Is U.S. Growth Sustainable

The recent release of second-quarter GDP growth (4.1%) revealed the strongest quarter in four years. But, is that growth sustainable? Given that U.S. growth is still dominated by personal consumption, how are our households doing? The following chart would suggest that total indebtedness is growing much faster than wage growth.

Source: FRBNY publication and Bill Mitchell’s blog

Total household debt is at $13.21 trillion, which is $561 billion greater than the previous peak established in 2008. Couple this with the fact that nearly 80% of U.S. workers are living paycheck to paycheck (Robert Reich), and you have a growth story that is tenuous, at best.

If you are a plan sponsor of a DB plan counting on outsized market returns based on the perception that the economy is working on all cylinders, you may want to rethink that strategy. Equity valuations are inflated, and it wouldn’t take much of a slowdown in economic growth to create negative headwinds.

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