The truth is, there’s no obvious driver of U.S. growth. The most likely explanation is that the economy is simply in a phase of boring normality.
Most people tend to think of the business cycle as a series of alternating booms and busts. The U.S. economic record seems to confirm this, with recessions coming at least once a decade. But while this is certainly possible, most macroeconomic models envision the economy as a production machine that just keeps chugging until some sort of shock disturbs it from equilibrium.
Since the end of World War II, there have been three main types of shocks that have thrown the U.S. economy off kilter: financial bubbles and crashes, Federal Reserve interest rate hikes or big increases in oil prices. None of these are threatening now. The rise in risky leveraged lending doesn’t seem big enough to cause another financial crisis. Vivid memories of the crash of 2008 are probably preventing excessive speculation in stocks and housing, while the Dodd-Frank financial reforms and the scars of that disaster probably are holding back financial institutions from piling up excessive risks. Meanwhile, oil prices and gasoline prices are at moderate levels, and the Fed in 2019 reversed some of the interest rate increases of prior years. Much has been made of Trump’s trade war, but so far the real impact has been minor even in sectors such as agriculture.
So U.S. consumers simply have little reason to stop consuming. They’ve deleveraged since the crash, their homes are appreciating modestly in value, their wages are rising at a decent rate and their pensions are doing fine. Barring a new financial crisis, a major Chinese collapse, a sharp reversal of course from the Fed, or more dramatic meddling from Trump, the economy may simply keep sailing along.
This article was provided by Bloomberg News.