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The Economy's Numbers For 2018 Are Good. But The Data For December Is Bad


The numbers for 2018 are not good. The gross domestic product is growing. The U.S. economy - I'm sorry, I said exactly the wrong thing. The numbers for 2018 are good. The gross domestic product is growing. The U.S. economy is humming. But the numbers for December are bad. The Nasdaq, the Dow and the S&P all ended down yesterday. This month is on track to be the worst December for stocks since the Depression. Annie Lowrey of The Atlantic joins us from New York. Thanks so much for being with us.

ANNIE LOWREY: Thank you for having me.

SIMON: What are you seeing as you look at these various indicators?

LOWREY: It's funny, actually, because I feel like the way that you put it where you're like it's not good and then have to sort of correct yourself and say that it's good is pretty much what's happening. So we have all of these indications that economic growth is kind of just continuing on the same path that it's been on for really several years Now. The numbers look pretty good, pretty solid. Consumer spending is just fine. Wages are increasing. Inflation isn't out of control. But when you look at the financial markets, they're having this pretty profound freakout. Even after last year's tax cuts, those tax cuts that Congress passed almost exactly a year ago now, you're still not seeing this growth in corporate profits. You're seeing this big correction in the stock market. People just don't feel good. The animal spirits have turned. And the question is is that affect in the financial markets and kind of in that sentiment going to bleed back into the real economy? We don't have signs of that happening now, but there's a feeling that we're going to be entering a slowdown at some point.

SIMON: Well, what - is this a sign that whatever kind of - if I might put it this way - goose the recent tax overhaul gave the economy has kind of had its effect and is receding now?

LOWREY: Yeah. It was a bit of a sugar high. So we had these really big tax cuts that passed, but they were aimed almost entirely at corporations and quite rich Americans. The way that they were meant to work was they were supposed to spur corporate investment. That hasn't really happened. There's just been a lot of increased stock buybacks, which don't do much for the real economy. And so we're not going to get that same kind of flush, that sugar rush that you would get from fiscal policy at the same time monetary policy is getting tighter. So the Fed raised interest rates for the fourth time in 2018 this week. And so, you know, if you were going to get a mortgage or you were going to go buy a car or something big like that or if you're just carrying a lot of debt and it's of a variable rate, you're going to be paying more for that. And that's going to show up in the real economy, too. So it's those two big factors. It's that withdrawal of that sort of sudden fiscal stimulus, that procyclical fiscal stimulus, as well as the fact that you have rising interest rates. Those two things should be kind of tapping the brakes ever so slightly, cooling the economy off ever so slightly.

SIMON: So if I might ask you for intensely practical advice, how should somebody who's just starting out in the workforce think of the economy now? And what about somebody who's nearing retirement? What practical steps should they take?

LOWREY: Yeah. If you are nearing retirement, it's kind of more of a question because you might have some investments and you might be thinking on moving into a fixed income. And so, you know, this is probably a little bit more of a nervous situation for you to be in if you are exposed to fluctuations in the stock market, which is really primarily what's happening right now. You have this big correction in the Nasdaq but frankly not too much is going on in the real economy. If you are a younger person, you should ignore this entirely. This does not mean that the economy is heading into a recession. It does not mean you should stop funding your retirement account if you're able to do that - one of the relatively few people who is able to do that. This is the sort of thing that you should just not change your decision-making whatsoever (laughter).

SIMON: Is President Trump right to blame the Fed...

LOWREY: Perhaps...

SIMON: ...For increasing interest rates?

LOWREY: Yeah. Perhaps a little bit on the margin. He's not wrong about that. So interest rates are still fairly low. The Fed raised its rate, its benchmark rate, to 2.25 to 2.5 percent, which is not - it's not, you know, like a hugely high rate. But they are starting to kind of cool the economy off a little bit. And, you know, for years and years and years, that rate has functionally been very, very close to zero. And they've been raising it slowly but surely. They've forecast that they are going to continue raising interest rates unless they see something in the numbers that really upsets them. So, yeah, you know, the Fed is not providing more help to the economy. It's looking at the economy and saying, hey, GDP growth is still 2.8 percent per year this late in the recovery. We're going to keep on raising rates. And if there's a recession...

SIMON: Thank you.

LOWREY: ...We're going to pull those rates right back down.

SIMON: We have to go, I'm afraid.

LOWREY: (Laughter).

SIMON: Annie Lowrey, thanks so much.

LOWREY: Thank you. Transcript provided by NPR, Copyright NPR.