WASHINGTON -- "Coming 2016 ... Trump" declares a big blue sign on Pennsylvania Avenue, between the White House and the Capitol. The billboard is not, in fact, an ad for Donald Trump's presidential campaign but rather a luxury hotel to be completed by the end of this year. It could be considered one of many indications that the American economy is on the mend.
Booming construction of homes and hotels has helped to brighten the employment picture. In December, the national nonfarm payroll expanded by 290,000 jobs. In New York, Manhattan housing prices averaged $1.95 million in the October-December period, an all-time high and up 12% from a year earlier.
Personal consumption is also brisk. Retail sales during the Christmas shopping season increased 7.9% on the year, according to an estimate by MasterCard. High-end furniture was one segment that performed well.
Large vehicles are selling well, too, thanks to cheap gasoline, used-car retailer CarMax said. For the first time in 15 years, new car sales reached a fresh high in 2015.
When the Federal Reserve decided to raise its benchmark interest rate on Dec. 16, ending its so-called zero-rate policy, Chair Janet Yellen said the move reflected the Federal Open Market Committee's "confidence that the economy will continue to strengthen."
The first U.S. rate hike in nine and a half years, however, was immediately followed by a strong headwind. Steep declines in Chinese stocks and crude oil prices sent the Dow Jones Industrial Average plummeting 1,436 points in the first two weeks of this year, wiping out $2 trillion worth of U.S. market capitalization.
U.S. companies are also under pressure from a stronger dollar. The benchmark business confidence index for the manufacturing sector is below the boom-or-bust line of 50. After six and a half years of economic growth, U.S. companies are not so sure about the outlook.
Spenders as saviors
With China slowing, the U.S. is crucial for the world economy. If it runs out of steam, the consequences would be grave.
Personal consumption, which accounts for 70% of the U.S. gross domestic product, holds the key to whether the country's economy can continue to expand.
New car sales are expected to rise 1% to a new record in 2016, according to Jose Munoz, executive vice president in charge of North American operations at Nissan Motor. But Steve Blitz, chief economist at U.S. electronic brokerage Investment Technology Group, warned that further declines in stock prices would hurt consumer spending.
The Fed has tried to brush aside concerns about the adverse effects of higher interest rates, stressing that additional increases will be "gradual." But ultralow rates are a big reason for the brisk auto sales and housing investment.
When a debt crisis rocked Latin America in the 1980s and a currency crisis hit Asia in the 1990s, U.S. domestic demand kept the world economy going and helped emerging countries recover.
Now, the World Bank expects the global economy to stage a moderate recovery, with 2.9% growth in 2016 and 3.1% in 2017. But these figures are based on the assumption that, again, the U.S. will make up for slowdowns in emerging markets. And if we think of the world economy as a plane and the U.S. is its engine, the aircraft has grown heavier while the thrust has weakened.
Recent annual U.S. growth rates of around 2% are a far cry from the 4% seen in the second half of the 1990s. Emerging economies now account for 40% of the global economy, up from 20% in the early 2000s.
As the administration of President Barack Obama winds down, it is becoming more difficult to introduce major economic measures. Glenn Hubbard, a professor at Columbia University, said the economy ought to be the focus of the current presidential campaign, yet so far the debate has been lackluster.
Can the U.S. economy power through? Yellen said the first rate hike since 2006 marked the "end of an extraordinary seven-year period" with a zero-rate policy. But the country looks likely to remain reliant on an accommodative Fed.