A solid world economy, low unemployment, record middle-class real incomes
Three years ago, I gave thanks for how cheap oil was pulverizing Vladimir Putin, the Organization of the Petroleum Exporting Countries and other global turkeys. This year, Americans and investors have at least as many reasons to be thankful, transcending the poisoned U.S. politics we’ll all — ahem — carefully avoid at Thanksgiving dinner.
Let’s count ‘em up. Number six is the one that counts most.
1. We have a really solid world economy
After China’s mini-financial panic of 2015-16, which shaved U.S. exports to Asia and with it U.S. growth and stock prices, the opposite is happening now. Global growth forecasts are improving, and Bank of America Merrill Lynch, at least, thinks emerging-market stocks are still cheap because the economies there have room to grow. Healthy trading partners are good for the U.S., whether a president who portrays trade as a zero-sum game understands that or not.
2. Unemployment near a 17-year low and middle-class real incomes at a record
October’s 4.1% unemployment rate is the same as in the giddy peaks of 1999. Even better, median household income, adjusted for inflation, has surpassed its old dot-com peak.
Best of all, this is happening in a low-inflation economy with no bubbles worth worrying about. There’s plenty of manufacturing capacity available, housing affordability is fine in most places, and nearly stable over the last year. Housing prices are up 4%, but incomes are up 3%, according to the National Association of Realtors.
That means we can continue for a good while with slowly declining unemployment and rising real wages, before some bubble or rot derails the expansion. If recent improvement in business investment helps productivity growth, that will sustain good times even longer. If President Donald Trump’s corporate-tax cut bill helps investment — dubious, not least because it’s unlikely to pass — all the better.
Trump specifically claims credit for the historically-ordinary jumps in the stock market, especially the Dow Jones Industrial Average DJIA, -0.27% and S&P 500 SPX, -0.08% even though a close look at the big stocks in those indices suggests companies like Apple, Boeing, and even Trump-administration talent farm Goldman Sachs haven’t gotten much benefit from the administration’s policies.
Let trolls claim Trump accomplished this without actually passing any economic policy, by spreading the goodwill and confidence whenever he calls nuclear-armed North Korean dictator Kim Jong Un fat on Twitter. As long as the troll who’s your uncle passes the stuffing.
3. Low interest rates mean high purchasing power
The percentage of folks’ income that goes to monthly debt service (including the student loans your millennial nephews caterwaul about) is the lowest in the 35 years that data have been kept, Moody’s Analytics chief economist Mark Zandi says.
Simple: When the interest rate on your mortgage is 3% and change, your car loan is free or close to it, and even credit cards are cheap, you can afford more. That’s a good thing. Especially when you’re also richer because of rising stock prices, and low inflation suggests interest rates will rise only slowly.