Things To Watch In 2016: Steady Economy Is The New Hot

Things To Watch In 2016: Steady Economy Is The New Hot

By Kevin G. Hall, McClatchy Washington Bureau (TNS)

WASHINGTON — After a year free from government shutdowns and other self-inflicted wounds, the U.S. economy in 2016 is expected to power forward at a steady, albeit unspectacular pace.

Given all the global uncertainty, steady is the new strong. A six-year U.S. economic expansion, long by historical standards, rolls on.

Japan remains in the doldrums, China’s growth has slowed precipitously and emerging markets such as Brazil and Mexico are boiling over with internal discontent. Even next door the Canadian dollar is slumping badly against the U.S. greenback.

Here are three things worth watching in the U.S. economy in 2016:

GROWTH’S GEAR SHIFT

Since the economic recovery began in mid-2009, it’s been led by exports and the energy sector. That’s a trend now in reversal.

“The consumption side is picking up. The domestic-driven parts of our economy are strengthening and we’re likely to see an economy that is led less by production and more by consumption,” said Mark Vitner, a senior economist at Wells Fargo Securities in Charlotte, N.C.

Mainstream economists project 2016’s annual growth rate in the ballpark of 2.5 percent, about the same as 2015.

“But beneath the surface, there really is quite a bit of change,” said Vitner.

Here’s why.

Amid the Great Recession, the U.S. dollar weakened against global currencies, making U.S. goods and services cheaper, particularly farm and ranch products. Exports boomed, as did employment in manufacturing and other export sectors.

Now much of the world economy is in slow-growth mode. The U.S. dollar has strengthened against European and Asian currencies. It’s meant a 4.3 percent drop in exports for the first 10 months of this year, according to the Census Bureau.

Similarly, when oil prices were over $100 a barrel in the prior decade it set in motion a massive wave of drilling for oil and natural gas. U.S. production reached record levels in 2014, and the energy sector hired like mad.

The expansion added to a global oil glut and ultimately a collapse in energy prices. Americans now enjoy gasoline priced below $2 a gallon in much of the nation. Since a peak in December 2014, employment in mining — the category under which oil drilling and related services fall — has dropped sharply. The Labor Department estimates more than 123,000 jobs lost in the sector since the peak.

Those two troubling trends, however, are offset by the growth shift.

JOBS, JOBS, JOBS

The economy is in a virtuous cycle, where hiring brings more sales and thus more hiring.

“The improvement in employment conditions … has occurred amid continued expansion in economic activity,” Federal Reserve Chair Janet Yellen said in a Dec. 17 news conference.

The unemployment rate was 5 percent in November, down sixth-tenths of a percentage point since December 2014. It’s projected by Yellen to go even lower next year. Although wage growth has been muted throughout much of the recovery, it has gained steam since summertime.

Two signs to watch in the job market are an easing of the still-elevated number of people reporting involuntary part-time employment, and a return to more typical rates of labor force participation.

HOUSING LIFTOFF

Sales of new and existing homes accelerated in 2015 and are expected to keep growing in 2016.

Surveys of lenders continue to show that credit is becoming more available for homeowners, aided by new jobs for millions more people now working, particularly in robust state economies such as populous California.

“They’re all adding income to families or single individuals, who are now able to go out on their own instead of living in their parents’ basement,” said Lawrence Yun, chief economist for the National Association of Realtors.

©2015 McClatchy Washington Bureau. Distributed by Tribune Content Agency, LLC.

Photo: Philip Taylor via Flickr

 

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