A look at 2018 U.S. economy

The year 2018 is flying by! As the summer solstice has passed and the calendar has turned towards the second half of the year, now is a good time to examine the state of the U.S. economy.

While many in agriculture and the rural sector are moving into the sixth year of the economic reset, the general economy, specifically the urban, suburban, and coastal areas, appear to be red-hot. What do some of the latest economic indicators foretell for later in this year and possibly into next year?

The Leading Economic Index (LEI) provides insight on the direction of the economy into the future. This index has been very positive. The LEI diffusion index measures the percentage of the ten individual components of the LEI that are trending positively. The diffusion index has been strong at 70 to 80 percent.

Another factor that denotes a strong economy is the Purchasing Manager Index (PMI). This, along with the LEI, has been used for years as a guide on the direction of the macro-economy. Any number over 50 is a sign of a growing economy, and this number has registered above 50 for the past 27 months. The index over the last three months has been in the high 50s, which is another factor for a bullish economy.

Housing starts have been solid, but not stellar. This component has been stabilizing near 1.3 million units, just below the ideal range of 1.5 million units. Rising interest rates, millennials being squeezed by over $1.48 trillion of university debt, and banking regulations have hindered growth in this area. The housing market is very important to the economy because it is directly or indirectly related to one in seven jobs in America.

One only has to travel to know that consumer spending habits are in a confident range. The University of Michigan publishes a monthly report measuring the Index of Consumer Sentiment. This metric has been above 90 for more than two years. A number above 90 means consumers are very confident. This is an important factor to consider because consumer spending drives 70 percent of the U.S. economy.

Globally, when one examines Chinese data, weakness is beginning to show. China is the second largest economy in the world and a major U.S. trading partner. Will this weakness spread to the U.S.?

In summary, the general economy is quite bullish. The duration of U.S. economic expansion is 107 consecutive months and is approaching the record of 120 months. To exceed this record, the U.S. will need over a year of continued expansion without slipping into a recession. Will trade and tariff issues, along with North American Free Trade Agreement (NAFTA) and Trans-Pacific Partnership (TPP) discussions, derail this record breaker? Only time will tell.

Additional Reading

For more from Dr. Kohl, follow his "Road Warrior" blogs.

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