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Finance and economics The Economist December 16th 2017 63

Also in this section
65 Buttonwood: Brexit and the markets
66 Energy disruptions in Europe
66 The World Trade Organisation
67 Futures contracts in bitcoin
67 Investing in collectables
68 China’s expensive economists
68 Basel: mission accomplished?
70 Free exchange: A lost decade

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The American economy er-sentiment index hit its highest level
The weight of expectations since 2004. Recent consumption growth
has been fuelled by a steep fall in house-
hold saving, which is down from over 6%
of GDP two years ago to just 3.2% today. In
early 2016 some analysts fretted that con-
sumers were squirrelling away the money
they were saving on cheap petrol, and so
WASHINGTON, DC denying the economy a needed fillip. To-
Will America’s economyrun too hotin 2018?
day, the opposite worry seems more perti-
SUALLY politicians pretend that good the third quarter of the year (see chart 1 on nent: oil prices have recovered somewhat,
Ueconomic news on their watch is no next page). Jobs are plentiful—unemploy- but the savingrate has tumbled.
surprise. But America’s recent growth fig- ment is just 4.1%. From Wall Street to Main Falling saving is a worry, but consum-
ures have been so positive that even the Street, businessesooze confidence. What is ers’ cheeriswell-rooted in the buoyancy of
administration ofPresidentDonald Trump more, tax cuts are poised to stimulate the the labour market and the strength of
has allowed itself to marvel. “It’s actually economy. Analysts no longer ask when household balance-sheets. With interest
happening faster than we expected,” growth will at last pick up. Instead, they rates low, debt-service costs, as a share of
mused Mick Mulvaney, the White House wonderifthe economy might overheat. after-tax income, are close to a record low.
budget chief, in September, after growth The Federal Reserve is alert to the risk. Most American mortgages bearfixed inter-
rose to 3.1% in the second quarter. (Mr On December 13th it announced its third est rates, so homeowners are shielded
Trump in fact came to office promising 4% interest-rate rise this year, and the fifth dur- from higher rates. And house prices have
growth, but the goal now seems to be 3%.) ing this economic expansion, taking rates been rising, too. In the third quarter of2016
Mr Mulvaney warned that hurricanes to 1.25-1.5%. The median forecast of the they passed their peak of 2007. Since then,
would soon bring growth back down. In- Fed’s rate-setting committee is for three they have risen by another6.3%.
stead, in the third quarter, it rose to 3.3%—a more rate risesin 2018. Nota single rate-set-
figure celebrated with more conviction. ter thinks that today’s low rate of unem- Rich pickings
The administration’s initial caution was ployment issustainable. Yet all predict that Higher house prices and a stockmarket
wise: quarterly growth figures are volatile, joblessness will fall furtherin 2018. boom have delivered a wealth windfall.
and few economists expect growth above The Fed isrightto fret. Credible forecast- Households and non-profit organisations
3% to carryon forlong. Yetthere isno deny- ers are almost unanimous: the sustainable now hold assets worth nearly seven times
ingthat the economy is in rude health. rate of growth, as America’s population their after-tax income, the highest ratio on
In part, that reflects the strength of the greys, is closer to 2% than to 3%, whatever record. Middle-earners have seen the big-
global economy. But it is also the culmina- Mr Trump says. In the past three months gest gains, according to a recent Fed survey.
tion of a years-long trend. As politics has the economy has created an average of The average net worth of households in
consumed America’s attention for the past 170,000 jobs per month. Yet over the de- the middle quintile ofthe income distribu-
two years, common complaints from earli- cade to 2026 the population of 20-64-year- tion (ie, from the 40th to the 60th percen-
erin the decade have, one byone, begun to olds will, on official projections, grow by tile) rose by 34% between 2013 and 2016.
look dated. The median household in- fewer than 50,000 a month. Joblessness House prices have recovered despite strict
come is no longer stagnant, having grown cannot fall for ever, so, unless productivity lending regulations introduced after the fi-
by 5.2% in 2015 and 3.2% in 2016, after ad- accelerates, growth must fall. If the Fed nancial crisis. Mortgages remain difficult
justing for inflation. During those two keepsmoneytoo loose, inflation will even- forthose with poorcredit scores.
years, poorer households gained more, on tually rise, as the economy gets too hot. Politics has helped business confi-
average, than richer ones. Business invest- Households seem exuberant. In Octo- dence. Optimism surged among small
ment is no longer tepid: it drove growth in ber the University of Michigan’s consum- firms after Mr Trump won the election. On 1