U.S. economic volatility is not what the headlines would have you believe.
--The Big Four economic indicators show a stable U.S. economy growing at a 2.0%-2.5% rate with minimal inflation.
--Adjusted for population, GDP growth has not been that far off of trend, but no rocket ships are in my forecast, either.
--Despite some early headwinds the consumer is finally getting a few good breaks.
The U.S. economy continues to grow at a slow but steady pace, despite the volatility of the headline economic indicators. One could not be faulted for believing we are in a highly volatile, ever-changing world just based on real GDP growth rates, which have been highly volatile from quarter to quarter.
However, that data includes a lot of ups and downs from inventory changes as well as government spending that just represent accounting timing shifts and not changes in real demand. The data also includes a lot of measurement and seasonal-adjustment issues that are currently befuddling many statisticians.
A Look at Real World Data Suggests Much Less Volatility
Private sector year-over-year employment growth has been steady at 2% for almost two years, while retail sales growth (adjusted for inflation and excluding autos and gasoline) has been in the 2%-3% range for almost as long. Even U.S. manufacturing data, while trending back to norm, haven't been particularly volatile, especially if weather events are removed. Of the Big Four economic indicators, only real disposable income has been very volatile. And most of that volatility is due to ever-shifting inflation rates (with only food and energy showing much volatility) and changes in government tax policy, not changes in wages.
The Big Four Indicators Indicate a Stable, Growing Economy
Given all the fiscal scares, Hurricane Sandy, volatile gasoline prices, and new taxes, the U.S. economy is doing surprisingly well, according to the economic Big Four (the NBER uses a variation of these four to measure recessions). The economy is moving along at a moderate but sustainable pace. The data look consistent with an economy that is growing right in the middle of my 2.0%-2.5% GDP forecast range.