Although the talk of a trade war with China is said to have discouraged the market last year, the underlying momentum of the business cycle appears to be driving up the stock market, GDP, and wages.
The unemployment rate has fallen to 3.8%, close to historic lows, and an estimated 7 million jobs remain unfilled. During the last few business cycles, it dropped down to 4.4% in 2006, and 3.8% in 2000. Looking back further, the lowest ever recorded unemployment in peacetime by the Federal Bureau of Labor Statistics is 2.5% in 1953. Given that the country was, among other things, half as populated, with 160 million residents, a direct comparison is apples and oranges. Still, for those interested, the lowest-ever unemployment rate, including the World War II years, was 1.4% in 1944.
Thinking beyond these big, celebrated metrics, we should reflect on market fundamentals. The United States is now the largest producer of oil. We have a revised trade deal with Mexico and Canada, and we’re pushing China into negotiations. Trump’s tax policies are effectively serving as fiscal liquidity boosts — some might call it free money, though they forget that the money was originally that of the taxpayers rather than the government.
With regards to our rival China, the country’s growth rate is falling behind targets for 6.5%, having now been revised to a range of 6-6.5%. The government also regulates IPOs, so as to limit their companies’ market exposure. Additionally, cheap, labor-intensive manufacturing is moving out of China to Mexico, India and Indonesia, undermining one of China’s former pillars of economic growth.
Therefore, the US is on track to remain the largest economy, with the all-time highest Dow Jones Industrial Average mere inches from our fingertips.