U.S. economy rides out rough political sea, but more storms ahead
The U.S. economy is blossoming again like a bed of spring flowers, but now a wary eye is being cast toward an impending storm front that threatens to move in: The ongoing political eruptions in Washington.
Earlier in 2017, confidence among consumers and businesspeople surged to multi-year highs on the hope that a pro-business Trump administration would add rocker boosters to the economy. The new president was promising regulatory relief, huge tax cuts and more spending on public works.
Yet those early hopes for quick action have begun to fade as controversy after controversy piles up in Washington and drains the political capital of President Trump. Witness last week’s 370-point plunge in the Dow Jones Industrial Average amid the fallout from the firing of FBI director James Comey.
The economy “could get caught in the political crossfire if business confidence heads south,” said Sal Guatieri, senior economist at BMO Capital Markets.
The good news is the U.S. economy is quite resilient. It will take a lot more than jarring headlines in Washington that are more light than heat to throw growth sharply off course.
The biggest bulwark against backsliding are American consumers. Rapid hiring, dwindling unemployment and rising wages have helped to improve the standard of living for millions of people hurt by the Great Recession. Household wealth is now at its highest level in a decade, enabling more consumers to buy cars, houses and other big-ticket items.
The healthiest labor market in years, what’s more, shows no sign of catching a cold. The number of people collecting unemployment checks, for example, has fallen to a 29-year low. More and more companies complain they can’t find enough skilled workers — a problem that was unheard of several years ago.
“Can there be any doubt about the state of the labor market? Tight as a drum,” said Stephen Stanley, chief economist at Amherst Pierpont Securities.
There’s more good news. Businesses have increased investment early in 2017 after a prolonged slump. That could prime the pump for faster growth in the months ahead.
“Business activity and investment are starting to strengthen after being quite subdued last year and through much of the expansion,” said Loretta Mester, president of the Cleveland Federal Reserve Bank.
A big reason: Somewhat higher energy prices have jolted U.S. drillers back into action after a two-year downturn in investment. They’ve ramped up spending on equipment to extract oil and natural gas from the ground. That in turn is helping other companies such as producers of primary metals and fabricated metal parts used in drilling platforms.
The latest update on business investment, reflected in new orders for durable goods, will shed further clues when the report is issued Friday.
With the twin engines of consumers and businesses propelling the U.S. forward, most economists predict growth could speed up to nearly 4% in the second quarter from less than 1% in the first three months of the year.
While that would certainly be good news for the White House — and get an inevitable Twitter shoutout by the president — Trump himself still looms large over the economy.
The economy could go one way, or another, depending on how successful Trump is at recovering from recent controversies and getting his economic agenda back on track.
The Federal Reserve, for its part, is filtering out the political noise and laying the groundwork for an interest rate increase in June. Minutes from the central bank’s last meeting, released on Wednesday, could offer more hints at their plan of action.