The data released this week was a dramatic illustration of the cross-currents impacting the U.S. economy, and a good indicator of how the year is likely to shape up. The good news is the overall growth outlook for the United States remains intact, even as shifting prices create new winners and losers, and the mix of growth is changing.
The winners include the U.S. consumer and housing market, which are benefiting from a stronger labor market, lower energy prices, a rising dollar, and falling interest rates. Look no further than this month’s consumer confidence index that skyrocketed above 100 to 102, the best reading on this measure since August of 2007.
Both the present situation and future expectations components of consumer confidence have been on the rise this year, but the improvement in the present situation index has turned nearly parabolic in the last two months.
Initial jobless claims (which hit a 15 year low last week) and the high level of job openings seen in the JOLTS (Job Openings and Labor Turnover Survey) data are strong signals that the solid labor market progress seen in recent months is likely to continue. On Friday, next week, we get January payrolls, which we forecast will show another 243K jobs created with the unemployment rate dropping again to 5.5 percent. Rising real incomes and more employment and employment opportunities are a powerful driver of increased household spending.
The losers are the energy patch regions of the country, national business equipment spending (especially in the energy space), and exporting manufacturers that now need to deal with sluggish global growth and a far stronger U.S. dollar. Highlighting the downside risks, durable goods orders have been weaker than the consensus expected for four consecutive months now, setting up the U.S. for a very sluggish business spending environment.
As employers in the loser industries start shedding jobs, or slowing their hiring in the months ahead, this could temper some of the enthusiasm we are seeing from the consumer today. On net, we see the mix of growth visibly changing, but not the overall positive outlook for the U.S. economy.
To find out more, check out this week’s US Outlook Report.