U.S. Economy: This Girl is On Fire

By Krishna Memani via Iris.xyz

You are forgiven if you thought I was reminded of the famous Alicia Keys song, “Girl on Fire,” following the U.S. Bureau of Labor Statistics’ latest Consumer Price Index (CPI) inflation report. As everyone knows by now, the CPI came in a tad higher than expected.

No, that is not the reason I am thinking things could get heated. I am not that bothered by the inflation report, as the source of that uptick – apparel – is not sustainable, just as the source of the downtick last year – cellular services – was not sustainable. For example, the fact that department store chain Kohl’s Corp., for the first time in recent memory, ordered the right amount of merchandise for the Christmas season and didn’t have to discount leftover inventory in the New Year is not cause for significant alarm in my book.

Instead, what I am getting worried about is the size of the fiscal stimulus that is being dumped on the U.S. economy at this point in the cycle. When we wrote our 2018 outlook last year, we clearly were expecting a fiscal expansion on the back of the proposed tax cuts. That was the reason why we speculated that, while we may not be there yet, the end of the cycle is getting closer.

What I did not expect was the fiscal expansion due to increased federal government spending of almost $300 billion over the next two years. Now we are talking real money, almost 2% of GDP in 2019. As a result, U.S. economic growth in 2019 could be as high as 3%.

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