Economy booming, but risks looming

Associated Press

WASHINGTON

The U.S. economy is showing consistent strength even after nearly a decade of growth, with Friday’s jobs report for August signaling that employers remain optimistic enough to hire freely and are finally paying more generously.

Consumers, the principal drivers of growth, are more confident than they’ve been in nearly 18 years. Americans are splurging on restaurant meals, clothes and cars.

Still, potential problems loom: The Trump administration is ramping up its trade fights, and interest rates appear likely to keep rising. The result is that businesses and consumers likely will find it somewhat more expensive to spend and borrow.

For now, though, the economy is expanding steadily, fueled by tax cuts, confident consumers, greater business investment in equipment and more government spending. Economic growth reached 4.2 percent at an annual rate in the April-June quarter, the fastest pace in four years.

Here are some key vital signs of the U.S. economy, roughly two months before the November midterm elections, which could transform the balance of power in Congress and reshape the economy:

HIRING IS BOOMING

U.S. employers added a robust 201,000 jobs in August, the Labor Department said Friday, in line with the past year’s average monthly gain of 196,000. The unemployment rate remains at an ultra-low 3.9 percent, a rate that most economists say could fall even further if the pace of hiring remains vigorous.

Mark Zandi, chief economist at Moody’s Analytics, forecasts that the jobless rate could reach 3.5 percent or even lower by next year. That would be the lowest level in roughly 50 years.

Other measures of the job market also are brightening. Companies are asking their part-time workers, for example, to work more hours, which has the effect of increasing their weekly pay.

BUT TRADE FIGHTS LOOM

On Friday, President Donald Trump ramped up his trade war with China by threatening to impose tariffs on an additional $267 billion in Chinese imports. That is on top of previous threats the president has made to slap tariffs on $200 billion of Chinese goods. The administration has already imposed 25 percent taxes on $50 billion of Chinese imports, a step for which Beijing retaliated against U.S. exports.

If all the threatened U.S. tariffs were imposed, they would cover everything the U.S. buys from China – from toys to handbags to smartphones.

Zandi estimates that if just the new tariffs on $200 billion in goods were put in place, U.S. economic growth would slow by a quarter-percentage point over the following year – and roughly 400,000 fewer jobs would be created.

WAGES ARE RISING

For many economists, the brightest spot in the August jobs report was that average hourly pay rose 2.9 percent compared with a year ago, the healthiest such increase in nine years.

As the job market has tightened and unemployment has dropped, businesses have complained that they can’t find enough qualified workers to fill all their open jobs. Some economists note that if employers offered more-generous pay, they would attract more job candidates, including people who aren’t now looking for work and therefore aren’t counted as unemployed.

Friday’s jobs report, with its evidence of faster wage growth, suggested that some employers might finally be ramping up pay. Larger paychecks would underpin healthy consumer spending in the months ahead.

BUT BORROWING COSTS ARE UP, TOO

Solid hiring and greater wage growth, though, have made it a near-certainty that the Federal Reserve will raise short-term interest rates when it meets later this month. Most Fed watchers also expect another rate hike in December and perhaps three more next year.

Those rate increases are intended to prevent the economy from overheating and control inflation, which reached 2.9 percent in July – above the Fed’s 2 percent target level. The Fed’s benchmark rate is between 1.75 percent and 2 percent, still very low by historical standards.