Summary: Nothing has changed during the past year, except that the US stock market has zoomed to near-record valuations, With no visible support in Fed policy, or corporate and economic fundamentals. The economy remains locked in slow growth. The exciting growth stories are mostly noise or cherries picked from the flood of economic numbers. Are investors hoping Trump will defeat the fiscal conservatives in Congress and sign a massive stimulus program? It’s a risky bet.
One amazing aspect of this US expansion cycle is its stability: slow steady growth despite large political and economic changes, foreign and domestic — combined with persistent (almost delusional) expectations for accelerating growth really soon. Another amazing aspect is the combination of slow economic growth and profit growth with high equity valuations. How long can this discordant picture continue?
None of this is difficult to see. At the beginning of every month I post a brief look at graphs of the economy. The conclusions are almost too obvious to state. Let’s do it again. The fantastic gap remains, waiting for the event to bring the economy and stock market back into alignment.
Surely you mean that we’re going to get rip-roaring 4% growth real soon now, right? RIGHT?
More seriously it’s seemed to me like America has been kind of creaking towards, not a collapse, but an interval of secular stagnation like Japan. I don’t really know what could create a genuine new major economic expansion; there are substantial *shifts* it seems likely we’re going to have, but most of them seem like they would either be a net wash (solar/wind/new-nuclear/electric cars replacing gas/coal/oil for the most part) or could be self defeating (widespread basic automation makes the poor even poorer, reducing demand for goods/services).
Also, it’s a tangent, but I’m curious of your thoughts about this article I saw in the NYT today: “The Economic Growth That Experts Can’t Count“. The gist of it is that we are getting a lot of services through information networks which are relatively hard to price or account for in traditional GDP.
Dana,
“America has been kind of creaking towards, not a collapse, but an interval of secular stagnation like Japan”
That became obvious to economists in 2013. See a summary of economists’ warnings in this Nov 2013 post: Are we following Japan into an era of slow growth, even stagnation?
Since then the evidence has accumulated that we’ve fallen into secular stagnation. See these posts reviewing the evidence and discussing the causes.
Dana,
Does GDP underestimate growth?
Yes. It did so in 1900 and does so today. GDP is just one number, not the Evil Queen’s Magic Mirror. Robert Gordon and others have written about this quite a bit, Gordon most recently in his book The Rise and Fall of American Growth.
COmpare the uncounted economic value of Google with the uncounted value of electricity, vaccines (e.g., polio in 1958) and chlorinated water. Properly done, that makes the great growth slowdown look far larger, not smaller.
The NYT covers this adequately, but far down in the article.
Interesting stuff as always. And I hadn’t considered that about the unquantified values, but it makes sense. Even the working poor have luxuries that would have been a prince’s perogative only a few generations ago! (And as we know, 99.6% even have refrigerators.) Similarly, the increase in skills for doctors, while life-changing and life-saving, has an obvious point of diminishing returns.