely to continue expanding their holdings this spring, which means that growth in the second quarter may be a hit. The unusual jump in US exports is also likely to be difficult to maintain.If the trade deficit is widening in the second quarter, it will also be a drag on growth
An increase in government and local government also increased growth in the first quarter with the largest amount in three years.
US consumers will likely to be the key factor in whether the economy has a normal, sub-par or extraordinary year, because consumer spending drives around 70 percent of growth.
The Americans sharply retreated at the end of last year, but there are signs They started buying again in March, as would create a spring stop to keep the economy expanding at a decent pace. In recent years, this trend has played out with weaker spending in the first quarter. each and every stronger expenditure in the spring and summer.
Hassett said the president's top economic priority is now closing trade with China and Europe and getting Congress to pass the agreement between the United States and Mexico and Canada, the revised North American trade agreement.
The International Monetary Fund, which was recently predicted, would grow in the second half of the world economy and probably the US, driven by the anticipated dissolution of the US and China trade war and Fed's decision to stop raising interest rates.
"The economy does not delay as much as people think," said Dutta of Renaissance Macro Research. "A 3.2 percent pace cannot be maintained, but the Federal Reserve and markets have probably cut their growth estimates for a long time this year."