How “healthy” is the US economy and which direction is it headed in? I wish I had a good answer, but I don’t. New unemployment claims were lower this week and the job market looks like it is okay, if not strong. The official GDP numbers for the third quarter of 2024 were revised up to 3.1%, suggesting that the economy was growing at a good pace. This number is after inflation, so more a reflection of unit growth than price growth. The only real downside is that government spending continues to be a significant contributor to growth, and government spending is actually a negative in my view. Another continuing warning sign is that manufacturing looks weak, but manufacturing isn’t that critical a part of the US economy any more. Inflation continues to be a concern, with both the prices businesses and consumers pay rising at a steady clip. Those inflation concerns and supply and demand factors are keeping interest rates elevated, at least compared to the last several years. I think the economy could go either way–interest rates and inflation could put a damper on investment and spending or ongoing government spending and renewed optimism with Trump’s election could raise activity. (BEA Release)
