Good Economic News the Cynics May Be Missing

Headline data about the U.S. economy hasn’t been great, but the economy is actually stronger than it’s getting credit for. The Federal Reserve (Fed) seems to agree. Citing a pickup in conditions after a winter stall, the Fed said in its June meeting the economy is almost ready for gradually higher interest rates.

A superficial analysis of much recent economic data shows a “soft economy,” but if you look past the aggregate nominal numbers, you get a very different and more accurate picture of the U.S. economy. Indeed, you get some good news: The U.S. economy is doing quite well.

Case in point: consumption data. The weakness in first-quarter consumption garnered much attention. Aggregate nominal personal consumption expenditures (PCE), as measured by the 3-month annualized rate, witnessed a tremendous decline in the first quarter.

Do you agree? Why or why not?Join in >

But when we disaggregate the data, we find that price led to much of that weakness, while volumes remained solid. In other words, when you strip out the influence of the collapse in oil prices and the dynamic of new technologies’ downward influence on price, goods consumption is actually doing extremely well.

Further, services spending appears on a strong and improving path, and many services are just priced more efficiently than in the past. Indeed, the year-over-year growth rate in real services PCE, as the figure below shows, is near 2.5 percent, which is a fairly healthy level.

Price Changes in Consumer Goods and Services

Meanwhile, other numbers, and anecdotal evidence, confirm this view of consumption. Housing starts are moving dramatically higher, iPhones arehitting record sales, the lines remain long at Starbucks and most importantly, people are being hired in record numbers to satiate the consumer demand, as we see in May’s jobs report, which exceeded the consensus of economic forecasts, and the long-term employment picture.

While technological changes have eliminated thousands of jobs, cyclical industries are still creating hundreds of thousands of jobs. For instance, the retail sector has added 24,000 jobs/month in the past two years, while the 13 years prior saw an average loss of 1,000 jobs/month, a fascinating reversal of fortune for retail employment.

To be sure, there are long-term trends holding down U.S. economic growth, including the demographic shift toward an older population. In addition, as my colleague Russ Koesterich recently pointed out, there are reasons why consumers aren’t spending as much as they could be, including high debt levels and a historically low savings rate.

However, what’s clear is that the U.S. economy is doing pretty good in the context of slower overall growth potential. In fact, this new normal is actually a whole lot better than a cursory analysis would have you believe, and is far from an “emergency” situation warranting emergency-level monetary stimulus.

Sources: Bureau of Economic Analysis, Bloomberg, BlackRock research

Rick Rieder, Managing Director, is BlackRock’s Chief Investment Officer of Fundamental Fixed Income, is Co-head of Americas Fixed Income, and is a regular contributor to The Blog

http://www.blackrockblog.com/2015/06/23/good-economic-news-cynics-missing/

Advertisements

About Uy Do

Banking System Analyst, former NTT data Global Marketing Dept Senior Analyst, Banking System Risk Specialist, HR Specialist
This entry was posted in FED, US economy and tagged . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

THÔNG TIN HAI CHIỀU

SỰ THẬT – CÔNG LÝ – HÒA BÌNH

BlackRock Blog

Just another WordPress.com site

South China Sea Research

Facts and Legal Aspects

WIT

Women in Theology

Framework

Capturing the world through photography, video and multimedia

Tokyobling's Blog

Tokyo in Photos

snow monkey photography

travel and street photography

The History of Love

The Trials & Tribulations of English Romance, 1660–1837

Psyche's Circuitry

Thoughts on growing up and growing old in the digital age

East Asia Forum

Economics, Politics and Public Policy in East Asia and the Pacific

Nghiên cứu quốc tế

Just another WordPress.com site

From Swerve of Shore

A Blog by Photographer Aaron Joel Santos

Afro Pick

"The past is never dead. It's not even past."

The Science of Mom

The Heart and Science of Parenting

Life in Russia.

A memoir of my experiences living in St. Petersburg, Russia and traveling to other Russian cities and former USSR countries.

Chiến tranh Việt Nam

Cổng thông tin tư liệu về Chiến tranh Việt Nam

%d bloggers like this: