This series seeks to track the progress of 26 key variables which show how well or how poorly the US economy is performing.
Our first article organised those variables into four performance levels:
Sectors performing very well: none.
Sectors showing average or above average outcomes: four
Below average outcomes: 14
Disastrous outcomes, close to world’s worst: eight
We then examined the four variables now tracking above average: unemployment, youth joblessness, median wealth and personal savings.
We will now assess more closely the areas of weakness.
Below average outcomes
Fourteen variables are now performing well below par. We shall examine five of these here.
Interest rates hit all-time low
The interest rates target range was adjusted downwards to 1.00-1.25% on 3 March in response to “evolving risks to economic activity” posed by the coronavirus. This is far below optimum. Then on 15 March, the Federal Reserve governors set the target range at the rock bottom range 0 to 0.25%. They noted that “the effects of the coronavirus will weigh on economic activity in the near term and pose risks to the economic outlook”.
This is an all-time catastrophic low which means this variable probably belongs in the fourth category here – disastrous outcomes close to world’s worst. We will keep it here for now, however, as many comparable developed countries are also in similar low interest rate regimes.
Not all, however. About 40 economies have managed to keep interest rates in the optimum range between 2.25 and 4.75%. These including China, Brazil, Indonesia, Cuba, Romania, Malaysia, Croatia, Bolivia and the Philippines.
US rates are now far too low for retirees who had planned to live off interest income.
Inflation inflicts more pain
The USA suffered another blow when January’s inflation number reached 2.5%, well above target. February 2.3% also remains above optimum. Among the 36 comparable OECD member countries, the USA now ranks a lowly 27th, well below the leaders where it was just a few years ago and still should be today.
Wages growth wanting
Wages are now increasing below inflation for most workers, leaving them poorer at the end of the year despite nominal pay rises. Data is available from the comprehensive website payscale.com.
Over the fourth quarter of 2019, wages increased 0.8%, and over the full year by just 2.5%. Inflation, as we have just seen, is now around 2.5%, which automatically wipes out any real wage rises.
The latest annual rises for specific industries were 3.1% in construction, 2.4% in hospitality, 2.1% in retail and customer service, 2.0% in the arts and recreation, 2.0% in manufacturing and just 0.4% in energy and utilities.
Trading Economics shows average real wages growth, that is, after inflation, for 32 developed countries at 2.85%. As shown in the chart at the top here, the US ranks a dismal 21st with 1.16%.
Waste of willing workers
The underutilization rate of workers, referred to as the U-6, increased to 7.0% in February, the highest in five months. This is down slightly from 7.4% a year earlier, but well above the jobless rate of 3.52%.
The Bureau of Labor Statistics defines this as the unemployed, plus those employed part time who want more hours, plus persons marginally attached to the labor force.
Consumers curbing spending
Personal expenditure increased in the December quarter by just 2.63% over the same quarter a year ago. This is historically very low, and is barely keeping pace with inflation.
This is disturbing given the upswing virtually across the developed world in jobs, incomes and consumer spending. We have to go back to the great recession to find a lower December spending rise.
That will do for now. The other nine underperforming areas are homelessness, annual GDP growth, GDP per person, the housing index, industrial production, mining production, tourism, corruption and retail and wholesale trade. We shall come to these in due course.
Meanwhile, readers are invited to agree, disagree, add more variables and, if you find this helpful, onpass to others who may also benefit from access to accurate data.