Since 2008: US Economy (Part 2 of 3)Submitted by Headwater Investment Consulting on October 10th, 2018
By Kevin Chambers
The second chapter of this blog series, exploring our world since the 2008 crisis, focuses on the US economy. Financial markets have been gangbusters, but the stock market isn’t always reflective of the overall health of the economy.
The headline indicator of the economy is Gross Domestic Product. GDP is the value of all goods and services in the economy. Real GDP is corrected to account for inflation so you can compare against different eras. Since 2008, GDP has increased by 18%. That sounds great; however, if you look back at the last 5- and 10-year periods, you will see it isn’t incredible growth over 10 years.
The second indicator that most people look to when determining the overall success of our economy is unemployment. The news has been abuzz as the unemployment rate recently fell below 4%. During the height of the crisis, unemployment peaked at around 10%. In 2000, the unemployment rate fell below 4% briefly. Before that, we have to look as far back as the late 1960s to see rates this low.
It is great that unemployment is low. More people have jobs than ever before. As we’ve seen the unemployment rate drop, we would expect to see wages rise. As employers fight over a smaller pool of workers, they will raise wages to compete. However, we haven’t really seen them rise. They are up slightly, overall, but when adjusted for inflation, we haven’t seen wages rise since the 1980s
Finally, the last piece to look at for the overall economy is the inflation rate. For 2017 and 2018, prices increased about 2% each year. We are seeing a small amount of inflation, which is actually good for the economy. We want a little inflation, as the other option, deflation, is much worse for our businesses.
Looking at a historical perspective, the US economy is good, but not great. We are seeing decent growth, with low inflation and low unemployment.
However, we now live in a global community. A global economy. So, it is necessary to compare the US economy to the other major economies around the world. Although sometimes it does not seem like it, the US is much better off than many of our global competitors. Japan is still struggling with their on-going demographic problem: a rapidly aging population. And the great experiment of the European Union is still struggling to find stability as the stronger economies are constantly being pulled back into chaos by the weaker countries. Any way you look at it, the US is basically the strongest economy in the world. The US has the highest GDP, the fastest growing economy of any of the developed nations, one of the lowest unemployment rates, and the highest average wage of any the major economies.
In the next blog post, we will look at the US household debt and see how the debt landscape has changed over the last 10 years. To read about US Financial Markets, check out Part One of our series.