What's happening in US

 

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For all its faults, the United States consumer market is still biggest and best by far

The United States has been booming in recent months, a fact that most partisan Republicans and Democrats can agree on, even though they fiercely disagree on who deserves the credit.

But the big question remains: Is this the end of the line? In shipping, the source of the boom has been obvious, as it has been artificial. The Sino-American trade war has prompted much sabre rattling and tariff talk so shippers have been shipping as much as they can over tariff-free seas for as long as they could.

But now the New Year has come and gone we are laid up in a slack season in the midst of a deadly calm, waiting upon events not knowing if are facing one of those wretched "new normal" or a trade revival that is just around the corner.

On the upside, there is that still throbbing engine of growth that is the US economy, where consumer confidence was at an 18-year high, and Americans in every demographic were celebrating financial success - from pay increases to lower taxes to higher rates of business ownership. Optimism is up and unemployment is down. This was the economy of everyone's dreams with increasing opportunities for all.

So many benefited from the US Tax Cuts and Jobs Act, decreasing regulations, and other financial incentives that have gotten the economy moving again. Nearly 400,000 manufacturing jobs have been added since 2016. And more than four million Americans received raises or bonuses because of tax cuts. On top of that, wages have been growing at their fastest pace in a decade.

Said Bloomberg Businessweek: "So the outlook for 2019 is better than one might expect. Strong growth in the US isn’t only good for Americans; it’s good for workers in countries that produce goods and services for sale to the US. In fact, the US is largely responsible for keeping global growth ticking along at an even pace despite the slowdown of many other major economies.

"Global investors, who put their money wherever they think it will earn the highest return, are more likely to choose the US over other countries if it’s thriving. Meanwhile, the Federal Reserve is raising short-term interest rates to keep the US economy from overheating, making the nation’s yields increasingly attractive," said Bloomberg.

Annual American GDP growth in the two middle quarters of 2018 were 4.2 per cent and 3.5 per cent. In October alone, the economy generated 250,000 jobs.

"The contrast between the negative daily buzz and positive underlying conditions is sharpest in the US, where the expansion of the world’s largest economy has actually strengthened as it’s lengthened," said Bloomberg.

US economic growth will probably accelerate this year before slowing in 2019 to below the Trump administration’s three per cent target, according to the Congressional Budget Office (CBO), said Reuters.

 “In 2019, the pace of GDP growth will slow to 2.4 per cent as growth in business investment and government purchases slow,” said CBO director Keith Hall.

 “When CBO completed this economic forecast in early July, the agency estimated that the macroeconomic consequences of the US tariffs and foreign retaliatory tariffs that had been implemented at that time would be small,” said Mr Hall.

A Forbes magazine review of CBO forecasts found them 97 per cent accurate a week after they were made, 82 per cent right after a year, 58 per cent right after two years and 0 per cent after three.

Of course, it is widely reckoned that the results of the November mid-term elections in which the tax-and-spend Democrats took over the House of Representatives has dampened the mood of small business Main Street investors as opposed to big business Wall Street investors.

The dollar had also been weighed down after Federal Reserve vice chairman Richard Clarida expressed fears of global slowdown.

Nonetheless, the dollar rallied strongly last year, buoyed by three Fed rate increases and a robust economy, though some expect the bull run is nearing its end.

Oil prices lost steam as fears about slower global demand and a surge in US production outweighed expected supply cuts by the Organisation of the Petroleum Exporting Countries (OPEC).

Future hopes seem tied to such forecasts as the outlook of Los Angeles' Capital Group where economists Darrell Spence and Jared Franz cheer on the US economy in its ninth year of a "marathon" expansion.

"Tax cuts and increased federal spending have boosted growth. Corporate profits and capital expenditures are soaring; hiring and consumer spending are strong. Growth could put upward pressure on inflation, raise Fed rate hike expectations," they said.

At the same time, Messrs Spence and Franz cautioned: "Expect US growth to slow in 2019 as stimulus fades and the Fed tightens."

For now, the Fed is expected to gradually raise rates through the end of 2020. Spence says Fed policy is not considered “tight” until the federal funds rate exceeds the low that the 10-year Treasury bond yield reached during the course of the tightening cycle.

There is some evidence that the pace of Fed tightening could play a role in determining how long it takes a recession to develop, Mr Spence said. "The slower the rate hike, the greater the average amount of time between recessions."

Overall the problem facing the US is political and economic uncertainty, the result of one half of the country dismissing the choice of the other half as unacceptable in a way that not happened since Abraham Lincoln entered the White House in 1861, whose intention to free the slaves plunged the country into four years of civil war.

Nothing so drastic has occured this time, yet a new president intent on reversing the leftward statist drift of the United States from 1950s, a trend sustained by the country's media, academic and bureaucratic establishment. This anti-statist initiative of the Trump administration being resisted with near military determination by those who depend on the state to sustain them.

This conflict, plus the trade war, does little to help the economy going forward. Some now see the US economy as a cartoon "Wile E Coyote moment", where the animated character runs off a cliff and is momentarily suspended in mid-air until that instant he looks down and plunges to a disastrous crash.

If such occurs, one suspects the US, like Wile E Coyote, will rise stunned, but stagger on to full recovery to be great again.

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Some believe that the future of the US economy depends how the Democrat-controlled House of Representatives behaves and how that behaviour is perceived by the investing public. To what degree do you agree with this assesment? What other factors should be brought to bear?

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U.S. Trade Specialists