USAUS economy: Approaching equilibrium

The US economy has largely recovered from the financial crisis and should continue to grow at a moderate pace, says Brian Rose, UBS CIO Senior Economist Americas.

The US economy has largely recovered from the financial crisis (DDP)

In his latest report, Rose highlighted that recent economic data has been mixed. The labor market continues to tighten, with nonfarm payrolls increasing at a solid pace and the unemployment rate at 4.4% in August. This has supported consumer sentiment and spending, helping to lift GDP growth. However, wage growth remains modest and inflation data has been weak over the past few months. The Federal Reserve announced that it will begin to shrink its balance sheet.

Outlook for growth

Rose expects the economy to grow at a moderate pace in the quarters ahead. Consumer spending will lead the way, supported by the improving labor market. After years of strong job growth, the labor market has become much tighter.

Job openings are at a record high, and the unemployment rate was 4.4% in August. While some employers have been raising wages in order to attract workers, many others have simply opted to leave positions unfilled, resulting in overall modest wage growth.

Similarly, most companies have not aggressively pursued new investment opportunities despite relatively high profit margins. Having survived the financial crisis, it is perhaps not too surprising that businesses would adopt a cautious stance.

Historically, economic recoveries following financial crises have typically been slower than recoveries from ordinary recessions. As per CIO, most segments of the economy have fully recovered from the global financial crisis and are near "equilibrium" or normal conditions. In particular, with most people who want to work already employed, CIO expects job growth to gradually slow.