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The economy is fighting more gale winds now compared to half a year ago, but it just keeps sailing ahead.
Rising interest rates are one obstacle. So are higher gas prices. Then there’s all the angst sowed by the Trump administration’s aggressive trade policies and threats of tariffs.
A seemingly bumpier economic landscape, however, has failed to slow the U.S. Economists polled by MarketWatch predict growth will speed up to 3.2% in the second quarter running from April to June. The U.S. expanded at a mild 2.3% pace in the first three months of 2018.
Already, we’ve seen signs of a spring revival.
Retail sales rose in April for the second straight month and a pair of regional surveys of American manufacturers have shown fresh strength. Companies in an area stretching from southern New Jersey to western Pennsylvania, for example, reported the biggest increase in new orders in 45 years.
“Following an extremely brief respite — probably on the back of trade tensions — the manufacturing space seems to be accelerating once again,” said Tom Porcelli of RBC Capital Markets.
For further proof investors will look toward Friday’s report on orders for durable goods — products such as new cars, appliances or computers meant to last at least three years. These orders have climbed a healthy 11% over the past year. Businesses have also sharply increased investment in the same span.
Firms are investing more because demand for their goods and services keep rising. The U.S. economy is running close to full tilt, with unemployment dropping below 4% for the first time since 2000 and job openings at a record high. The strong jobs market have given Americans the money and, just as important, the confidence to spend.
An ultra-tight labor market is also helping in another way. Since good help has gotten almost impossible to find, companies are very reluctant to reduce staff whenever they encounter even a brief slowdown in sales. Those employment reductions can often feed on themselves and hurt the broader economy.
“Firms are scared to let people go because they know how hard it has become to find qualified people to hire,” noted chief U.S. economist Ian Shepherdson of Pantheon Macroeconomics.
The shockingly small rate of layoffs in the U.S. underscores the point. The number of people collecting unemployment benefits is at a 45-year low and shows no sign of rising.
The good times can’t be taken for granted, of course.
The yield on the 10-year Treasury note , for instance, broke clean through the 3% mark last week for the first time since 2011. Many consumer and business loans are tied to that rate.
Gas prices have also surged above $3 a gallon in many parts of the country and are likely headed higher through the summer. That’s likely to fuel inflation.
The economies of Japan and Europe, meanwhile, sputtered in early 2018, and if growth doesn’t rebound soon it could limit demand for U.S. exports.
Enough to sidetrack a U.S. economy that’s now been growing for almost nine years? Probably not, but it’s enough to keep investors guessing.