Thanks to a slowing Chinese economy increasing prices across the globe and other factors, the U.S. economy is “in the slow lane,” according to Clemson economist Bruce Yandle.
In his Economic Situation report for the second quarter of 2016, Yandle said the U.S. Department of Commerce’s second estimate for gross domestic product growth in the first quarter was a lackluster 0.8%.
“That too-close-to-zero growth rate followed 4Q 2015’s 1.4%, 3Q 2015’s 2.0% and 2Q 2015’s 3.6%,” Yandle, the dean emeritus of the Clemson University College of Business and Behavioral Science, said in his report. “Connect the dots and you have a sliding board.”
In Europe, the European Union – then facing a referendum on the United Kingdom leaving – decided to increase its printing of money during the first two quarters of the year which, Yandle said, allowed the dollar to strengthen, but U.S. exports – of which South Carolina contributed $30.8 billion in 2015 – fell off.
Yandle said U.S. manufacturing has started a downward trend thanks to the curtailing of exports.
“With manufacturing headed south, the Fed modified its intention to raise rates,” Yandle said. “Rates remained in the cellar and apartment construction accelerated, but investment in producing capital goods went into hibernation.”
However, according to Federal Reserve economic data, U.S. industrial output has steadily increased over the last century as the production index has risen from near zero in 1920 to close to 120 in 2010. Despite the increase in the production, the Federal Reserve has shown consistent drops in manufacturing employment since 2000. A 30% decrease in the number of manufacturing employees has been met with a 30% increase in the amount produced per employee during that same time.
“And that, I believe, is the crux of the political story,” Yandle said. “It’s about employment in manufacturing, not manufacturing.”
On the same token, the average hourly earnings of manufacturing employees has grown over the last 16 years with the recent annual growth of 3%, according to the Federal Reserve.
An upside to the first two quarters of the year is growth in the U.S. services economy along with lower gas prices. That led to a higher demand for housing and automobiles.
“Sales of SUVs and pickup trucks hit new highs,” Yandle said. “Rents and housing prices headed north.”
Globally, the International Monetary Fund, or IMF, has projected economic growth for the rest of the year with the United States leading the way with 2.4% projected growth in 2016. The remainder of the G7 countries – United Kingdom, Canada, Germany, France, Italy and Japan all have projected growth under 2% by the IMF.
Looking ahead to 2017, the IMF projected the U.S. to have growth of 2.5% - again leading other G7 countries in economic growth. Only the United Kingdom was projected to have economic growth over 2% in the coming year.
The report also showed that, domestically, South Carolina and Florida have high budget solvency whereas the rest of the South has low to moderate solvency. In fact, the report pointed out that those were the only two states to have high solvency east of the Mississippi River, according to 2013 data – the most current data available.
For the rest of the year, Yandle projected 1.8% gross domestic product growth for the U.S. along with low inflation, stable construction material prices, a peak of construction activity across the country and an increase in manufacturing activity.
“Put another way, this will be a ho-hum year for the nation, with wide variation across states and regions,” Yandle said. “And 2017 will look at lot like it.
“Welcome to the slow lane.”