Economic Boom or Bust?
Put on a party hat, uncork the bubbly and pass the caviar.
The U.S. economy posted its strongest growth in 11 years, and its third quarter pace is brightening hopes for 2015.
According to the Commerce Department’s December 23rd report, hiring gains, cheaper gas, and rising consumer confidence drove growth to a robust 5 percent annual rate last quarter, sharply revised from 3.9 percent.
The third quarter’s growth was the fastest since 2003. More importantly, it followed a 4.6 percent annual rate in the April-June quarter.
That’s momentum, folks, and momentum, they say, is a game changer.
Where’s that bubbly?
The news has some economic analysts thinking that the U.S. economy could expand in 2015 at a pace reminiscent of the late 1990s. Is it possible to see a return to those go-go days? Only time will tell.
The surge in economic growth cheered investors. The Dow Jones Industrial Average soared to new heights, ending at 18,053. It's the first time the Dow traded above 18,000.
Furthermore, Standard & Poor’ 500 Stock Index also closed at a record high.
After five years of rocky recovery since the Great Recession, the U.S. is back in the superpower business. The record highs indicate that the U.S. is distancing itself from the struggling economies around the world.
Japan and countries in Europe are teetering on the brink of recessions.
Brazil’s economy is struggling to grow. Remember all those protests during the World Cup? The "beautiful game" certainly didn't stimulate the Brazilian economy.
Meanwhile, no matter how much old school Soviet bluster President Vladimir Putin bestows on the rest of world, the Russian economy is showing the first sign of recession. Yes, the Russian Bear is de-clawed.
According to the BBC, the Russian economy contracted by 0.5 percent in November, the first fall in national output -Gross Domestic Product –since October 2009.
The rouble is in free fall, for the most part.
But the Cold War ended in 1989, right? So, back to the surging U.S. economy.
What Caused the Third Quarter Surge in Economic Growth?
1. Oil and gas prices have plummeted, and it was a bolt out of the blue that economists didn’t see coming. According to AAA, gas prices have fallen for 88 consecutive days. That’s a record.
The current national average for a gallon of regular is $2.28. Cheap gas is like a tax cut or a stimulus package. It frees up money for Americans to spend on other items, as well as boost revenues for stores, restaurants, and hotels.
Oil’s price plunge has driven down prices for home heating oil and jet fuel as well.
2. Consumer spending was up in the third quarter by 3.2 percent, and that spending accounts for two-thirds of the GDP. Consumers bought more durable goods such as cars and home appliances.
3. The unemployment rate is down to 5.8 percent. The economy created 321,000 jobs in November, and when people have jobs, they pump money back into the economy.
According to Gus Faucher, senior economist at PNC Financial Services Group, the U.S. will add 230,000 jobs per month in 2015.
4. State and local governments are contributing more to expansion. Investment was up 1.1 percent in the third quarter and 3.4 percent in the second quarter.
5. Business investment spending was strong in the third quarter. It rose at a 7.2 percent annual rate, which was higher than the government’s estimate.
6. Stocks soared. In 2009, at the height of the Great Recession, The Dow Jones Industrial Average stood at 6, 627. Five years later it's pushed above 18,000.
Most economists agree that stocks will continue to soar in 2015. “High-octane optimism once again prevails on the Street,” says Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.
The 2015 economic forecast is brimming with good tidings and cheer. Has the slow-going American economy finally turned the corner? Maybe. But it’s still too early to compare a 5 percent third quarter growth to the boom-boom 90s.
For now, uncork that bubbly and pass the caviar. And make sure it’s the good stuff, too –Russian Beluga or Red Gold.