Summary: The course of US politics might depend on what happens to the US economy during the past three years. Predictions are difficult, but the trend is clear: the economy is slowing — and has been since early 2015. Too bad journalists prefer to focus on the exciting noise, not the trend.
By most metrics, US economic growth peaked in January 2015. Here are graphs showing the past five years, all showing the percent year-over-year growth. Do so reveals the trend, washing out the noise — but (of course) does not show the most recent action. But first, a note from one of the best economic forecasters.
Strip out hurricane stimulus and savings rate drop, and Q4 GDP growth was 0%. Hours-worked data on Friday suggest Q1 GDP growth will be 0%. Maybe the stock market is repricing to a zero growth economy.
— David Rosenberg (@EconguyRosie) February 6, 2018
Job growth
Growth in nonfarm payrolls peaked in January 2015 at 2.3%. In January 2017 it was 1.4%. This is a coincident indicator.
Workers’ real wages
Growth of workers’ wages per hour — wages of production and non-supervisory workers (85% of all workers) minus the CPI — peaked in January 2015 at 2.3%. In December (the last month available) it was 0.3%. It was probably roughly the same in January (hourly wages were unchanged).
Commercial and Industrial Loans
Growth in Commercial and Industrial Loans by banks peaked in January 2015 at 13.5%. It was +1.1% in January. The largest drop was from January 11, 2018 to March 8. This is a lagging indicator.
University of Michigan Consumer Sentiment Index
Improvement in this measure of consumer sentiment peaked in January 2015 at +20%. In January it was –2%. It is a leading indicator.
Average weekly hours
Growth in average weekly hours of production and non-supervisory workers peaked in January – February 2015 at 1%. In January it was –0.5%.
Building permits
Growth in new permits for private housing units peaked in June 2015. This is a leading indicator.
The supply of money
M2 consists of M1 (cash and checking account) plus savings accounts, money market accounts, and small-denomination time deposits (less than $100,000). This is a leading indicator.
The OECD Leading Indicators look strong!
The OECD Composite Leading Indicator (CLI) for the US peaked in July – August 2014 at 101.0. It was 99.9 in November 2018. The CLI for the full OECD has followed the same path. Note: unlike the other graphs, this shows the absolute value of the CLI (not the YoY change).
Some leading indicators continue to rise
The big story: Durable goods.
Growth in new orders for durable goods are accelerating, after lagging throughout the expansion.
For More Information
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If you liked this post, like us on Facebook and follow us on Twitter. See all posts about economic growth, about secular stagnation, and especially these…
- Ignore the skeptics. America can still grow.
- Today’s mythbusting: the Fed is not suppressing interest rates.
- Did anyone predict the 2008 crash? Will anyone predict the next crash?
- WWI warns us about markets’ ability to see the future.
- See the mystery of US GDP, and understand ourselves better.
- Trump’s Tax Cuts Won’t Offset the Impending Slowdown.
To better understand what lies ahead for America…
I recommend reading The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War
“In the century after the Civil War, an economic revolution improved the American standard of living in ways previously unimaginable. Electric lighting, indoor plumbing, motor vehicles, air travel, and television transformed households and workplaces. But has that era of unprecedented growth come to an end?
“Weaving together a vivid narrative, historical anecdotes, and economic analysis, The Rise and Fall of American Growth challenges the view that economic growth will continue unabated, and demonstrates that the life-altering scale of innovations between 1870 and 1970 cannot be repeated. Gordon contends that the nation’s productivity growth will be further held back by the headwinds of rising inequality, stagnating education, an aging population, and the rising debt of college students and the federal government, and that we must find new solutions.
“A critical voice in the most pressing debates of our time, The Rise and Fall of American Growth is at once a tribute to a century of radical change and a harbinger of tougher times to come.”
Thanks for the nicely timed summation of economic data, FM. My only quibble is that while Consumer Sentiment is a leading indicator, it is not a reliable predictor of future results. It is skewed by far too many people being far too over- (or occasionally under-) confident about their current financial status. I don’t really blame people for this, understanding where your risks really are and developing effective plans to counter them takes a lot of work and most people have many other things they need (or prefer) to think about.
Sadly, the same holds true in the investing world where there is far less excuse for such lapses.
Pluto,
“Consumer Sentiment is a leading indicator, it is not a reliable predictor with future results.”
No single leading indicator is reliable. They are meaningful only when combined into some kind of index.
I disagree strongly with Gordon. We are in the early stages of an extraordinary growth in productivity globally. That doesn’t mean that the business cycle has been abolished, but pessimism about the future of innovation is not warranted. The problem is that many of the new breed of innovations reduce the need for labor input in ways that have led to the current metrics don’t seem to measure adequately as increases in output.
John,
I agree with you about the future, but the data so far is on Gordon’s side. Lots and lots of data.
I suggest tempering your statements with some uncertainty and humility about the future.
Touche’. I always seek out an editor for anything I write other than sometimes your site and Facebook. All advice is appreciated.
My thesis on this subject is not new. I addressed it in detail at http://capmatters.com/2014/12/ over three years ago. I have seen nothing since to convince me that this scenario is not playing out. Just got back from an automation industry conference. The automation sector has been experiencing between ten and fifteen percent compound growth for the past five years with no sign of a slowdown.
My sense is that the data takes a long time to sort out the value of disruptive innovations, which create radical efficiencies that lead to significant deflation. We’ve seen incredible improvements in hydrocarbon E&P technologies, but the data keeps saying we’re asleep at the wheel in terms of overall productivity. You know more about the micro inputs into the data sets. I’d love to understand how these deflationary productivity improvements really play out in the data. My guess is that a money illusion is at work here.
John,
I agree with you. Only time will tell which path we are on — a new industrial revolution or secular stagnation. Or, of course, something else.
Stagnation has been global historical norm. I think it will be decline in US, because the new majority (in school right now) will be beneficiaries of substandard education-the norm for low income/poor students-which they are!
Oh and local government is not ready. Either US states follow NC approach or they provide quality city managers-for future norm of low income localities and quality legal counsel.
Rck Cole asks a good question! He’s a top city manager and -as is norm- pricey!
http://www.zocalopublicsquare.org/2011/07/17/thankless-but-essential-work/ideas/nexus/
Thankless, but Essential, Work
Who Will Manage the Rustbelt Cities in our Midst?
Winston,
You parade of negative soundbytes is sad to read. Take off your blinders and see the world.
“Stagnation has been global historical norm.”
That hasn’t been true for 300+ plus years in the West, and for a century or more for much of the world.