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Dr. Lynn Reaser predicts healthy economy

WRITTEN BY: PHILLIP WARD | STAFF WRITER

According to the U.S. Department of Commerce, the U.S.’ most recent economic recovery is the slowest since World War II, the third slowest in U.S. history.

The U.S. gross domestic product (GDP) has increased by 2.1 percent, adjusted to for inflation, since the recovery from the 2007 housing market crisis and the recession started in the middle of 2009.

Productivity growth – how efficiently the economy uses resources – increased 1 percent per year on aver- age since 2009. That is not only the lowest number of all previous recovery periods since WWII, but is less than half the rate of all but the 1.7 percent increase during the recovery from the 1974 downturn.

The U.S. economy operates below its potential GDP growth, the rate at which the economy could grow with full employment and stable inflation, since the recession.

In earlier post-war recoveries, the economy has returned to its potential GDP in an average of about 11 months. The U.S., in over six years, has still not reached its potential GDP.

Many believe that the fragile nature of the current recovery indicates recession might be closer than people think.

“With the US economy barely growing at stall speed, an exogenous shock to the US economy could easily push us into recession,” said Economist John Mauldin in a weekly news- letter.

Dr. Lynn Reaser, chief economist for PLNU’s Fermanian Business and Economics Institute (FBEI), has a different opinion.
“While growth in the U.S. was minimal in the first quarter [of 2016], there are few signs of a pending down- turn,” Reaser said via email.

She pointed out that instead there are some good indicators that the economy is rather healthy.

“Job growth is solid, unemployment continues to fall, and wage gains are starting to pick up,” she added.

Unemployment rates are at their lowest, around 5%, since the recession with highs of 10 percent. That rate is close to what the Federal Reserve estimates the natural rate of unemployment is, 4.8 percent.

The statistics are doubted because the workforce hasn’t seen any significant increase in real wages since the recession. Wages are increasing by about two percent per year, but inflation is too around the same rate, wiping out any real wage gains.
However, this year inflation rates have been very low and wage increases have increased to about two and a half percent, which are significant real wage gains.

The stock market had one of the worst starts to a year in the history of the stock market with the Dow Jones Industrial Average (DJIA) dropping from around 17,400 to 15,700 from January to mid-February.

The market has rebounded steadily, however, to around 18,000 regaining all of that lost ground and then some, indicating that investors have faith in the future of the economy according to Google Finance.

Reaser had more good news.

“The dollar’s recent decline has made our exports more competitive while firming oil prices are helping the depressed energy sector,” Reaser said.

All of these things point to a relatively robust U.S. economy with no sign of recession in the near future. However, there are those that have slightly more pessimistic views of the future, mainly focusing on the potential for unstable global markets to drag the U.S. down into recession.

Mauldin, despite having incessantly predicted U.S. recession for a while now, acknowledged those recessions, while undesirable, aren’t an end all be all.

“I have lived through six recessions in my business life – and that’s the point: we do live through them,” Mauldin said.

 

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Jordan Ligons

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