U.S. economy remains strong, but slowing

Phil Castle, The Business Times

Willem Van Zandweghe
Willem Van Zandweghe

Economic growth likely will continue in the United States, but slow to a more sustainable pace.

“U.S. economic activity remains strong, but is slowing,” said Willem Van Zandweghe, an economist and assistant vice president with the Federal Reserve Bank of Kansas City.

Van Zandweghe offered an update on the U.S. economy during a forum the Federal Reserve Bank of Kansas City hosted in Grand Junction.

Labor markets remain healthy even as inflation remains low and stable. Some risks to continued economic growth have diminished, although others remain. The circumstances enable the Federal Reserve to remain “patient” in setting monetary policies, he said.

Gross domestic product, the broad measure of goods and services produced in the country, increased at an annual rate of 3.2 percent in the first quarter.

That follows what the Federal Reserve Open Market Committee estimated as 3 percent GDP growth for 2018, Van Zandweghe  said.

That growth is projected to slow to 2.75 percent for 2019 and closer to what could be a long-term rate of 2 percent, he said.

Confidence among consumers and small business owners remains strong, according to indexes calculated by the University of Michigan and National Federation of Independent Business. “The high levels are a positive sign,” Van Zandweghe said.

The national unemployment rate retreated in April to 3.6 percent, the lowest level since December 1969. The jobless rate is expected to remain below 4 percent for the next three years, he said.

Nonfarm payrolls have increased an average of 213,000 a month over the past year, but Van Zandweghe said there’s room for additional growth as more people enter the work force.

While wages have increased, there’s been some dampening as retiring baby boomers are replaced by lower-paid workers, he said.

Inflation remains low and stable, Van Zandweghe said. “Inflation hasn’t shown much life.”

A strong U.S. dollar compared to foreign currencies has helped to lower the prices of imported goods, although higher tariffs on imports could offset the difference, he said.

The Federal Reserve Open Market Committee projects inflation to return to long-term rate of about 2 percent.

Risks to continued economic growth in the United States include weakening activity in China, although measures there have stimulated the economy, he said.

Uncertainty over trade policy and the resulting volatility in financial markets had declined, but then increased again with the ongoing trade dispute between the U.S. and China, Van Zandweghe said. “Things are flaring up again.”

While tariffs could result in lower growth and higher inflation, there’s also the potential for consumers and investors to lose confidence, he said.

Asked about individual savings and debt levels in the U.S., Van Zandweghe said savings has increased as household debt has decreased. “Right now, the picture is much more positive.”

Overall, conditions have enabled the Federal Reserve Open Market Committee to remain patient in adjusted monetary policy through changes in short-term interest rates, Van Zandweghe said. The committee recently announced no more rate increases are expected for 2019, with a 0.25 percent increase projected for 2020.