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Dow at 30,000 Doesn’t Mean U.S. Economy Is All Fixed Lombardi Letter 2021-03-03 16:29:51 us Economy stock market construction spending For those who think the U.S. economy is doing great, it may be time to think again. Economic data suggests growth isn’t likely anytime soon. Here are the details. U.S. Economy https://www.lombardiletter.com/wp-content/uploads/2020/11/inscription-recession-currencies-dollar-and-declin-HUK6PR5-150x150.jpg

Dow at 30,000 Doesn’t Mean U.S. Economy Is All Fixed

U.S. Economy - By |
us economy

Soaring Stock Market Doesn’t Reflect Much About U.S. Economy

If you have even a remote thought that the U.S. economy is doing well, think again. The economic data are very loud and clear: there’s a raging economic slowdown and conditions could get a lot worse.

While the mainstream media may be focused on the stock market and how the Dow Jones Industrial Average has reached the 30,000 level, it hasn’t really been focusing on the economic data.

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The stock market is soaring for all the wrong reasons. It doesn’t accurately reflect the economy these days.

Look at the chart below. It plots the year-over-year change in monthly construction spending figures in the U.S.

(Source: “Total Construction Spending,” Federal Reserve Bank of St. Louis, last accessed November 30, 2020.)

Over the past few years, the growth in construction spending has really slowed down in the U.S. In 2015, the growth rate was around 15%. In mid-2019, it actually registered a year-over-year decline for a few months before bouncing a little.

Since the beginning of 2020, it’s been anything but good. We started the year with construction spending growing by around 10%. Mind you, this was 33% lower than what it was averaging in 2015. As of September 2020, the growth rate was 1.5%. This represents a decline of 85% in the growth rate.

The COVID-19 pandemic has taken a big toll on construction spending in the U.S. economy, which was already ailing.

What’s More Troubling…

You have to understand, construction is a big sector in the U.S. economy. It amounts to about $1.4 trillion on an annual basis.

You also have to understand that many Americans are employed by the construction sector—about 7.5 million. Keep in mind, construction jobs are relatively well-paying ones. According to the U.S. Bureau of Labor Statistics, employees in the construction industry earned $31.86 an hour on average in October 2020, versus $21.20 an hour on average in retail trades. (Source: “Table B-3. Average Hourly and Weekly Earnings of All Employees on Private Nonfarm Payrolls by Industry Sector, Seasonally Adjusted,” U.S. Bureau of Labor Statistics, November 6, 2020.)

With construction spending slowing down significantly in the U.S., what do you think will happen to those jobs in the construction industry? It’s likely that some of those jobs will not remain.

U.S. Economic Outlook: Another Recession in Early 2021?

Dear reader, I discussed construction spending as just one indicator of how the U.S. economy is doing. If you look at more economic data, it becomes very clear that the economy is going in the wrong direction.

We haven’t seen a significant amount of economic misery because the U.S. government and the Federal Reserve have provided a financial  lifeline during the pandemic. For example, out-of-work Americans have been getting relatively higher-than-normal unemployment benefits. So, in the near term, it may appear that the U.S. economy is doing great.

However, one must ask: What will happen as we go into 2021?

For me, at the moment, it’s very hard to be optimistic for at least the first half of 2021. The U.S. economy could face severe headwinds, and growth rates could drop. If not an outright recession, I think the U.S. economy will grow by only a small amount.

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