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US Economy going gangbusters – But will a boom lead to a bust ?

The US economy has continued its strong recent form and been (one of) the engine room(s) of global growth. 

However how strong has it been and will it continue to accelerate?  These are the issues at the heart of the matter and will impact greatly on global equities over the coming year. 

A couple of interesting news stories caught my eye over recent weeks and summed up exactly where the US is at now and also give an indication of where it will potentially head over coming quarters.

First up as economic growth has accelerated unemployment has continued to decline and now there are more job openings in the US than there are people looking for work   

 • The number of openings hit the highest level on record. The US now has 11 job openings per 10 unemployed persons.

http://si.wsj.net/public/resources/images/B3-BR760_Dshot_NS_20180912030457.png

Wall Street Journal Sept 12 2018 

This is an mazing statistic for an economy as large as the US.  It shows that the depths of the GFC are way behind for the current crop of working Americans and it is all speed ahead for a growing  economy 

But wait. What does this mean for the economy as a whole?   

Sure higher employment is a great thing but if the economy is growing too fast and companies run out of potential employees than this will likely lead to stronger wages  growth and hence a rise in inflation.  

This is an issue for the Federal Reserve as it looks to normalize interest rate settings and already US longer term rates are heading higher with a further increase  in the official rate just this week.  

http://si.wsj.net/public/resources/images/B3-BU981_Dshot_NS_20180919025345.png

So where are all these newly employed people actually working ?  

Well a fair portion are in the GIG economy according to this second graph and so they may well be employed in heavily casual positons which blunt their ability to demand higher wages –  which partly  explains (some of) the lack of inflation in the US.

• 36% of US workers are involved in the gig economy.

http://si.wsj.net/public/resources/images/B3-BP540_Dshot_NS_20180905021517.png

Wall Street Journal Sept 5 2018 

Finally a big part of any successful economy is the energy mix, how it is generated and at what cost.  

Thanks mostly to fracking and horizontal drilling expertise the US has now become the largest oil producer world.  Yes larger than Saudi Arabia.  This gives it the ability to produce cheap energy and has the added longer term benefit of allowing it to be less reliant on the fractious Middle East. 

http://si.wsj.net/public/resources/images/B3-BS612_Dshot_NS_20180913030428.png

Wall Street Journal Set 13 2018 

So the US is economy is  growing strongly on the back of cheaper energy and technology prowess and this is leading to lower unemployment, albeit in less secure jobs for many.  But if the economy grows too fast this will lead to higher inflation and hence higher interest rates which may put a hand brake on the whole economy.  

The share market is the best leading indicator of future mayhem and so far it is holding up well but time will tell as this all works its way through the real economy and the financial markets . 

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