Tag Archives: economic growth

Move evidence the Fed will not raise rates on our slow-mo economy

Summary: On Thursday I posted “Ignore The Bond Bears, The Fed Will Not Raise Rates“. Many on Wall Street disagree — most of whom since 2012 have expected a cycle of rising rates to begin really soon.  Such as J. P. Morgan’s prediction of a rate increase in December. Friday’s data confirms my forecast in a big way.

Slow Economic Growth

First, yet another in the almost endless series of economic indicators showing the US economy stuck in “slow”. Retail sales — critical in our consumer-driven nation — is up only 2.9% YTD YoY, with September +3.4% YoY (NSA) — see the report. We should be at peak growth in this expansion; instead growth faded in Fall 2014 and has remained slow since then.

Retail Sales - September 2016

Click to enlarge.

Second, with this data the Atlanta Fed’s GDPnow model lowered its prediction for Q3 real GDP to +1.9%. The forecast on August 5 was for 3.8% growth. On October 28 we get the advance estimate from the BEA. The average GDP growth since the trough in Q2 of 2009 has been 2.1%. The data for Q3 shows no change in that slow growth.

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The Fed Will Not Raise Rates In The Foreseeable Future

Summary: Since 2010 I have said that the economy is locked in slow-mo and the Fed will not start a new rate cycle. It’s even more true today than in 2010.

  • Many investors and economists are convinced that the Fed will soon end its near-zero interest rate policy and begin raising rates – “normalizing them”.
  • As I and others have said since the crash, these times are not normal (i.e., the post-WWII era has ended).
  • Most economic indicators show flat or slowing economic growth.
  • The developed world has fallen into secular stagnation.
  • The next event is not a boom requiring higher rates, but a recession.

Slow Economic Growth

Short-term riskless US rates are set in the world’s largest market:
when will rates return to normal?

Market yields on 3-month T-bills

We have been told for six years that soon interest rates will rise. During that time, the right-wing’s inflationistas have predicted rising inflation, or even hyperinflation (remember the 2010 “Obama will turn America into Zimbabwe” scare?). Incredibly, many experts still believe this despite…

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Ignore The Bulls And Bears. See The Key Trend In The Jobs Numbers.

Summary: Ignore the Bulls & Bears. Their need for clickbait stories turns noise into news. See the key trends in the jobs numbers, revealing the forces shaping the US economy.

Slow Economic Growth

  • The jobs report confirms that the US economy grows slowly, and is slowing.
  • It gives no evidence that the US is accelerating, or that the Fed will raise rates.
  • If it continues slowing at this rate, we will have a recession in 2019.
  • High equity valuations make no sense in this slow motion economy.
  • Beware of analysts who sell stories about exciting noise, hiding the boring but important trends.

See my article at Seeking Alpha for the full story.

Ignore the skeptics. America can still grow.

Summary: Can America no longer grow? Have we exhausted the potential for future technological progress? Let’s look at how far we have come and ask if the engines of progress that produced these wonders can no longer work for us.

“Innovation of new forms of society and technology. It is the key to our progress. It has allowed us to evolve from naked hunter-gatherers to the dominant species on this planet. This process is slow, normally taking hundreds or even thousands of years. But occasionally evolution leaps forward.”
— A slight tweak of Professor Xavier’s words from the title sequence of the movie “X-men”. These events are called “singularities”.

Economic growth

 

Contents

  1. Has humanity’s growth story ended?
  2. The singularities in our past.
  3. The singularities in our future
  4. For More Information.

(1) Has humanity’s growth story ended?

“I wonder if and when the law of large numbers begins to be relevant to that growth in the same way it’s relevant to a company’s growth rate. Should we expect growth rates to decline as world GDP gets larger?”
— An important question by Jeff Harbaugh in a comment to a previous post.

One reason Trump’s campaign has surprisingly caught fire is his simple call to “Make America Great”. No matter how delusionally conceived, at least he appears to realize the importance of fighting the multi-decade long slowing of America’s economic growth. Upper middle class greens mutter about the wrongness of growth. America’s poor grow restive as they see their chances for social mobility fade away. Others just despair, believing that rapid growth lies in our past but not in our future.

(2) The singularities in our past.

Our world is the result of singularities in our past. Fire, pottery, agriculture, metals, writing — giant leaps forward in technology. Too see how far humanity has come, imagine how our society would appear to our stone-age ancestors of 40,000 years ago. For one answer see “Cro-Magnon Communication” by Brad Delong (Prof Economics, Berkeley).

“The Twelve-Year-Old is on strike. She refuses to write more than one paragraph of a letter detailing her day to our pre-Neolithic Revolution ancestors. She says the idea is stupid because it cannot be done — the Singularity is not in our future but in our past. Nevertheless it is quite a good first paragraph:

“I was jigging to my iPod when my friend Noelle rode up in the front passenger seat of her family’s minivan. ‘Will your parents let you come see “Wedding Crashers“?’ she asked.”

“She has a point. ‘Jigging’ can be gotten across. And the East African Plains Ape social dynamics can be gotten across — friends, marriage, excessive parental control of the activities of adolescent females, et cetera (although not all of them: the idea of a “wedding crasher” is a very complicated concept to get across to a hunter-gatherer who has lived in a group of 40 or so her whole life).

“But the rest? Maybe I should have reversed the assignment: What kinds of science fiction would hunter-gatherers have written?”

For another perspective, shift forward in time to ~12,000 years ago, before the Neolithic singularity (e.g., the wheel, agriculture). Here is Pat Mathews’ entry in Brad Delong’s Early Holocene Epoch science fiction contest, with our distant ancestors describing a future unimaginable to them.

Shaman:  I have foreseen a time when everybody can have all the meat, fat, and sweet stuff they can eat, and they all get fat.
Chief:        You have had a vision of the Happy Hunting Grounds.
Shaman:  It is considered a great and horrible problem! People go out of their way to eat leaves and grass and grains, and work very hard to look lean and brown.
Chief:        You’ve been eating too many of those strange mushrooms, and are seeing everything backward.

Shift forward again to our most recent singularity — “the industrial revolution”. It ended in 1918. It was a singularity in ever sense, as explained in “The Singularity in Our Past Light-Cone” by Cosma Shalizi (asst prof of Statistics at Carnegie Mellon). To see its impact, consider life before it reshaped the world: in the late 14th century. Then the English pound was worth 4/5ths of a pound of silver, equivalent to roughly $175 today. When reading this, remember that the median household income in the US is now $52,000.

“What was 14th century money worth in today’s dollars? That’s tricky, because it depends on what you were buying. In the second half of the 14th century, a pound sterling would support the lifestyle of a single peasant laborer for half a year {$350/yr}, or that of a knight for a week {$9,100/yr}.

“Or it could buy three changes of clothing for a teenage page (underclothes not included), twelve pounds of sugar, a carthorse, two cows, an inexpensive bible, ten ordinary books, rent a craftsman’s townhouse for a year, or hire a servant for six months.

“It should be obvious from the above list that the conversion rate depends a great deal on what you buy. A husbandman or yeoman servant spent most of his budget on food and clothing, which have become relatively cheap since the industrial revolution. For that basket of goods, a pound sterling might buy $300 worth of goods today.

“On the other hand, a knight or noble might spend half of his income on servants, and much of the rest on handmade luxury goods, things that were relatively cheap then and expensive today. For that bundle of goods, a pound might buy $3,000 dollars worth of goods today.”

Future Industry

(3)  The singularities in our future.

We have made great progress. But as Carl Sagan said, science is just a candle in the dark. We stand in a small circle of knowledge surrounded by the greater unknown. Expanding that circle can bring wonders to our descendants as amazing to us as our lives would be to our ancestors.

Although tech progress has slowed during the past few decades, there is no reason to assume that the tools which have brought us this far will fail us in the future. The good news is that a new industrial revolution might have already begun, based on breakthroughs in smart machines, new energy sources, genetic engineering, and new materials. These could produce improvements in living standards as large as those of past revolutions.

But history shows that technological breakthroughs are not natural. The ancient world had conditions similar to those of pre-modern Europe, yet nothing came of it. To restart growth and avoid a dead end like that of the ancient world, we must re-build our social engines of scientific and technological progress. Schools, universities, the patent office, the government’s R&D agencies — it’s a long list, most of which are neglected in modern America.

Too bad such things are ignored in campaign 2016. Instead we get a circus. But we can change that, if we have the will to do so.

Yes since we found out
Since we found out
That anything could happen
Anything could happen
Anything could happen
Anything could happen
Anything could happen
Anything could happen.

— A powerful insight in Ellie Goulding’s song “Anything Could Happen.”

For More Information

If you liked this post, like us on Facebook and follow us on Twitter. See all posts about the singularity, about secular stagnation, about the new industrial revolution just starting, and especially these…

  1. Has America grown old, and can no longer grow? Or are wonders like the singularity in our future? — About the different kinds of singularities.
  2. Ben Bernanke sees the great slowdown in technological progress.
  3. Do we face secular stagnation or a new industrial revolution?
  4. Looking at technological singularities in our past & future.

Books about the new industrial revolution.

Sngularity sky

The jobs report shows why so many don’t understand the US economy

Summary: Today’s job report show one reason we see our world so poorly — we read the news. Journalists and the experts who make headlines give us exciting stories of constant change. But the world usually changes slowly. Sometimes, as in this economic cycle, slow stable boring growth is the story. That generates no clickbait, so we get statistical noise magnified into thrilling news. People of bearish views (temperamentally, or because the “other” political party rules) read the stories of imminent collapse — and vice versa. And vice versa for the bulls. Both become entertained and ignorant.

What’s happening? Slow growth, with small fluctuations around the trend.

Change in Employment - MoM - August 2016

Excerpts, slightly paraphrased, from the Employment Situation Report for August tell the tale, as this slow expansion continues — frustrating both the bulls (boom soon!) and bears (recession now!).

  • Total nonfarm payroll employment rose by 151,000 in August, compared with an average monthly gain of 232,000 over the prior three months and 204,000 over the prior 12 months.
  • “Little movement over the year” in the unemployment rate, and the labor force participation rate, and in the number of unemployed and discouraged workers.
  • No change in the past year in the average weekly hours of production and non-supervisory employees in the private sector. Their average weekly earnings were almost unchanged during August, and rose 2.2% YoY.

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The secret but vital to know number in today’s economic news

Summary: Economists get excited about aggregate GDP (today’s hot economic news dot). People — you, me, our neighbors — care about per capita GDP. GDP that grows along with the population does nothing for our standard of living, (and less than nothing if the 1% cream off most of it). It is important to us, so journalists ignore it (hence the newsroom layoffs).

Slow Economic Growth

The economy has recovered since the crash (the doomsters saying otherwise are, as usual, wrong). But the stories about the wonderful economy are also bogus. Per capita real GDP has grown a total of 3.4% since its previous peak in Q4 of 2007 — only 0.4% per year (which is also its YoY growth in Q2 2016). This is secular stagnation. The causes are only somewhat understood; economists have only guesses as to its cure (as usual, delusionally confident guesses).

Growing at 1% – 2% per year since the crash. Slowing fast since 2014.

Growth of US Per Capita Real GDP since the recession - Q2 2016

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The ugly news about the US economy, unmentioned in Campaign 2016

Summary: Friday’s news about Q2 confirmed that America is mired in secular stagnation. Here is the worse news, unmentioned in the newspapers. It should electrify Campaign 2016, giving it real meaning — beyond the circus of personalities. That will happen only if you see what is happening and act. If each of us as individuals sees and acts.

Pictures tell the tale: Compare growth in real GDP since the 2007 peak
Total GDP up 10.6% . Per capita GDP up 3.4%. Over 9 years!

Growth of US Per Capita Real GDP since the recession

The news about Q2 real GDP was terrible: up only 1.2% SAAR (seasonally adjusted annual rate). The YoY change more clearly shows the trend (less noise): also up 1.2%, far below the slow 2.2% average of 2012-2015.  Secular stagnation tighten its grip on America, as it has on Japan and Europe. There is no certain, easy or fast cure.

People often complain that GDP does not match the economics they see around them. That’s correct — it’s an abstraction. But also we do not live by national GDP. Per capita GDP is closer to what we care about: it has grown only 0.5% during the past 4 quarters.  Since the rich (the top few percent) take most or all of that, most American’s are losing ground (real median household income is down 7% since 1999, last available data). High rates of immigration plus slow national growth is a toxic combination.

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