This article was published by The McAlvany Intelligence Advisor on Friday, July 13, 2018:
As expounded three times in this space just in the last week, the U.S. economy is on a tear, setting new records along the way. On July 4, the article titled “U.S. Crude Oil Production Growing so Rapidly Even Insiders Can’t Keep Up” is now old news, as the American energy industry is forecast to exceed the production from every other country, with the exception of Saudi Arabia, by no later than 2019. On July 6, Gallup polls reflected Americans’ state of mind: “Americans are Employed and Happy.” And on Monday, July 9, the American economy continues to outstrip economic forecasters’ estimates: “The American Economic Pie Continues to Grow Faster than Economists’ Forecasts.”
Thursday was no different: as reported by the government jobless claims, a proxy for layoffs in the U.S. economy, dropped by 18,000 last week to 214,000, a low close to levels last seen in the late 1960s. Economists polled by Reuters got it wrong once again, predicting a decline in jobless claims of just 6,000 for the week.
Not only did the economy’s performance exceed forecasters’ expectations, but the number of unemployment claims filed last week was the third lowest of the current nine-year-old economic expansion that began in mid-2009.
Concurrent with this report are other indicators reporting on a robust and growing U.S. economy. For instance the government reported on Tuesday that Americans quit their jobs in May at the fastest rate since May 2001, leaving voluntarily to get a better paying job somewhere else. And the number of unfilled jobs remains well above six million as the economy continues to outstrip the supply of qualified workers.
So many flooded in last month – an estimated 600,000 got off their couches to apply for a job – that the unemployment rate actually moved higher: from 3.8 percent to 4.0 percent.
It’s hard to find red or even yellow flags warning of trouble ahead. Wages are keeping ahead of inflation; pipeline bottlenecks in the Permian Basin are being eliminated rapidly; oil prices are dropping as America continues to out-produce its competitors, resulting in lower gasoline prices at the pump in the near future; and those so-called “trade wars” are very likely to be precursors to new “trade deals.” Fairer trade agreements will easily translate into more demand for American exports, putting even more pressure on manufacturers to ramp up even further their factories’ output. The Commerce Department just reported that indeed America’s trade deficits with foreign countries narrowed for the third month in a row, driven by an increase in its exports.
As Jeffry Bartash noted in MarketWatch: “The number of people losing their jobs and seeking [unemployment] benefits has totaled fewer than 250,000 each week since last September. That’s an unusually low number for an unusually long time, reflecting the healthiest U.S. jobs market at least since the dotcom boom at the end of the 1990s.”
“Unusual” is hardly the term to describe what’s going on. Ever since the pressure on American businesses was released early on in the Trump administration by its 2:1 deregulation mandate, it’s as if a breeze of pure oxygen has been flowing through the American economy. Add to that tax reform, a tax “holiday” on repatriated profits and “trade wars” turning into much more favorable “trade deals” and the best is yet to come.
That’s why GDP estimates for the second quarter are coming in at twice the level of the first quarter (and twice the average seen during the previous administration) are also likely to understate the health of the economy.