The Economy

The U.S. economic outlook is healthy according to the key economic indicators. The most critical indicator is the gross domestic product, which measures the nation’s production output. The GDP growth rate is expected to remain between the 2 percent to 3 percent ideal range. Unemployment is forecast to continue at the natural rate. There isn’t too much inflation or deflation. That’s a Goldilocks economy. The average growth rate for the past 60 years has fluctuated quite a bit but the overall average has been in this range.

President Trump promised to increase economic growth to 4 percent. That’s faster than is healthy. Growth at that pace leads to an overconfident irrational exuberance. That creates a boom that leads to a damaging bust. The factors that cause these changes in the business cycle are supply, demand, capital availability, and the market’s perception of the economic future.

U.S. GDP growth averaged 2.4% in 2017, will average 3.1 percent in 2018, 2.5 percent in 2019, and 2.0 percent in 2020. That’s according to the most recent forecast released at the Federal Open Market Committee meeting on September 26, 2018. This estimate takes into account Trump’s economic policies.

The unemployment rate dropped to 3.7 percent in 2018, and will drop to 3.5 percent in 2019 and 2020. That’s lower than the Fed’s 6.7 percent target. But former Federal Reserve Chair Janet Yellen admitted a lot of workers are part-time and would prefer full-time work. Also, most job growth is in low-paying retail and food service industries. Some people have been out of work for so long that they’ll never be able to return to the high-paying jobs they used to have. Structural unemployment has increased. These traits are unique to this recovery.

Yellen admitted that the real unemployment rate is more accurate. It is double the widely-reported rate.

Inflation was 2.1 percent in 2018 and should be 2.0 percent in 2019, and 2.1 percent in 2020. The core inflation rate strips out those volatile gas and food prices. The Fed prefers to use that rate when setting monetary policy. The core inflation rate was 2.0 percent in 2018, and will be 2.1 percent in 2019 and 2020. It’s unusual that the core rate is that similar to the regular inflation rate. Fortunately, the core rate is close to the Fed’s 2 percent target inflation rate. That gives the Fed room to raise rates to a more

What is particularly interesting to me is economic performance over time and its relation to previous administrations. One might assume that it is always relative to the “party” that is in control of the government, but:

U.S. GDP by Year Since 1929 Compared to Major Events

Year	Nominal GDP (trillions)	Real GDP (trillions)	GDP Growth Rate	Events Affecting GDP
1929	$0.105	$1.109	NA	Depression began.
1930	$0.092	$1.015	-8.5%	Smoot-Hawley.
1931	$0.077	$0.950	-6.4%	Dust Bowl.
1932	$0.060	$0.828	-12.9%	Hoover tax hikes.
1933	$0.057	$0.817	-1.2%	New Deal.
1934	$0.067	$0.906	10.8%	U.S. debt rose.
1935	$0.074	$0.986	8.9%	Social Security.
1936	$0.085	$1.113	12.9%	FDR tax hikes.
1937	$0.093	$1.170	5.1%	Depression returned.
1938	$0.087	$1.132	-3.3%	Depression ended.
1939	$0.093	$1.222	8.0%	WWII. Dust Bowl ended.
1940	$0.103	$1.330	8.8%	Defense increased.
1941	$0.129	$1.566	17.7%	Pearl Harbor.
1942	$0.166	$1.862	18.9%
1943	$0.203	$2.178	17.0%	Defense spending tripled.
1944	$0.224	$2.352	8.0%	Bretton Woods.
1945	$0.228	$2.329	-1.0%	WWII ended. Recession.
1946	$0.228	$2.058	-11.6%	Budget cuts.
1947	$0.250	$2.035	-1.1%	Cold War began.
1948	$0.275	$2.119	4.1%	Recession.
1949	$0.273	$2.107	-0.6%	NATO. Fair Deal.
1950	$0.300	$2.290	8.7%	Korean War.
1951	$0.347	$2.474	8.0%
1952	$0.367	$2.575	4.1%
1953	$0.389	$2.696	4.7%	War ended. Recession.
1954	$0.391	$2.680	-0.6%	Dow returned to 1929 high.
1955	$0.426	$2.871	7.1%
1956	$0.449	$2.932	2.1%
1957	$0.474	$2.994	2.1%	Recession.
1958	$0.481	$2.972	-0.7%	Recession ended.
1959	$0.522	$3.178	6.9%	Fed raised rates.
1960	$0.542	$3.260	2.6%	Recession.
1961	$0.562	$3.344	2.6%	JFK’s deficit spending ended recession.
1962	$0.604	$3.548	6.1%
1963	$0.638	$3.703	4.4%
1964	$0.685	$3.916	5.8%	LBJ’s Medicare, Medicaid.
1965	$0.742	$4.171	6.5%
1966	$0.813	$4.446	6.6%	Vietnam War.
1967	$0.860	$4.568	2.7%
1968	$0.941	$4.792	4.9%	Moon landing.
1969	$1.018	$4.942	3.1%	Nixon took office.
1970	$1.073	$4.951	0.2%	Recession.
1971	$1.165	$5.114	3.3%	Wage-price controls.
1972	$1.279	$5.383	5.3%	Stagflation.
1973	$1.425	$5.687	5.6%	End of gold standard.
1974	$1.545	$5.657	-0.5%	Watergate.
1975	$1.685	$5.645	-0.2%	Recession ended.
1976	$1.873	$5.949	5.4%	Fed lowered rate.
1977	$2.082	$6.224	4.6%
1978	$2.352	$6.569	5.5%	Fed raised rate to 20% to stop inflation.
1979	$2.627	$6.777	3.2%
1980	$2.857	$6.759	-0.3%	Recession.
1981	$3.207	$6.931	2.5%	Reagan tax cut.
1982	$3.344	$6.806	-1.8%	Recession ended.
1983	$3.634	$7.118	4.6%	Tax hike and defense spending.
1984	$4.038	$7.633	7.2%
1985	$4.339	$7.951	4.2%
1986	$4.580	$8.226	3.5%	Tax cut.
1987	$4.855	$8.511	3.5%	Black Monday.
1988	$5.236	$8.867	4.2%	Fed raised rates.
1989	$5.642	$9.192	3.7%	S&L Crisis.
1990	$5.963	$9.366	1.9%	Recession.
1991	$6.158	$9.355	-0.1%	Recession.
1992	$6.520	$9.685	3.5%	NAFTA drafted
1993	$6.859	$9.952	2.8%	Balanced Budget Act.
1994	$7.287	$10.352	4.0%
1995	$7.640	$10.630	2.7%	Fed raised rate.
1996	$8.073	$11.031	3.8%	Welfare reform.
1997	$8.578	$11.522	4.4%
1998	$9.063	$12.038	4.5%	LTCM crisis.
1999	$9.631	$12.611	4.8%	Repeal of Glass-Steagall.
2000	$10.252	$13.131	4.1%	Tech bubble burst.
2001	$10.582	$13.262	1.0%	9/11 attacks.
2002	$10.936	$13.493	1.7%	War on Terror.
2003	$11.458	$13.879	2.9%	Iraq War. JGTRRA.
2004	$12.214	$14.406	3.8%
2005	$13.037	$14.913	3.5%	Katrina. Bankruptcy Act.
2006	$13.815	$15.338	2.9%	Fed raised rates.
2007	$14.452	$15.626	1.9%	Bank crisis.
2008	$14.713	$15.605	-0.1%	Financial crisis.
2009	$14.449	$15.209	-2.5%	Stimulus Act.
2010	$14.992	$15.599	2.6%	ACA. Dodd-Frank.
2011	$15.543	$15.841	1.6%	Japan earthquake.
2012	$16.197	$16.197	2.2%	Fiscal cliff.
2013	$16.785	$16.495	1.8%	Sequestration.
2014	$17.522	$16.900	2.5%	QE ends.
2015	$18.219	$17.387	2.9%	TPP. Iran deal.
2016	$18.707	$17.659	1.6%	Presidential race.
2017	$19.485	$18.051	2.2%	Trump Tax Act

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