Sessions opened at Heavy Dutty Aftermarket Week in Las Vegas
LAS VEGAS, NV – The U.S. government itself shut down over the weekend, but the overall economy of Canada’s largest trading partner seems to be in good shape.
The country’s Gross Domestic Product expanded by 2.3% over the past year. “This is, all in all, a decent number but not an impressive number,” said Bill Strauss, senior economist and economic advisor with the Chicago Federal Reserve. Annual growth experienced in the 1990s was closer to 3-4%.
But steady growth like this can be good news, easing the concern about a market correction, he told a crowd at the Heavy Duty Dialogue in Las Vegas.
The country is in the midst of its third-longest expansion in history, now in its ninth year.
“The path of the current recovery is restrained compared with past deep-recession recovery cycles,” he said. “Our growth has been so modest that we really have no sector that appears to be overheated.”
Meanwhile, about 2 million jobs were added in 2017, which is higher than the growth in the labor force.
“Eventually we will run out of workers,” he said. “Somehow we are still able to attract enough workers even though the employment rate is very low.”
This hardly means the country has no employment-related challenges. Unemployment is only at 4% — where the Fed expects it to remain into 2020 — but almost ¼ of those workers continue to be unemployed for more than six months. They’re “pretty desperate”, Strauss said.
The issue comes down to skills. “They’re really not sophisticated enough to be functional in this knowledge-based economy.”
Meanwhile, wages and benefits continue to increase, but at a slow rate. The 2.5% increases seen in the past year doesn’t take into account 1.5% inflation. That leaves real increases closer to 1%.
It’s about the same level of growth seen in overall productivity.
“This is a real problem,” he added, noting that the all-important economic measure has suffered for seven to eight years. Company investments in equipment to improve productivity have been slow, in part because labor is easier to shed if there is another recession.
“Workers were so abundant and so reasonably priced, that’s what most companies did,” he said.
If workers themselves become more productive, however, it is possible to give them a wage increase without affecting the business bottom line.
Consumer spending on energy over the last decade is also lower than it’s been in 60 years. That has been a driving force in the drop of passenger car sales. Light trucks now account for 2/3 of the U.S. market, flipping the ratios seen 25 years ago.
It’s why Strauss is less bullish on the opportunities for electric vehicles and hybrids, which now account for 3% of new vehicles on the road. Considering the .5% gain in market share seen in the last two years, it would take a decade to reach 8%.
Overall, he believes the largest economic threats in the U.S. are found offshore.
China, for example, reported 6.6% growth this year, and is expected to see growth above 6% into 2019. That kind of growth can’t be maintained, he said. “As the economy slows, many of these industries might not be profitable – or maybe have never been profitable.”
Then there are questions about how Europe will address a debt-riddled Greece and protecting the Eurozone. Security threats around North Korea and Iran also continue.