Edward J. O'Boyle

Is the U.S. economy “firing on all cylinders”? The answer depends on whom you ask, what data they cite, and when they made that claim. In 2018 the White House, a senior official of Federal Reserve System, several members of Congress, and countless cable news anchors, among others, used “firing on all cylinders” to indicate that all is well with the U.S. economy.  Last year, however, this reassuring metaphor has not dominated the public discourse on economic affairs because in part with the pending general election Republicans are likely to hype economic performance and Democrats will say that it is misfiring.

Very Good Performance. Notwithstanding cautionary comments made in January 2019, the stock market has continued firing on all cylinders over the last 12 months. To illustrate, in 2019 the S&P index of 500 publicly traded corporations increased by nearly 30 percent.

Unemployment data for sure support the claim that the economy is firing on all cylinders. The 3.7 percent average for the jobless rate in 2019 is the lowest annual average in the last 50 years. Remarkably, the latest monthly data indicate that the rate is much lower for persons with a bachelor or higher degree (1.9 percent), for veterans (1.9 percent), for married women (2.1 percent), and married men (1.6 percent). Married men and women account for 52 percent of the total number of persons employed.

Mixed Performance. Data on payroll jobs appear to indicate that the economy is firing on all cylinders.  In every month over the past year, payroll jobs increased on average by 176,000. Even so, the 2019 monthly average is the lowest for this indicator over the last six years.

Hourly and weekly earnings often are cited by political figures and media commentators as robust, suggesting that the good news likely will continue in the months ahead.  They do not mention that from December 2018 to December 2019 hourly earnings for all private nonfarm employees, adjusted for inflation, increased by just 7 cents. Nor do they take into account that real weekly earnings, which reflect number of hours worked, were essentially stagnant over the twelve months ending in December 2019: $375.82 compared to $375.77.

For men and women alike, labor force participation rates for persons in the 55-64, 65-74, and 75 or older age cohorts were higher in 2018 than in 1998. Nevertheless, participation for persons in the 25-34, 35-44, and 45-54 age cohorts were lower for both men and women.

Another important indicator is the diffusion index that compares private industries where employment is rising to industries where it is falling. This metric has a range from 0 to 100 where an index number below 50 indicates that there are more industries where employment is declining, whereas a number above 50 indicates the opposite. The index covers a total of 258 private industries. One year ago, the index was 66.9. By December it eroded to 57.7.

For the first time in eleven years, the poverty rate in 2018 was lower than in 2007, the year before the Great Recession, but the difference in average annual family income for those above the poverty threshold in 2018 compared to families below that standard reached almost $106,000.     

Sagging Performance. The diffusion index for 78 manufacturing industries over the last twelve months has dropped from 65.1 to 44.7. This metric is especially noteworthy because manufacturing jobs typically are high-wage jobs.      

Labor productivity at nonfarm businesses in third quarter 2019 fell by -0.2 percent due to a bigger increase in hours worked than output.

At the same time, labor productivity in manufacturing increased, but only by 0.1 percent. This metric indicates the efficiency with which labor resources are being used and, apart from mandated increases in the minimum wage, is the source of higher real earnings.

The month-by-month percent change in fourth quarter 2019 indicates that productivity was negative or barely positive in all three months.

Other Troubling Indicators. New vehicle inventory, including light trucks and cars, on August 1, 2019 stood at 3.8 million. Due to a weaker selling rate compared to the same date in 2018, this inventory represents a 71-day supply.

Economic activity of late has been driven mainly by consumer spending. Consumer debt in November 2019 reached $4.176 trillion. Consumer debt from third quarter 2018 to third quarter 2019 increased by $188.6 billion.

Student loan indebtedness in 2019 reached $1.41 trillion. Today, about 54 percent of college students take out student loans to cover their educational expenses. Nearly 11 percent of total student loan debt currently is delinquent for at least 90 days.   

We selected data sets principally to focus on human material well-being: jobs, earnings, debt, and poverty. Those data sets indicate that the U.S. economy is not firing on all cylinders.

What can we say about the direction of the U.S. economy in the months ahead? Only that an economic slump is like a cold. No one knows with certainty when one is coming. But, sooner or later, it is coming.  

Edward J. O’Boyle is Senior Research Associate with Mayo Research Institute. He has offices in West Monroe, Lake Charles and New Orleans. He can be reached at 381-4002 or edoboyle737@gmail.com.

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