Economic check-in: Goldilocks environment

An improving job market, low inflation, and a strengthening dollar all add up to a more-confident U.S. consumer. But is consumer spending sustainable? And will turmoil overseas help or hurt the ongoing U.S. expansion?

By InvestSMART · 25 Nov 2014

By InvestSMART ·
25 Nov 2014

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“Overall, it’s a continuation of the Goldilocks environment, where you have low inflation, low interest rates, and an expanding U.S. economy.” - By Lisa Emsbo-Mattingly, Director of Asset Allocation Research, Fidelity

Below summary by Anthony O'Brien

An improving job market, low inflation, and a strengthening dollar all add up to a more-confident U.S. consumer.

But is consumer spending sustainable? And will turmoil overseas help or hurt the ongoing U.S. expansion?

Where are we in the business cycle?

Emsbo-Mattingly encourages investors to look less at the length of the recovery and more at the current state of play to determine where the US is in the cycle.

Wage increases driven by a strengthening global economy typically signal progression to the later stages of the business cycle. There is very little evidence that this is happening.

What does a stronger US dollar mean?

It will create some tough times for manufacturers, but exports contribute only a small percentage of U.S. GDP. So, the negative repercussions from decreasing trade competitiveness are not as important as they would be for countries that rely more on exports.

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Frequently Asked Questions about this Article…

What is a 'Goldilocks environment' in economic terms?

A 'Goldilocks environment' refers to an economic situation characterized by low inflation, low interest rates, and a steadily expanding economy, like the current state of the U.S. economy.

How does the current U.S. economic environment affect everyday investors?

The current U.S. economic environment, with low inflation and interest rates, can be favorable for everyday investors as it may lead to more stable investment opportunities and consumer confidence.

Is the current consumer spending in the U.S. sustainable?

While the U.S. consumer is more confident due to an improving job market and a strengthening dollar, there are questions about the sustainability of this spending, especially with potential overseas turmoil.

What should investors focus on to understand the U.S. business cycle?

Investors are encouraged to focus on the current state of the economy rather than the length of the recovery to better understand where the U.S. is in the business cycle.

What impact does a stronger U.S. dollar have on the economy?

A stronger U.S. dollar can create challenges for manufacturers due to decreased trade competitiveness, but since exports are a small part of U.S. GDP, the overall impact is less significant compared to more export-reliant countries.

Are wage increases a sign of the U.S. economy's progression in the business cycle?

Typically, wage increases driven by a strengthening global economy signal progression to the later stages of the business cycle, but there is currently little evidence of this happening in the U.S.

How does low inflation benefit the U.S. economy?

Low inflation helps maintain consumer purchasing power and can lead to more stable economic growth, which is beneficial for both consumers and investors.

What role does the U.S. job market play in the current economic environment?

An improving job market contributes to consumer confidence and spending, which are key components of the current Goldilocks economic environment in the U.S.