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Evaluating Whether 2016 Was A Good Year For The U.S. Economy

RACHEL MARTIN, HOST:

This time on the calendar is often when we look back over the past year and simultaneously ahead to the next. So we asked David Wessel, a frequent guest on this program, to do that for the U.S. economy. He's director of the Hutchins Center at the Brookings Institution and a contributing correspondent for The Wall Street Journal. Hi, David.

DAVID WESSEL: Good morning.

MARTIN: So here's a big question - was 2016 a good year when you think about the U.S. economy?

WESSEL: It was a pretty good year, not a great one. The economy got off to a disappointingly slow start at the beginning of the year. And despite an impressive third-quarter performance, over the past year the economy has grown at a mediocre pace of about 1.7 percent. But the unemployment rate is down 4.6 percent, a 9-year low.

And the fraction of adults who are working or looking for work was steady, although it's still lower than it has been over most of our recent history. Employers added 180,000 jobs a month so far this year - pretty good. Nearly all of them were in the private sector. Inflation is quiet. And wages, finally, are beginning to rise faster than prices.

MARTIN: All right, all of that seems good, but we did just go through a presidential election where all kinds of people were talking about how bad the economy was, so it couldn't have been all rosy.

WESSEL: There are some blemishes. One big one is that the amount of stuff we get for each hour of work has been growing at a distressingly slow rate. Now, productivity growth is important. It's the reason we have more goods and services than our grandparents did, even though we work fewer hours. And lousy productivity growth is a poor portent for future wages. Another thing is that there are still a huge number of people on the sidelines of the job market. 15 percent of the men between the ages of 25 and 54 aren't working, and that has been rising over time.

MARTIN: So that brings up another issue, right? I mean, you talk about the economy doing really well on the whole, but is it just certain parts of the American demographic? Is it just certain groups who are benefiting?

WESSEL: That's a persistent issue. The growth we've had has not been enjoyed evenly across the population. If you look at the incomes of people at the middle of the middle class, they're rising, and they're back to where they were before the Great Recession - about $58,000 a year. But adjusted for inflation, they're still lower than they were back in 2000.

More young adults are living with their parents than at any time since 1940, apparently unwilling or unable to get out on their own. And these national averages always obscure the places that are really doing bad. In El Centro, Calif, the unemployment rate is 22 percent. And in Yuma, Ariz., it's 19 percent - just unbelievable and distressingly poor.

MARTIN: When you do look ahead to 2017, what do you see?

WESSEL: Financial markets seem to be signaling good times ahead. All the measures of consumer, business and investor confidence, they've gone up quite a bit since the Trump election. All that's a good sign. Most economic forecasters see faster growth than we had this year, but there's plenty to worry about. One, the euphoria over the Trump victory could dissipate if he can't deliver on all that he's promised or if he starts a trade war that gets out of hand.

Two, the Fed is raising interest rates, and it could do too much and hurt the economy just when it was taking off. And third, we're pretty big, but the rest of the world matters, too. And there's plenty that's going wrong abroad. We could have problems with the viability of the European Union. There's a huge debt problem among companies in China. And the U.S. dollar has been very strong, and that's having ripple effects on foreign borrowers that could wash back on our shores.

MARTIN: OK, lots of things to watch out for. David Wessel - he is director of the Hutchins Center at the Brookings Institution and a contributing correspondent for The Wall Street Journal. Hey, David, thanks so much. Happy New Year.

WESSEL: Happy New Year to you. Transcript provided by NPR, Copyright NPR.