With his impeachment trial drawing to a close, President Donald Trump is expected to deliver an economic message in his third State of the Union address Tuesday night. His tone is expected to be markedly different from the foreboding chord he struck in 2017.
"Obviously, he's going to have a theme to this speech that is akin to 'mission accomplished' in the sense of branding it as a great American comeback," said Mark Hamrick, senior economic analyst at Bankrate.com.
By many metrics, the economy is healthy, but economists say that much of the same data indicates slowing growth — and that many of the rosy top-line numbers obscure a more nuanced portrait of America's financial health.
The U.S. labor market added 145,000 jobs in December, for a total of 2.1 million throughout 2019 — an average of 176,000 per month — according to the Bureau of Labor Statistics. While unemployment is at a historic low of 3.5 percent, last year's gains failed to match those of 2018, when the economy added 2.7 million jobs, an average of 223,000 per month.
Trump frequently claims that his presidency has been a boon for black workers, whose unemployment rate is at an all-time low. But as the left-leaning Economic Policy Institute points out, that doesn't tell the whole story, because black workers are still twice as likely as their white counterparts to be without jobs, a disparity that persists throughout all education levels.
The benchmark S&P 500 rose by 29 percent in 2019, although that came on the heels of a December 2018 rout that erased all of the gains for that year in a matter of weeks.
In spite of a phase one deal that called a truce to the trade war with China, business investment remains anemic and higher costs from tariffs weigh on corporate profits. Stocks have spent the early weeks of 2020 buffeted by those challenges, coupled with the unfolding coronavirus crisis.
"The stock market has seen a re-emergence of volatility," Hamrick said. "That's one of the hallmarks of the return of volatility, which is that you can see big swings down as well as up."
Economists point out that since the end of the recession, the wealthiest Americans have disproportionately benefited from the stock market's meteoric recovery.
"Most of the beneficiaries of the economy have been the folks at the top of the income and wealth distribution. Only half of Americans own any stock at all," said Mark Zandi, chief economist at Moody's Analytics.
Even among the half of the country with exposure to stocks, most are invested in index or mutual funds through 401(k) or similar retirement vehicles, and Zandi said a significant number of lower-income households are still living paycheck to paycheck.
The most recent consumer confidence readings preceded the spread of and alarm over the Chinese coronavirus. Before that, however, the prevailing sentiment was one of optimism.
According to The Conference Board, about half of Americans characterize jobs as "plentiful." For many, the job market is a proxy of sentiment, Hamrick said.
"The low unemployment rate is a tide that lifts many boats," he said.
Consumer confidence might be the biggest unsung hero of the economic momentum that has propelled the expansion in recent quarters: Although businesses have been keeping cash on the sidelines or using it for stock buybacks, ordinary Americans have been spending at a steady clip, fueling what some economists have dubbed a "virtuous cycle" of demand and corresponding economic activity.
Residential real estate
Lower interest rates have reinvigorated home sales, which climbed by 3.6 percent in December on a month-to-month basis. With mortgage rates at 3.5 percent, financing a home is affordable — but the home itself might not be.
The number of home sales for the year is roughly flat when compared with 2018, although the median price was $274,500 in December, a jump of nearly 8 percent on an annualized basis. While they are a boon for sellers, Zandi said, rising prices could be keeping homeownership out of reach for many Americans. "The other aspect of that is it makes it difficult for first-time homebuyers to get in," he said.
In spite of record-low unemployment, economists point out that wage growth remained slack throughout the economic recovery, dipping below 3 percent in the most recent report.
"The lack of more substantial and significant wage gains has probably been the primary complaint," Hamrick said. "Wage growth may well have peaked."
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Hamrick added that state and local minimum wage hikes have helped drive income gains for low-wage workers. "Nevertheless, the distribution of some of these wage gains does have a tendency to lift people at the lowest level of the income spectrum," he said.
The persistently low rate of wage growth has been somewhat mitigated by a parallel trend of muted inflation in the post-recession years, but the exceptions are big ones: For many Americans, higher costs for health care and education have canceled out the rise in pay.
"Those things are challenges that tend to undermine some of the benefits of the improvement in wages," Hamrick said.
Manufacturing has been in contraction since late summer as factories struggle with the impact of the trade war: higher input costs due to tariffs and reduced demand for U.S.-made goods in China as a result of retaliatory tariffs.
Hamrick referred to the sector's struggle as a "self-inflicted wound" by Trump. "The president, to some degree, created his own problem by deciding to embark on trade confrontations," he said.
The brunt of the headwinds is being borne by states that were crucial to Trump's 2016 win.
"Manufacturing has been losing jobs over the past year, particularly in key swing states like Pennsylvania, Michigan and Wisconsin," Zandi said. "That's really an area where his policies, particularly his trade policies, have been very counterproductive."
Zandi added that the coronavirus epidemic threatens to drag down the sector further as demand for oil, copper and other industrial commodities slumps.
Economists say steady, if sluggish, growth in gross domestic product signals no risk of a recession in the near future, but the economy has been unable to eke out the kind of growth Trump has repeatedly promised, even after corporate tax rates were slashed.
Hamrick characterized the president's pledges of outsize GDP growth as unrealistic, comparing the economy to a formidable but slow-moving ocean liner.
"Even though it was given an injection of jet fuel to some degree with the Tax Cuts and Jobs Act, it now appears that the benefits of the tax law are behind us," he said. "There's no doubt that we've not seen the return to the sustained 3 percent real GDP growth that President Trump spoke of."