12.8 million in December 2019, an approximate 6.5% drop from the October 2007 level of 13.8 million. A primary benefactor of the tariffs on China was Vietnam. In some cases, Vietnam offered U.S. firms a low-cost sourcing alternative to China. In 2019 imports from Vietnam grew 34.6% to a record high of $66.6 billion, an increase of $17.4 billion from 2018. Since the economic recovery began in May 2020, manufacturing employment has steadily rebounded. After hitting a low of 11.4 million in April 2020, economic growth and recent legislation promoting U.S. manufacturing pushed employment to 13 million in September 2023, the highest manufacturing employment has been since November 2008. U.S. Manufacturing Employment 1980-2022 (Source: Federal Reserve FRED Database; Bureau of Labor Statistics)
3. The Lag Effect of Rising Interest Rates There is a lag between an increase in interest rates and the effects on the economy, but the exact timing and magnitude of the effects are difficult to discern. In March 2022, the Federal Reserve began the upward trek for interest rates, with eleven rate increases occurring through November 2023. From a low of 0.00-0.25% in May 2022, the fed funds rate hit 5.25-5.50% in July 2023. Due to the lag between interest rate increases and the economy, negative effects from recent interest rate increases will likely be felt in 2024. It’s the magnitude of the effects that is uncertain. Rising interest rates began a toll on the housing market through higher mortgage rates in 2023 and business investment became more volatile, but the ultimate impact of rising interest rates on economic growth and consumer spending has yet to be felt. Although job growth has recently declined, the U.S. labor market continues its stretch of one of its strongest periods ever. The labor market is a key focus for the Federal Reserve, as the strength of the labor market affects consumer spending, which in turn affects the demand for products and services and consequently inflation. Economic growth will likely decline in 2024, as third quarter 2023 economic growth was unsustainably strong at 4.9% and the Federal Reserve continues its focus on slowing the labor market to reduce consumer spending. The strength of the labor market will be a strong influence on any changes in 2024 interest rates. However, the overall strength of the current U.S. economy has bolstered confidence in weakened, rather than negative 2024 economic growth. 4. The Middle East There is certainly no doubt the war raging in Israel and the Gaza strip has already taken an enormous human cost. The total economic cost, both in the region and globally, is yet to be determined. Any expansion of the war could cause uncertainty in oil market pricing, and the U.S. is part of the global oil market. The invasion of Ukraine by Russia caused a significant increase in oil prices and consequently inflation. Hopefully a quick resolution is found, but a continued Middle East conflict increases the probability of the war expanding, and negative effects on energy prices, inflation, and global economic growth.
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Center for Business and Economic Insight
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