Economy of the United States Performing Well?
In recent times, the US economy has been facing a series of challenges, as indicated by several key economic indicators.
According to Ulrich Kater, Chief Economist of Dekabank, the US economy is showing signs of weakness that are reminiscent of the peak of the Great Financial Crisis. One of the most concerning areas is auto loan delinquencies, which have risen above their levels during that period.
The federal government has been supporting the economy by running a fiscal deficit of 6%-7% of GDP in recent years. However, this support has not been enough to prevent other troubling trends. For instance, personal and business bankruptcies are growing at a concerning pace, and nearly 6 million student loan holders are currently at least 90 days behind in their payments.
The housing market, a critical sector for the economy, has also shown signs of distress. Average housing prices have dropped 10% to 25% from their peaks in metro areas such as Austin, Oakland, Denver, New Orleans, D.C., Cape Coral, Birmingham, San Francisco, and Phoenix. Interestingly, the average new home prices were at a discount to average existing home prices in June and July.
The average price of a new vehicle is running just under $50,000, a significant increase from previous years. This rise in vehicle prices, coupled with the economic downturn, could put a strain on households' budgets.
Retail sales have shown some positive signs, with a 0.6% increase in August on a month-over-month basis. However, annual existing home sales from 2023 to 2025 have run at their lowest levels since 1995, indicating a sluggish housing market.
Tourism, another crucial sector, has also been affected. Tourist visits in May dropped by 6.5% compared to the same month in 2024, and tourist traffic fell by 7.3% for the first half of 2025. This decline in tourism could further impact the economy by reducing spending and employment in related industries.
On a more positive note, the job market has shown some resilience, with the US economy creating just less than 30,000 jobs per month from June through August. The economy also showed a 3.3% GDP growth rate in the second quarter of this year, according to the Atlanta FedNow forecast, which predicts 3.4% GDP growth in the third quarter.
Despite these mixed signals, the stock market today is trading at/near all-time highs and selling at extreme levels using many traditional valuation metrics. This discrepancy between market performance and economic indicators has raised concerns among some economists.
One strategy to navigate this uncertain economic landscape is a conservative portfolio positioning. For instance, the portfolio is positioned conservatively, with roughly one-quarter in short-term treasuries and three-quarters in covered call holdings.
Another promising area is the tech sector, with huge investments being made in building AI data centers by tech giants like Microsoft, Amazon, and Alphabet. These investments could drive innovation and economic growth in the long term.
In conclusion, while the US economy is facing challenges, there are also signs of resilience and potential for growth. It is crucial for policymakers and investors to closely monitor these economic indicators and adjust their strategies accordingly.
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