Previously, we analyzed the factors often used to gain future insight on the U.S. economy. Today, it is important to note that the leading economic indicators show concerning signs of a slowing or contracting U.S. economy. Specifically, manufacturing, energy and other basic industries will see the slowdown first. However, regardless of the industry, a recession in the U.S. would create widespread impact.
In fact, factory capacity utilization along with the price of copper suggest the manufacturing industry is already in a recession. This could amount to as much as three-fourths to 1% of the overall U.S. gross domestic product (GDP).
In gaging a domestic economic slowdown, there are additional metrics to examine. The measure of year-over-year growth of the U.S. economy or GDP suggests a sluggish rate at best. The burden of regulatory factors along with the over $18 trillion federal government debt has a psychological impact on business investment and consumers.
Interestingly, the latest consumer sentiment reading is above 90, which is still quite strong. A metric in the 80s range or below is critical to watch as over 70% of the economy is consumer and service-based.
Core and headline inflation are still cautionary, pointing towards possible deflation. Despite the stimulus from the U.S. Federal Reserve at $4.5 trillion, inflation has yet to be incited. Core inflation, which excludes food and energy, and headline inflation, which includes these variables, continue to be mundane at under 2%. Consistent monitoring of changes in core and headline inflation is important as the U.S. Federal Reserve uses inflationary signs to help determine future interest rate increases.
During the recent general economic recession, the unemployment rate reached over 10%. Today, the unemployment rate is half that rate at 5%. The crucial element in this area is wage growth, which continues to be flat. Additionally, over 50 million domestic workers are contract employees. These workers, along with U-6 workers, which include those marginally attached to the workforce, underemployed, part-time and discouraged workers, cumulatively amount to a significant challenge to political and social leaders.
Overall the U.S. economy currently rates a “C” range grade. The domestic economy is extremely bifurcated. The strong dollar presents substantial challenges for rural economies and the “flyover” states, as some call the middle region of the country. In contrast, the coastal economies, where over 200 million Americans live and work, are benefiting from a strong dollar with cheaper imported goods for the currently strong service-based economy. When will this bifurcation even out? Only time will tell!
As we move forward into 2016, economic indicators will continue to foretell our economic health and well-being. Use these indicators for a glimpse into the future as you plan and position your business for challenges and opportunities yet to come.