The Economy Everyone's Alarmed About Is Utterly On TrendBy
The economy is dull.
So insists James Sweeney, Credit Suisse AG economist. He points out that the U.S. inflation rate is unremarkable, unemployment is pretty standard and levels of global production are in keeping with their long-term trends.
What is unusual is how much this data conflicts with the prevailing narrative, as hand-wringing over the economy's fragility persists among investors, voters and politicians.
The discrepancy between a very ordinary economy and the wider angst Sweeney diagnoses can be explained by a few things.
The first is that the current economic cycle is so normal it's abnormal, the economist says, with inflation now exactly at a 20-year average, U.S. employment of 5 percent just a whisker above the median Federal Reserve voting member's long-run estimate, and global industrial production estimated at 3.1 percent precisely in line with the trend of the last 40 years.
"Such normalcy is unusual: when it has happened before, it has not persisted long," Sweeney writes in a note published on Wednesday. "The natural turbulence of cycles means long-term tendencies are landmarks to drive past, not likely destinations for extended stays."
Another prime source of unease is that the monetary-policy levers used to drive the American economy's post-crisis return to par have unevenly distributed those gains.
"Just as normalcy is not reflected in political discourse, it's not reflected in market prices either," Sweeney writes, with U.S. real yields — which adjust benchmark U.S. Treasury yields for inflation — at their lowest since 1919.
While financial-market asset prices have been out of keeping with the unextraordinary state of the economy, so too have productivity and income distribution, which are far more dire than the headline stats imply.
"The next U.S. president looks set to inherit normal cyclical conditions, weak productivity and GDP trends, low interest rates, and a dissatisfied public," he says.
"We hope that chosen policies will not throw the macroeconomic baby (i.e., decent cyclical dynamics and low nominal volatility) out with the structural bathwater (i.e., low productivity and dissatisfaction by many households over what they see as slowly rising living standards)."