Economic data released on 1 June showed employment and personal incomes rising briskly in the US. In the stock market’s view, these figures conveniently offset the weak first-quarter gross domestic product (GDP) revision, released the previous day. However, the combined figures suggest that the US economy may have stopped growing, as its troubling imbalances begin to take effect.
Since 1995, conventional wisdom has held that the engine of US economic growth is higher productivity. But recent productivity data have been weak, and the most recent figures are likely to be revised downwards in line with the downward first-quarter GDP revision.
And even this could be overstated. The recent focus on the US’ population of around 12 million illegal immigrants raises a troubling issue: While government statisticians will have mostly measured their output of products and services, their labour inputs are much harder to estimate. If these haven’t been properly accounted for, the productivity statistics for the last decade, during which most of the illegals arrived, could have been significantly overstated.
On the production side, there is little sign of an economic rebound from the first quarter. An economy in which labour inputs grow more rapidly than outputs must suffer a decline in living standards. The only exit from this stagnation appears to be downwards.
At some point, the imbalances and lack of growth in the US economy will begin to weigh on the stock and bond markets. Consumers, no longer getting big capital gains on their houses or stocks, will then be forced to retrench sharply. That could tip off a full-fledged recession, as the economy struggles with the costs of rebalancing payments, budget and savings deficits.
Economically, it’s early winter rather than late spring.