If the U.S. economy closely resembled any object, it’d probably be a broken traffic light.
That’s because the overall financial and economic system is flashing every color possible, from healthy green glows and yellow warning lights to heavy recession-red colors. With so many mixed signals, it isn’t exactly easy to tell just how strong any underlying momentum may be.
“Right now, economic growth is decent, but once you dig below the surface, things look a little bit more fragile,” says Scott Anderson, chief U.S. economist at San Francisco-based Bank of the West. “It’s a bifurcated expansion. We’re really looking at a tale of two different realities.”
Here’s what’s happening in the U.S. economy right now based on five main tiers — as well as what’s making or breaking it.
1. The U.S. job market is still on firm footing, but hiring has slowed The job market has provided a comforting steadiness for those trying to spot check the health of the U.S. economy during such turbulent times. The unemployment rate is at 3.7 percent, the lowest since December 1969, while employers have added positions for a record 107-straight months.
“It’s a labor market that continues to defy expectations of softening,” Anderson says.
But it’s evident that the pace of job creation is slowing. With the U.S. expansion now in its 11 calendar year — the longest on record — some slowing is to be expected. In August, U.S. hiring totaled 130,000 new positions, bringing the three-month average to nearly 156,000 positions, a slower but still-healthy pace.
It’s still puzzling economists why wages haven’t picked up more than they already have throughout the current expansion, but through the first half of 2019, workers in the U.S. saw some of the strongest wage growth yet. Average hourly earnings on an annual basis rose in February to an expansion high of 3.4%, and they’ve been holding above 3% since October.
2. Consumers continue to prop up the U.S. economy
Broadly speaking, that’s keeping the American consumer intact, an important component for the economy.
Two-thirds of the U.S. economy is based off of consumer spending, so growth relies on how willing consumers are to spend.
Case in point: The U.S. economy grew by 2% in the second quarter of 2019. Net exports and private, fixed investments weighed on growth, but the U.S. consumer kept it on solid footing. That’s because consumption grew by 4.7%, contributing more to growth than any other category.
3. Consumer confidence is starting to slip
But if you want to know how much longer consumers are going to remain upbeat, it’s good to keep an eye on confidence. For the most part, sentiment among Americans has remained historically elevated throughout 2019. Though a measure of consumer sentiment out of the Conference Board showed that Americans’ confidence declined slightly in August, their perception of current conditions reached a 19-year high.
4. Trade wars are causing a slowdown in business investment, manufacturing
That’s not the only aspect of the U.S. economy struggling to parse through trade disputes. Manufacturing activity is in the midst of a slowdown, with the Institute for Supply Management’s purchasing manager index falling for a fourth straight month in July and contracted in August for the first time since 2016.
A Federal Reserve gauge of industrial production has also dropped off after peaking in December 2018 at 110.6. Between then and July 2019, the most recent reading, production has fallen for two straight months to 109.2.
With the current declines, it’s safe to say we can call this a global manufacturing recession, says Joe Brusuelas, chief economist at RSM. That comes with implications for the broader U.S. economy.
5. Financial conditions are tightening due to trade wars
Most economists would say that the markets aren’t the U.S. economy — but the tightening of financial conditions is an important part of the narrative.
The 10-year, 2-year Treasury yield curve inverted Aug. 14 for the first time since the financial crisis, a recession indicator that’s widely watched by markets and economists. Meanwhile, the S&P 500 has since rallied after falling as much as 5% in trading during late August, but is still down by about 3% as of Wednesday trading.
Markets took a beating Aug. 1 after escalations in the U.S.-China trade. They were already down on July 31, after investors struggled to interpret Fed Chair Jerome Powell’s comments about future Fed moves.