The United States government and media outlets regularly tell us about the strength of the economy. But what’s really driving growth, and what are possible concerns and setbacks? Being aware of some of these issues could help growers and their supply chains make informed decisions to stay ahead.
Greenhouse Management and Produce Grower recently spoke with Dan North, chief economist for North America at insurance company Euler Hermes, about the U.S. economy. He told us some facts, as well as some uncertainties. North is keeping his finger on the pulse of these six issues.
1. Consumer confidence
Dan North: Right now, consumer confidence is at an 18-year high. Consumer confidence started to ramp up right after the [2016 presidential] election. Like it or not, [the Trump administration] came in — they had mostly a pro-growth agenda. A lot of that has worked. Deregulation, tax cuts, that sort of thing, have actually helped the economy. … That's not enough, though, because that gives you the willingness to spend, but you need the ability to spend as well, which is personal income. Personal income growth has been kind of flat, below average for a number of years. But we think that’s going to go up. And the consumption, which is two-thirds of the economy — gets fueled by that income. We think the increase in income is going to increase consumption and broaden the economy.”
2. Rising income
Dan North: Why do we think income is going to go up? Several reasons. There are pressures on wages. One, if you look at this ratio of job openings to unemployed people, it's above one. It's the highest it’s ever been, and basically, when it’s one, it means there’s a job available for every person that’s unemployed in the U.S. That ratio correlates really strongly with wage growth. So, that is putting pressure on wages.”
“There’s another variable we look at called the quits rate. What frequency do people quit their jobs? Because if you quit your job, you've got to be really confident that you're going to get another one, or maybe you have another one already. That correlates strongly with wage prices as well.”
“The third thing is wage — hiring plans, particularly with small or medium businesses, [is] where the growth is. … There’s this National Federation of Independent Business survey, NIFB. Part of that survey — there are a number of questions. One is the percentage of respondents who are saying they want to expand employment. That’s up at a record high. This is the biggest single problem for most of the businesses and trade groups I talk to: they can't find employees. … There’s a skills mismatch. But basically, the point is, it’s a tight labor market and that is going to drive wages up. And it’s driving up hourly wages slowly. … If you look at weekly wages, what’s happening is, employers, since they can’t find more workers, are working the ones they do have longer hours, so weekly wages, which accounts for the hours, actually are growing fairly sharply — 3.4 percent. That's an eight-year high.”
3. The “Fight for $15”
Dan North: Amazon went to $15 an hour. They’re a very profitable company and are able to do that. But again, broad-based wages are on the way up, particularly if you look at those weekly wages. $15 an hour — [as] a minimum wage — actually affects relatively few workers. Typically, minimum wage workers don’t stay at the minimum wage terribly long. They move up the wage curve as they get more productive. So, the push for $15 — a higher minimum wage — will do exactly what both the left and the right say it will do. Higher minimum wage will give people who already have a job more money. Higher minimum wage will also make it harder to employ somebody who doesn't have a job, because if you’re in a fast food restaurant, for instance, and you’ve just had to increase your pay to these people you already have, it’s much more difficult to afford hiring more people now that you’ve got a minimum wage. So, you head toward automation in productivity and that sort of thing. It does exactly what most say it’ll do. And in this age, where we have a great deal of prosperity, if it has offsetting effects, maybe it’s the right thing to do. But usually, government shouldn’t interfere in wages or open-markets types of prices. It causes distortions that usually work against everybody.”
Dan North: It's great if you can’t find people to work, to go to automation. There’s usually a big fear, and always has been, about automation and technological advancements, that they’re going to destroy jobs. And we’ve seen this from the industrial revolution forward. Every time there’s been an advancement, people say, ‘Oh, it’s going to destroy jobs.’ And it does destroy some jobs. However, for instance, a good example is a robot on an assembly line that replaces a worker. So, that job got destroyed. However, somebody’s got to design the robot, somebody’s got to build the robot, somebody’s got to install it, somebody’s got to write the software, somebody's got to maintain it. So, you destroy one job and create several others, and the benefit has always been that it creates jobs, much against the fear of destroying jobs. If you’re the guy who gets your job destroyed, you don’t really care about that. You know the technology has destroyed your job. But from a macro viewpoint, if you look at it all together, technology — advancements — have always brought more prosperity overall.”
5. The United States–Mexico–Canada Agreement (USMCA)
Dan North: I think to have the USMCA put into place, really, frankly, was a relief because it could have been really disastrous in a couple of industries — agriculture, for sure — autos, where a big supply chain had been established between the three countries. If that had been disrupted, it could have been really damaging, more so to Mexico and Canada than to us, but it truly could have damaged us. To get that solved, I think, was really a big relief. Now, there's some changes in it, but they’re pretty minor, really. It’s mostly NAFTA with some tweaks like they’ve been talking about for years.”
6. Interest rates
Dan North: [When] you raise interest rates, of course that raises rates on all kinds of loans — all kinds of consumer loans, auto loans, mortgages. And that’s done on purpose. The Federal Reserve is charged with balancing the economy between inflation and unemployment. So, if they believe inflation’s coming, it’s their mandate to brake the economy, and that’s what raising interest rates does. The concern is at some point — and it will happen — the Federal Reserve will raise interest rates too much and that will push the economy into recession.”