At the beginning of this year I asked: Is the US economy going to enter a Boom in 2018?
To recap, there is no standard definition of a Boom. But in my lifetime there have been two occasions when the “good times” feeling was palpable, and the economy was working extremely well on a very broad basis: the 1960s and the late 1990s tech era. During both times, employment was rampant and average people felt that their situations were going well.
Back in January I identified five markers that, taken together, marked off the two eras as unique: the low unemployment rate, the duration of a very good rate of growth of industrial production, strong growth in real average and real aggregate hourly wages, and increasing inflation.
Let’s update all of these through midyear.
First, in both the 1960s and late 1990s, the unemployment rate (note that the U6 underemployment rate wasn’t reported in its current configuration until 1994, and so is not helpful), hit 4.5% or below for extended periods of time:
While these weren’t the only two periods of low unemployment, they are among those that stand out.
Needless to say, we’ve hit that marker.
Second, during both the 1960s and 1990s, production grew at or over 4% a year for extended periods of time, not just right after the end of a recession.
While the YoY% growth of industrial production has been accelerating this year (up to +3.8% in June), it has still not hit 4%.
The rate of growth of real average earnings for non-managerial employees, both individually and in the aggregate are the third and fourth markers of the two Booms. In contrast to other expansions, real average hourly earnings also grew at roughly 1% YoY or better:
Meanwhile, real aggregate earnings grew at a rate of 4% YoY or better:
Real average hourly earnings have not grown at all in the past year. Real aggregate earnings are growing at the tepid rate of 2.5%.
The fifth and final marker of a Boom — probably as the byproduct of the first four — is an increase in the YoY rate of inflation:
This has been occurring, although it is probably due more to the price of gas than to any wage pressures.
So far this year, only the first and last markers are present: low unemployment and an increasing YoY inflation rate. But industrial production is not growing as fast as during either of the two Booms, and real wage growth has continued to be lackluster to say the least.
In short, while the production side of US economy is doing pretty well, the consumer side of the economy remains tepid, and in particular wage growth is non-existent. As of midyear 2018, the US economy is not Booming.
Eddie – What’s your estimate for Q2 GDP?
He is not Ed. You gonna tell us 5%?
If Production is up, and from what you say about wages means demand domestically is not increasing, are exports making up the slack or does changes in reporting make corporate earnings deceptive –in other words, if a corporate balance sheet grows from non US demand, is it reflected in earnings calculated as US Growth?