US economy better but not booming

During 2014, the US job market had its best gains since 1999 with economic activity hitting a high 5 percent in the third quarter, a time that proved best since 2003.

Now, however, the American economy is showing cracks.

Three months into the year and already the economy is looking a little tired. It’s losing momentum even though hiring remains strong. It’s causing forecasters to rethink and scale back their forecasts.

On Friday, Federal reserve chair, Janet Yellen, nailed it perfectly when she said, “If underlying conditions had truly returned to normal, the economy should be booming.” While Yellen does believe the economy is improving, she also thinks it should be doing better than it is.

Economists who are trying to solve the economic puzzle have deciphered two problems: One, they say, is the lack of growth in worker’s wages. They’re simply not growing enough, if at all, which means Americans are not spending much. The second problem is the slow-down of foreign economies, which inevitably puts pressure on the US.

Yellen explains that the job market needs improvement. While recovery “has been substantial”, she says there is “some way to go”. Currently, the unemployment rate is 5.5 percent. The government wants to lower it to 5 percent – but too many people are working part-time jobs and “wage growth continues to be quite subdued”.

Yellen also explains that not all sectors of the economy are doing well. The strong US dollar is hurting exports, low oil prices have caused a drop in drilling and the recovery in housing construction is “subdued” like wage growth.

Historically speaking, the economy is still very weak, she says.

Peter Cardillo, chief market economist at Rockwell Global Capital says, “The consumer really hasn’t kicked in at full speed ahead,” adding “We’re going through a soft patch.”

Although more than half a million jobs have been added already this year, hourly wages have only increased by 2 percent. This marginal bump is well below the Federal Reserve’s goal of 3.5 percent.

Yellen says that the current American recovery is a bit odd in that it’s been strong for investors but not so for the average middle-class American who continues to struggle just to keep up. She points out that although the economy is a heck of a lot better than six years ago, it’s certainly not booming.

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