The U.S. President Trump and his advisers announced last Friday, blowing past expectations and prompting a celebration between the two countries.
Better-than-expected growth, continuing strength in the job market. , and a new all-time high in the stock market this week are baffling fears of a recession and inviting current economy comparisons to record 1990s boom
Trump has linked the success of his presidency to jobs and performance Trump said: "We are knocking it out of the park," said the head of the stock market, which is currently up for the stock market, with the Standard & Poor's 500-stock index closing the week at a new high
Friday before a speech at the National Rifle Association convention in Indianapolis. "We have great growth and also very, very low inflation. Our economy is doing great. "
Many economists had predicted anemic growth at the beginning of the year, as partial government shutdown, market jitters and extremely cold weather caused many businesses and consumers to hit the pause button on big purchases.
Over the half of the growth in the first quarter was driven by an unusually low trade deficit and a surge in inventories, with companies healing their supplies after depleting them last year.
"It was impressive GDP until you dig into some of the numbers," said Lindsey Piegza, chief economist at Stifel Fixed Income. She pointed to a key gauge of consumer and business demand ̵
Economists are divided about how the economy will likely perform the rest
Some experts, including at the Federal Reserve, forecast that growth will slow down to about 2 percent. , similar to the Obama years, while others see growth sticking closer to 2.5 percent, which would be noticeably above the trend. But there is a broad agreement that the recession looks more and more unlikely ahead of November's election.
In some ways today's economy feels like 1998 or 1999, with robust growth, low unemployment and scarce inflation, which shows a few signs of spiking. Confidence in the economy is high, and the stock market, much like in the late 1990s, has been on a bullish ride led by technology stocks.
"It looks like the Goldilocks scenario of strong growth and benign inflation is still happening, much like the 1990s, "said Neil Dutta, head of economics at Renaissance Macro Research.
More Americans seem to be feeling their gains, with 53 percent of consumers saying they have personally experienced an improvement in their finances in the past month, According to the University of Michigan Survey of Consumers released Friday, the highest average since 1999.
Gallup polls found similar results with half of Americans giving the economy a "excellent" or "good" rating recently, the most optimistic assessment since 2001
But there are two major differences between the current economy and the late 1990s, which could be concerned about policy makers: the current situation is higher now and the government is far more constricted. Christina Romer, economics professor at the University of California at Berkeley, said: "Another recession will definitely come at a certain point, and we are going to enter that next recession in a difficult position," said Christina Romer, economics professor at the University of California at Berkeley. and former head of President Barack Obama's Council of Economic Advisers.
The federal government is on track to run a deficit of nearly $ 1 trillion this year due to government spending and Trump's tax cuts, setting up a very unusual situation of debugging debt in good economic times. According to the International Monetary Fund, the United States is the only major economy projected to increase its debt as a percentage of GDP over the next five years, which could make it more challenging to increase federal spending in a crisis.
The other Typical response in times of trouble is for the Federal Reserve to cut interest rates, but there is much less scope to do that now than there was 20 years ago
In the late 1990s, interest rates were sitting at about 5 percent. Today, they are just shy of 2.5 percent, and Trump has been calling for further reductions, blaming "high" interest rates for holding back growth.
"If we kept the same interest rates and the same quantitative easing that the previous administration had, that 3.2 would have been much higher than that, "Trump said Friday.
Wage growth, although higher over the past year, is also below the levels of the late 1990s, when wages grew by 4 percent a year due to Massive technological investment that boosted productivity.
"Today's economy is not anywhere close to the late 1990s," said Joseph Brusuelas, chief economist at accounting firm RSM. "We are not seeing the increase in productivity and wages that we saw in that time, when everyone called Alan Greenspan the" maestro. "
Although salaries for many low-income Americans are rising faster than living costs as companies boost wages to attract and retain employees, inequality has been rising. Wealthy Americans are benefiting far more from rising stocks and home prices than the working class, many of whom do not own their homes or have much, if any, invested in the market.
How voters consider these economic issues against other considerations at The ballot box is still to be seen.
Trump has vowed he can get the US economic growth at an annual pace of 3 percent – or better – for the next decade, scenario independent forecasts do not believe is achievable
But the top president of the economic advisers say they revise their growth forecasts even higher after examining the data . They believe growth in the first quarter would have been 3.5 percent without shutdown and that consumption will pick up later this year.
"Right now we would be inclined to increase our forecasts. "The economy is accelerating," said Kevin Hassett, head of the Trump Council of Economic Advisers in an interview.
First quarter growth is typically the weakest of the year, Ben Herzon, executive director of Macroeconomic Advisers, said that "The first-quarter number is overwhelming the strength of the economy."
"Businesses were building inventories like crazy. That is not going to last. "
After a big buying season in the winter, companies are unlikely to keep expanding their inventory this spring, meaning second-quarter growth could take a hit. The unusual jump in U.S. exports are also likely to be hard to sustain.
A jump in state and local government spending also boosted the first quarter growth by the largest amount in three years.
U.S. consumers are likely to be the key factor in whether the economy has a normal, subpar or extraordinary year, because consumer spending drives about 70 percent of growth.
Americans have sharply pulled back spending at the end of last year, but there are signs They began buying again in March, which should create a spring bounce to keep the economy expanding at a decent pace. Hassett said that the top economic priority of the president now is closing trade deals with China and Europe and getting the Congress to pass the US-Mexico-Canada Agreement, the revised North American trade deal.
The International Monetary Fund recently predicted growth would pick up in the second half of the year for the world economy and likely United States to propel Dutta of Renaissance Macro Research said: "The economy is not slowing down almost as much as people think."
"The economy is not slowing down almost as much as people think," said Dutta of Renaissance Macro Research. "A 3.2 percent pace can not be sustained, but the Federal Reserve and markets probably cut their growth expectations too far for this year."