U.S. Economy Buoyed by Strong Tailwinds

Steady inflation. Low unemployment. Strong consumer spending. Increasing wages. Several key factors are propelling the U.S. economy. ( AgWeb )

Steady inflation. Low unemployment. Strong consumer spending. Increasing wages. Several key factors are propelling the U.S. economy, even as global trade uncertainties and financial stress in some sectors create tailwinds. 

“The U.S. economy is in excellent shape, operating with tight labor markets and low and stable inflation,” says Esther George, president and CEO, Federal Reserve Bank of Kansas City. “The economy appears to be firing on all cylinders.”

For the first half of the year, real GDP increased at a solid pace. George, who spoke at the recent Agricultural Symposium, hosted by the Federal Reserve Bank of Kansas City, says it accelerated from a moderate 2% annual rate in the first quarter to an expected growth rate of around 4% in the second quarter.

“Looking ahead, we expect continued economic growth at or above estimates of the economy’s longer-run potential growth rate of around 1.75%,” she says.

Consumer and business spending, as well as an increase in the pace of wage gains is fueling economic growth. George says the employment cost index, which is a broad measure of labor compensation that accounts for employment shifts among occupations and industries, accelerated over the past couple years to a 2.7% annual growth rate in the first quarter. That was after hovering for several years around 2%. 

“These wage gains along with ongoing increases in employment will continue to support increases in personal income and spending over the remainder of the year and on into next year,” she says.

Supportive U.S. fiscal policy and global monetary policy seem to be encouraging business investment, George says, but they also carry a risk of pushing the economy beyond its productive capacity. 

Yet, the biggest downside risk to the U.S. economy is the uncertainty around trade policy. 

“To date, the impact of new tariffs on the broad economy has been minimal, and I have not incorporated any significant effect into my baseline outlook for the broader U.S. economy,” George says. “However, anecdotal reports from our business contacts suggest that some companies are taking a ‘wait and see’ approach to new capital spending due to uncertainty about future trade policies.”

Certain sectors—like agriculture—are facing challenging tailwinds. 

“I don’t want to underestimate the stress that exists today or could come,” George says. “Clearly, international trade is central to the performance of the agricultural sector, and uncertainty about trade policy clouds the outlook.”

Looking forward, George expects the U.S. economy to continue to expand at a moderate pace.