Last week’s stock market sell-off and comments by Democratic presidential candidates about a looming recession, may freak you out.
Take a deep breath. An economic collapse is not happening tomorrow.
There are some areas of concern, but the U.S. economy is strong. Americans are spending. Unemployment is low. We are still growing.
Here are 5 indicators about the current health of the economy:
Retail Sales are UP! In July, retail sales gained nearly one percentage point (0.7 percent) and it beat expectations. Online sales driven by Amazon Prime Day gave spending a big boost, but department stores, restaurants, and electronic outlets also rose sharply.
Americans have confidence in the economy, the jobs market, and their financial situation to spend and they’re spending. That is keeping the economy going.
Productivity is UP! Second-quarter U.S. productivity rose a healthy 2.3 percent annual rate which beat the expected 1.7 percent rate.
Economic growth is UP! Second-quarter gross domestic product (GDP) rose 2.1 percent. While this was lower than the 3.1 percent growth rate, it still is as good if not better than economic growth under the Obama Administration which we were told to accept was the new normal.
Small Business Optimism is UP! In July, optimism among small business owners about sales, expansion plans, and business conditions rose 1.4 points to 104.7. Small businesses are critical to job creation. According to Bureau of Labor Statistics, small businesses created nearly two out of every three net private-sector jobs created since the end of the recession.
Unemployment is LOW and stable. Holding steady at 3.7 percent the unemployment rate is at near-record lows.
There are areas of concern with the economy. Manufacturing production fell in July, the second decline in the past four months. This represents the production of durable goods like washing machines, furniture, and refrigerators as well as non-durable goods such as food, cigarettes, paper products, and cleaning supplies.
Some economists point to the escalating trade tensions with China and the tariffs as slowing manufacturing.
However, the fear of a recession in the very near future are overblown unless a major economic shock suddenly occurs.
Recessions are part of a normal economic cycle. We are on an extraordinary 10-year expansion, so contraction (recession) is a normal expectation.
The $1 million dollar question is when a recession will occur (and how severe)? No one knows for certain.
A survey of over 200 economists out today finds just 2 percent expect a recession this year, down from 10 percent in a similar survey earlier this year. Over a third believe a slowing economy will fall into recession in 2021 – up from 25 percent — and 38 percent predict that it will occur in 2020.
Again, these are just predictions.
As consumers, we should be aware of the economy's ups and downs, but not allow fear to paralyze our current spending or future purchasing plans. Consumers power the economy. If we close our wallets, then we will undoubtedly cause the economy to shut down.
Sadly, candidates are using fear-mongering over the economy as a political tool in the 2020 election cycle.
Instead, our national leaders should encourage Americans families to build up their emergency funds, get back into the labor force if they’ve been out for a while, and take a long-term approach to investing that isn’t moved by daily market fluctuations.
The sky is not falling and Americans shouldn’t be fooled into thinking it is.