Why US Consumers Should Feel Confident about the US Economy?

13 Jul 2020

Before we initiate our discussion, we would like you to have a glance at the below graph –

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From the 1st Quarter of 2017 to the 3rd Quarter of 2018, the US economy has accelerated from 1.2% to 3.5%. A lot of factors, such as trade wars, the government shutdown, and a ‘not-too-warm’ global economy were there but the US economy managed to grow through a roller coaster ride.

It will have enough in it to keep recession at bay, and we can expect a brighter side in the coming year.

If we keenly observe the inherent features of the U.S economy, we will find out that there exists a profound disconnect between the actual economy and the way the U.S financial markets behave most of the times. There is a growth, even if the stock prices declined in late 2018. This GDP performance was by far the best in recent years, and the ‘downhill' performance of the stock market had little or no bearing on the performance of the actual US economy.

Another ‘stand-out’ feature of the U.S economy is the economic freedom associated with it, and it should take the major chunk of credit for the overall prosperity of the economy, in spite of the ‘strings’ of negative factors attached.  This economic freedom has steered the U.S. economy clear of all the negative tides associated with the global economy. It has also imbibed and cultivated among the U.S people the much-needed entrepreneurial zeal, and this has helped a great deal in stabilizing the money. That is the reason why it’s not surprising to see that a steady growth rate has accompanied the U.S economy consistently enough over the years.

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Our take on this:

We admit that the global economy, markets, and businesses had to digest a lot in the recent past. The geopolitical risk is nearing an all-time high, and all these will continue to keep a cloud cover on the growth prospects of the U.S. economy. The fear for a financial or economic recession has been on the rise for quite some time now.

But, we are still confident that the U.S economy has managed and will manage to stand tall, thanks to the inherent factors discussed above. If we look at some historical examples too, we will get the indication that recession is far from hitting the U.S shores anytime this year. Examples from the ‘70s show us that the real interest rates hover around or over 2% when a recession is about to hit, and we are just above zero, as of now; far from the ‘danger zone’. A sharp increase in the oil prices also indicates an impending recession as a sizeable part of the disposable income of the consumers are eaten away by gasoline, and they are left with less to spend on the wider aspects of the economy. Recessions in 1973, 1979 and 1980 had similar preludes.  Luckily enough, the gasoline prices in the U.S were on the decline in the recent past, and the unemployment rate is also well below the ‘danger level’, as observed by economic pundits.

All these factors combined, we fill that the U.S. consumers still have enough reasons to feel strong and should not feel panicky about an impending recession in the foreseeable future.

This post is written by Jayant Upadhyay, Content Head, Afinoz, a young and dynamic fintech company.