U.S. economy still not following script for breakout year

This is supposed to be the year the economy throws off its shackles and posts its best growth in a decade. But so far the plan is not going exactly according to script.

The economy is doing much better in important ways. Hiring is the strongest in 15 years, for one thing, and it shows no signs of abating. More people at work is pouring cash into the economy and boosting the spirits of consumers to the highest level in years.

At the same time, Americans still aren’t shopping as much as they used to, even with a big drop in gasoline prices that’s freed up cash for other uses. Sluggish wage growth is one reason. Paychecks aren’t much bigger now than they were a few years ago. Household debt levels are also still relatively high, perhaps partly explaining why Americans have increased their savings.

What’s more, large U.S. companies are now being confronted with a soaring dollar that’s made it harder to export — and that’s curbing profits. The strong dollar has already thrown a lasso around manufacturers and it could cause more businesses to rethink their spending plans.

The mixed picture among businesses and consumers will give the Federal Reserve food for though this week when bank bigwigs reconvene in Washington to fine-tune their strategy. The Fed is edging closer to raising its benchmark federal funds interest rate for the first time since 2006, but it’s not an easy call. Read: Welcome to a Fed without patience

Nor is there much on the economic calendar this week to help them out. There’s a fresh look at new home construction in February and a pair of minor reports from New York and Philadelphia on how well manufacturers are doing.

Market Watch

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Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam