U.S. economy looks strong heading into elections
For a U.S. economic expansion now in its 10th year, hiring remains robust, growth has picked up and the outlook is a mostly bright one on the eve of congressional elections.
On Friday, the government reported that employers added a strong 250,000 jobs in October and that the unemployment rate remained 3.7 percent, the lowest level in nearly 50 years. Pay also rose at a healthy pace. Consumers are confident, spending freely, fueling brisk economic growth and encouraging employers to keep hiring.
One surprising element of the midterm campaign season has been how little the sunny economic picture appears to be benefiting President Donald Trump and Republican congressional candidates. Polls show that while voters broadly approve of the economy, they give low ratings to Trump himself. Many appear motivated by non-economic factors. And nationally, voters prefer Democrats to Republicans in elections for the House, according to surveys of voters’ generic preferences.
Here are five gauges of the U.S. economy as Election Day nears:
■Wages rev up: Many employers have long complained that they can’t find enough workers to fill jobs. But in recent months it appears they have finally taken the step economists have long recommended: Pay more. Average hourly earnings rose 3.1 percent in October from a year earlier, the sharpest year-over-year gain since 2009.
Inflation has also increased in the past year, eroding some of the value of that increase. And a storm-related drop in average wages a year ago, resulting from Hurricane Harvey, helped inflate October’s gain. Still, the pay growth suggests that the benefits of a healthy economy are rippling out to more people.
■More jobs at higher pay means more people working: With the unemployment rate so low, many economists have expected hiring to decline as businesses face a dwindling supply of unemployed people. Yet that hasn’t happened. Average monthly hiring this year is above the pace of 2017.
The vigor of the job market is helping lead some Americans who were neither working nor looking for work to begin seeking a job. (People who don’t have a job aren’t counted as unemployed unless they’re actively looking for work.) In October, the proportion of Americans with jobs reached its highest level in 10 years.
Many of employers’ most recent hires had struggled through much of the nation’s 10-year recovery from the Great Recession. The proportion of people without a high school diploma who are now working is the highest on records dating to 1992. And the proportion of teenagers with jobs is at the highest level in a decade.
■Consumers spending freely: More jobs at higher pay have helped underpin a burst of consumer spending. The Trump administration’s tax cuts have likely also contributed. Americans increased their spending by 4 percent in the July-September quarter, the biggest acceleration in nearly four years. That spending helped the economy grow at a 3.5 percent annual rate last quarter.
Yet Americans are still saving a decent chunk of their income, with little sign that most people are amassing a risky level of debt. Savings equaled roughly 6.4 percent of income in the third quarter, up from a low of 2.5 percent in 2005.
■Housing is a weak spot: Rising borrowing costs are weighing on home sales, providing a preview of what might happen in the economy more broadly as interest rates rise and make loans more expensive.
The Federal Reserve has been raising short-term rates to try to prevent the economy and inflation from expanding too fast. The Fed’s credit tightening has led to higher rates for the average 30-year fixed mortgage — 4.8 percent, up from 3.9 percent a year ago.
As mortgage rates have risen, coinciding with higher home prices, sales of existing homes have fallen for six straight months. The Fed is expected to raise rates for a fourth time this year in December, and economists expect at least two further hikes next year.
■Other shadows loom: Businesses are nearly as optimistic as consumers. But they aren’t spending as rapidly. Corporate investment in machinery, computers and other equipment barely rose in the July-September quarter, after two quarters of solid gains.
Spending on factories and other buildings fell. Some of the third quarter’s weakness reflected lower spending on oil and gas drilling equipment as oil prices fell.
But it also suggests that the Trump administration’s tax cuts for businesses haven’t spurred as much investment spending as the administration had predicted. More investment in machinery and computers would help make the workforce more efficient and spur faster growth.
Surveys of manufacturers suggest that Trump’s trade war with China may have caused some of them to delay purchases of new equipment. Higher tariffs on Chinese imports have raised costs for many manufacturers.
For all the positive news, these trends have caused many economists to forecast slower growth in the final months of this year and into 2019. The economy appears on track to expand 3 percent this year, the fastest since 2005. But Fed policymakers expect growth to slide to 2.5 percent rate next year and to 2 percent in 2020.