The US Recovery

[DOR]

Recovery update

The next time someone says the economy isn’t doing very well, ask “which economy do you mean?” Unemployment in the US hit 4.6% in the latest (October 2016) insight. In the 60 years to the end of 2007, the unemployment rate averaged 5.59%. It has been below that level for 20 months now.

Since 1950, payroll employment in the US has grown, year-on-year, an average of 1.8% p.a. The longest continual growth was in 1992-2001 (112 months); the second was 1961-71 (107 months); and the third, 1983-90 (92 months).

To date, employment has grown 75 straight months since 2010, the fourth (of 10) longest stretch since 1950. While the average rate of increase, +1.6%, isn’t very good (it’s second worst, in fact, after 2003-08: +1.3%), it is a lot closer to the average than most people realize.

Continual months of payroll employment growth (average pace)
1950-53 - - 44 months (avg: +4.0%)
1955-59 - - 33 months (avg: +2.9%)
1959-60 - - 23 months (avg: +2.9%)
1961-71 - - 107 months (avg: +3.2%)
1971-74 - - 43 months (avg: +2.9%)
1975-81 - - 54 months (avg: +3.7%)
1983-90 - - 92 months (avg: +2.7%)
1992-01 - - 112 months (avg: +2.2%)
2003-08 - - 53 months (avg: +1.3%)
2010 – 11/2016 - - 75 months (avg: +1.6%)

Initial unemployment claims, measured on a rolling four-week basis, have fallen in all but six weeks in the past seven years. In all but 6 of 352 weeks, the measure has fallen. The second best performance was in 1985-89, 179 weeks (but, with 13 weeks of increases mixed in, rather than 6).

[astralis]

my biggest concern re: the Trump Presidency is what happens if/when the party inevitably ends.

a mild recession can be more or less dealt with by the Fed (provided the Fed keeps its independence); anything bigger-- even a "run of the mill" type of recession-- and there's no ammunition left given the already low interest rates.

i have no confidence whatsoever if we're talking about another catastrophe like the Great Recession. just look at his pick for Treasury Secretary.

and the latter could very easily start from external factors. the popping of the multiple bubbles in China, for instance. a -slowdown- in the Chinese economy in 2015 caused a collapse in commodity prices.

[JAD_333]

my biggest concern re: the Trump Presidency is what happens if/when the party inevitably ends.

Isn't that always a concern with any new president?

i have no confidence whatsoever if we're talking about another catastrophe like the Great Recession. just look at his pick for Treasury Secretary.

What's your take on Mnuchin?

[DOR]

my biggest concern re: the Trump Presidency is what happens if/when the party inevitably ends.

a mild recession can be more or less dealt with by the Fed (provided the Fed keeps its independence); anything bigger-- even a "run of the mill" type of recession-- and there's no ammunition left given the already low interest rates.

i have no confidence whatsoever if we're talking about another catastrophe like the Great Recession. just look at his pick for Treasury Secretary.

and the latter could very easily start from external factors. the popping of the multiple bubbles in China, for instance. a -slowdown- in the Chinese economy in 2015 caused a collapse in commodity prices.

It will be different, next time.
Congress won't be on strike against the national interest.
With a pseudo-GOPer in the White House, they'll use fiscal policy -- erroneously and expensively -- to support monetary policy.
That's something they haven't done in over a decade.
Trust me on this: partisan interests will finally top national interests in the right direction.

[astralis]

JAD,

Isn't that always a concern with any new president?

not necessarily...Obama came into power when the party had ended quite some time ago. :-)

and this goes beyond Trump; another worrying factor is that a lot of the bipartisan Congressional concord regarding what should be done during a recession or a financial crisis has now disappeared. Congress and the Bush Administration actually acted fairly speedily when the crisis was kicking off in 2008, and was one of the reasons why the great recession didn't hit us as hard as it did Europe.

What's your take on Mnuchin?

given his past, as well as other Trump appointees, a lot of the post financial-crisis regulations will be rolled back if not outright stripped away.

[astralis]

DOR,

It will be different, next time.
Congress won't be on strike against the national interest.
With a pseudo-GOPer in the White House, they'll use fiscal policy -- erroneously and expensively -- to support monetary policy.
That's something they haven't done in over a decade.
Trust me on this: partisan interests will finally top national interests in the right direction.

not sure if sarcasm...otherwise, i don't know where you get that optimism from.

what fiscal policies do you envision a GOP-led Congress enacting?

look at it this way; right now they're barreling ahead with repealing the ACA despite knowing full well that this will cause chaos in the insurance marketplace (even if they try to slow-roll it as they're considering now). but it's something that they sold to their voters so long that they feel pressured to do this as a priority.

so...do you really think they're going to go for stimulus if another crisis hits just because Trump is there? they certainly haven't forgotten how the Tea Party got started.

i mentioned this to JAD above; the Republicans now aren't the same as the Republicans of the Bush era.

[DOR]

We’re conditioned to think of US economic cycles as moving from peak to trough and back to peak, regular as clockwork (except when Greenspan dodges a recession, as in 1995) and predictable in outcome.

So, it is really hard to think about the post-2007 period as something different. The decline, and the recovery followed none of the usual trajectories; the political (fiscal) response was both unprecedented (stimulus package, recapitalization, bailouts) and hugely counter-productive (undermining the sovereign credit rating; time wasting, austerity). That forced monetary policy to take over all but a fraction of the heavy lifting.

What happens when the economy slows? It never really sped up much, did it? 3.2% real (QQ) growth is fairly normal, not over-heating and certainly not under-performing. What happens when unemployment rises? It isn’t. That’s a long way off, and shouldn’t be much of a concern for two or more years (damn, I can’t seem to stop forecasting).

From late 2011 to Q-3 2013, PCE grew in real terms, year-on-year, less than 2% p.a. Since then, it has averaged 2.8% p.a., and better than 3% for about half of the time. That’s people’s livelihoods, and it’s doing OK. Real wages are rising, household debt:service ratios are down to about 10% (well below average).

This is telling: https://fred.stlouisfed.org/series/MDSP
Look at the direction of mortgage debt service payments as a percent of disposable personal income in the run-up to each recession. It’s kicking up. Now, look at the direction since 2009: ski slope-like decline. If this is a recession predictor, it’s screaming “Clear sailing! Full speed ahead!”

What’s is Congress going to do? There’s a lot of indications that the politicos realize their confrontation with Obama hasn’t been productive. They failed in McConnell’s efforts to make him a one-term president, and they wasted tremendous time and energy on useless challenges to Obamacare. Least productive congress ever?

Congress Critters want to get things done. They are quite likely to go along with a yuuuge infrastructure program, provided there’s plenty of new projects for their friends (fixing bridges is neither sexy nor profitable). The assault on the tax base will enter an entirely new phase, probably with plenty of Reagan / W style wasted rate cuts for the rich, but maybe with a tasty morsel or two – enough to keep PCE rising – for the middle class. Fuck the poor, of course.

Deregulation may provide some short-term relief, at the expense of major longer-term pain. But, no one ever said GOPers like to work for the long-term best interests of the nation, even if the payoff comes during a Democratic Administration. Short-termism is king, and might work . . . in the short term.

At this point, predicting / forecasting / fortunetelling isn’t all that useful.

[DOR]

The nonpartisan Congressional Budget Office’s (CBO.gov) January 2017 10-year projection envisages a 61.6% rise in spending, a 51.0% rise in revenues and as a result, a 120.8% increase in the deficit in 2026, as compared to the actual 2016 figure.

Individual income tax payers will contribute an additional 67.5% while corporate taxes will add 40.9% to total revenues.

[JAD_333]

Dor

I've been wondering how we can cut corporate income tax rates nearly in half and give the middle class a tax cut, and still continue to reduce deficit spending. Somewhere I read that increased oil output would bring in lots of revenue. That doesn't seem like an adequate offset.


Edit: Speaking of a corporate tax cut, I also read that it could boost GDP to over 4%. If true, tax revenues would get a boost, but whether great enough, who knows.

[tbm3fan]

Dor

I've been wondering how we can cut corporate income tax rates nearly in half and give the middle class a tax cut, and still continue to reduce deficit spending. Somewhere I read that increased oil output would bring in lots of revenue. That doesn't seem like an adequate offset.


Edit: Speaking of a corporate tax cut, I also read that it could boost GDP to over 4%. If true, tax revenues would get a boost, but whether great enough, who knows.

Who told you to read between the lines...

[Dazed]

JAD

I believe by cutting the corporate tax rate you will entice multinational corporations to bring more of their profits back to the U.S. and pay taxes here - that is, instead of stashing the money in tax havens around the world. That is the idea what the reality is?

[astralis]

that's the idea, but it's a poor one. it's going to be extremely hard for the US to compete with island tax havens on this, with the cuts working on the relative margins.

also, given that the economy has picked up speed over the last year and a half, a stimulative tax cut now is not particularly effective. this -should- be the time when we start stockpiling for the inevitable increase in mandatory spending as boomers age out, and make cost-effective infrastructure spending which we badly need.

if there should be a tax cut, it should probably be in regards to childcare to stem demographic changes.

[JAD_333]

Been hashing this out with fellow investors for several years. Of course, investors have their own interests in mind. A short term repatriation tax of 10% and a subsequent reduction in the corporate tax rate to 15% could bring back upward of $2 trillion which would translate to a share price increase for the corporations involved, not to mention the potential for increased capex spending and acquisitions. Apple alone has $200 billion stashed abroad. No doubt much of the returning money would go toward share repurchase plans and dividends.

Trump for all his childish boasting has hinted not too subtly that US corporations are in a new game which behooves them to avoid bumping heads with him. They'll bring the money back and then we'll see. There's talk they'll begin to partner with foreign companies to open plants here, as Apple is expected to do with Foxxcon, it's Chinese-based assembler of the iPhone and iPad.

You cannot overestimate the effect that a lower corporate tax rate will have on the economy. Hundreds of small and mid-sized corporations will benefit. Many of these have been unable to expand or do development for lack of adequate profits.

Combine a tax cut with loosening of overly strict regulation and we could see faster economic growth and innovation,

[astralis]

JAD,

Been hashing this out with fellow investors for several years. Of course, investors have their own interests in mind. A short term repatriation tax of 10% and a subsequent reduction in the corporate tax rate to 15% could bring back upward of $2 trillion which would translate to a share price increase for the corporations involved, not to mention the potential for increased capex spending and acquisitions. Apple alone has $200 billion stashed abroad. No doubt much of the returning money would go toward share repurchase plans and dividends.

Trump for all his childish boasting has hinted not too subtly that US corporations are in a new game which behooves them to avoid bumping heads with him. They'll bring the money back and then we'll see. There's talk they'll begin to partner with foreign companies to open plants here, as Apple is expected to do with Foxxcon, it's Chinese-based assembler of the iPhone and iPad.

You cannot overestimate the effect that a lower corporate tax rate will have on the economy. Hundreds of small and mid-sized corporations will benefit. Many of these have been unable to expand or do development for lack of adequate profits.

Combine a tax cut with loosening of overly strict regulation and we could see faster economic growth and innovation,

corporate profits pretty much broke records every year since 2012, yet the relative trickle-down effect has been slow, with economic growth only picking up steam in 2015 and 2016.

at this juncture, i think that reduction in corporate tax will probably mean a few tenths of a percentage point in growth for several years.

still, i could see my way to a corporate tax reduction in return for a significant increase in short-term capital gains tax rate.

but as far as i can see, all of this is just a sideshow from something which neither candidate really discussed, which is the opportunities/threats coming from widespread automaton.

[DOR]

Dor

I've been wondering how we can cut corporate income tax rates nearly in half and give the middle class a tax cut, and still continue to reduce deficit spending. Somewhere I read that increased oil output would bring in lots of revenue. That doesn't seem like an adequate offset.


Edit: Speaking of a corporate tax cut, I also read that it could boost GDP to over 4%. If true, tax revenues would get a boost, but whether great enough, who knows.

JAD_333,

Once upon a time, a very charismatic president from Southern California convinced people that cutting corporate tax rates would result in so much new investment that tax revenues would go up so much that personal tax rates could also be cut. This fairy tale is called “Voodoo Economics.”

Lo, and behold, when the corporate honchos got their tax breaks, they plowed the money into financial engineering, off-shore investing and bigger paychecks for themselves. With the economy starved for investment and high unemployment, government tax revenues stalled. But, nevertheless, Our Hero poured billions into national defense against a collapsing Evil Empire.

Over eight years, the budget deficit (and, as a result the national debt) was three times as large as in the previous 16 years.

When the adults got home, they said “enough of this shit,” and put the economy back on an even keel. At least, until the next time small boys with even smaller electoral margins get their tiny hands on the economy.