Believe it or not, the U.S. is in its ninth consecutive year of economic expansion. In a healthy economy, gross domestic product, or GDP, growth rate is around 3-3.5 percent. GDP is the total dollar value of goods and services produced by a country and is the key indicator of its economic health. But therein lies the rub. Though the current expansion is the third longest since World War II, it is also the slowest, with an annual rate of growth averaging a paltry 2.1 percent. In 2016, economic growth was 1.5 percent. In the first quarter of this year, the growth rate was even lower at just 1.2 percent.
But in the past eight months, the U.S. economy has finally gained traction. Led by improvements in consumer spending and a surge in business investment of factories, machinery and equipment, economic growth has averaged 3.05 percent. The national unemployment rate is at 4.1 percent, a 17-year low. The Consumer Confidence Index, a key measure of optimism on the state of the U.S. economy, was just reported at 129.5, reflecting a recent level of consumer optimism not seen since November 2000. The index has a benchmark of 100. Anything above 100 indicates optimism on jobs and income by consumers, who ultimately will spend money and stimulate economic growth.
As the world’s largest economy, the U.S. accounts for almost a quarter of all global economic production. The second largest, China, produces 14 percent of all global goods and services. However, the size of the U.S. economy is greater than the combined economies for the next eight largest nations, including Japan, Germany and the United Kingdom.
The resurgence of the U.S. economy, combined with stronger growth from China and Europe, has helped propel a broad-based global economic expansion. In its latest quarterly outlook, the Organization for Economic Co-operation and Development reports that for the first time since 2008, no major world economy is in contraction. OECD expects the global economy to grow this year by 3.6 percent, its fastest pace since 2011. In 2018, it predicts a growth rate of 3.7 percent.
The improved global economic landscape has pushed world manufacturing to a six-year high. Global business profit growth and hiring plans are at multi-year highs, fueled by rising business and consumer optimism. Global stock prices have surged, with half of the 35 major global stock indexes trading at, or near, their all-time-highs.
Despite the underlying strength in the global economy, concerns remain. Domestically, the U.S. economy has yet to prove its sustainability. Yes, the 3.05 percent growth rate of the past two quarters is strong. However, the U.S. economy has not maintained a 3 percent growth rate for an entire year since 2005. Continued failure by President Trump to pass his economic agenda, future interest rate hikes by the Federal Reserve and an unknown conviction by the American consumer to continue spending could all derail economic growth.
Internationally, there is concern of a potential stall in the Chinese economy. 2017 has been a rebound year for China, which saw its 2016 GDP growth fall to 6.7 percent, a 26-year low. Year-to-date, economic growth is 6.9 percent. But much of China’s economy has been built on the mass accumulation of debt. Under the mandate of the Communist government, factories are built and goods are produced regardless of need or demand. This production costs money, and the Chinese government has accumulated a mountain of debt to meet its production endeavors. The size of this debt is reaching critical mass, and even the most loyal of Chinese policymakers realize the current pace of debt accumulation to be unsustainable.
The U.S. economy, like many leading global powers, is a highly resilient entity built to withstand its share of punishment. However, every nation faces continuing economic, geopolitical, monetary policy and legislative concerns both domestically and abroad. Eventually, all economies reach their tipping point into decline. But for now, the global economic train keeps chugging along.