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Private Sector GDP Growth is Kind of Anemic

Today’s GDP report got me curious about something: how does private sector GDP compare to total GDP? That is, if you pull out government contributions to GDP growth, what does purely private-sector growth look like? Here it is:

Private sector growth has been declining since the start of the expansion, and that decline has picked up speed over the past two years. It’s no wonder President Trump was so eager to agree to sizeable increases in the federal budget this week. He knows perfectly well that his tax cut has worn off and he needs all the help he can get from government spending to prop up an increasingly anemic private sector. For the next year, anyway.

Personal consumption was up a healthy 4.3 percent, but business investment plummeted -5.5 percent. Exports were down and imports were flat. Federal government spending added more than usual to GDP by about 0.4 percentage points. State government spending was also higher than average, by about 0.2 percentage points. If government spending had been at normal levels, GDP would have increased 1.5 percent instead of 2.1 percent. Inflation was higher than last quarter.

Overall, this is an OK but not great GDP report for the private sector, saved only by higher government spending.

The most remarkable thing about Donald Trump is how eerily stable his approval rating is. Here is 538’s chart over the past year:

After the Republican tax cut passed in late 2017, Trump’s approval rating rose to 41 percent and it’s stayed within two points of that ever since. I don’t know if this is good or bad—bad for Trump, I suppose, since that’s a tough re-elect number—or if there’s much Trump can do to improve it. But it’s definitely unusual. It sure looks like nearly everyone has their mind made up about Trump and isn’t likely to change it.

 

Source: Private sector GDP growth is kind of anemic

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Here’s Why We Suddenly Stopped Hearing About A Recession

Topline: Economists—especially after the stock market took a dive in December—had been warning that a recession was coming, and possibly imminent. But a combination of low-interest rates and an improving labor market has quickly silenced those fears — and complicating the hopes of Donald Trump’s foes in 2020.

  • The risk of a recession decreased last week after the Federal Reserve declined to raise interest rates this year, said Brian Rose, senior Americas economist at UBS Global Wealth Management’s Chief Investment Office.
  • Combined with a stock market bounce-back and a growing economy, investors are now optimistic — a big shift from earlier this year.
  • Major economic predictors showing an increased threat of a recession have scaled back it’s predictions in recent weeks.
  • Asterisk: If President Donald Trump escalates the trade conflict with China by adding more tariffs on Chinese imports—particularly auto parts—the economy could suffer, increasing the chances of a recession, Rose said.

Earlier this year, half of economists surveyed by the National Association for Business Economics predicted a recession in 2020. Another poll of economists by the Wall Street Journal in January put the chances of a recession at 25 percent—the highest since 2011.

Coverage piled on (a few examples: “4 Signs Another Recession Is Coming―And What It Means For You,” “A recession is coming, but don’t flee markets yet,” “The Next Recession Is Coming. Now What?”), with many predicting bad news for Trump (Politico: “Trump advisers fear 2020 nightmare: A recession”). Some industries girded for the worst, like online lenders, who tightened its rules to lessen risk.

And then, suddenly, the panic eased. Now Goldman Sachs economists say there is only a 10 percent chance of a recession. What happened?

The biggest factor in that shift came when the Federal Reserve opted not to not raise interest rates, a pleasant surprise to economists. Rose said lower-than-expected inflation led the Fed to keep rates modest.

The economy, too, has grown, allaying recession fears. According to the latest job numbers, the U.S. has the lowest unemployment rate in 50 years.

“It is hard to have a recession when unemployment is this low and interest rates are this low,” Richmond Federal Reserve president Tom Barkin said on Wednesday.

The biggest risk of recession comes from Trump himself. If he increases tariffs on more goods than the $200 billion in Chinese imports he’s already promised, the risk of a recession increases, Rose said. As trade negotiations remain rocky, investors are increasingly concerned.

“Left on it’s own, there’s little risk to the economy,” he said. “The real risk of a recession comes from policy, particularly trade.”

Barring another recession, positive economic growth should mean good news for Trump in 2020. But as it stands, Trump is still relatively unpopular (his approval rating sits at 46 percent, although that is a high for him). And most forecasters agree the economy won’t grow as much as the White House says it will.

“A normal president with these economic numbers would have job approval somewhere in the vicinity of 60%,” Republican pollster Whit Ayres told the Los Angeles Times. “But Donald Trump is a nontraditional president, and he has, at least at this point, severed the traditional relationship between economic well-being and presidential job approval.”

Still, a recent CNN poll found that 56 percent of Americans approve of Trump’s handling of the economy. And while many Democrats haven’t focused on the latest job numbers, Senator Amy Klobuchar (D-MN), who is running for president, tried spinning the numbers a different way during an appearance on CNN, crediting President Obama with job growth.

I’m a San Francisco-based reporter covering breaking news at Forbes. Previously, I’ve reported for USA Today, Business Insider,

Source: Here’s Why We Suddenly Stopped Hearing About A Recession

America’s Real Economy: It Isn’t Booming – Peter Georgescu

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Ostensibly, for the past ten years, US economy has been recovering from the 2008 collapse. During the past few years, our comeback seems to have gained momentum. All the official indicators say we’re back in boom times, with a bull market, low unemployment and steady job growth. But there is an alternative set of data that depicts a different America, where the overlooked majority struggles from month to month.

The Nation recently published a stunning overview of the working poor and underpaid. One of the most powerful data points in the piece described how empty the decline in unemployment actually is: having a job doesn’t exempt anyone from poverty anymore. About 12% of Americans (43 million) are considered poor, and yet they are employed. They earn an individual income below $12,140 per year, and slightly more than that for a family of two. If you include housing and medical expenses in the calculation, it raises the percentage of Americans living in poverty to 14%. That’s 45 million people.

At that level of income, there’s almost no way to pay for food and shelter in any sizeable American city. That means people now can both be employed and homeless. Rajon Menon writes, for The Nation:

In America’s big cities, chiefly because of a widening gap between rent and wages, thousands of working poor remain homeless, sleeping in shelters, on the streets, or in their vehicles, sometimes along with their families.

Fewer and fewer people have savings to weather time between jobs or an emergency expense. A third of the U.S. population has no savings and another third has saved less than $1,000. Two-thirds of American households, by this measure, are desperately scrambling to make ends meet from check to check. Nearly half the American population earns too little to live on comfortably:

One-third of all workers earn less than $12 an hour and 42% earn less than $15. That’s $24,960 and $31,200 a year. Imagine raising a family on such incomes, figuring in the cost of food, rent, childcare, car payments (since a car is often a necessity simply to get to a job in a country with inadequate public transportation), and medical costs.

Even in households that combine income from two wage-earners, it’s rarely enough to live on without anxieties about money. It takes an average of a little more than $100,000 per year now for a household to be able to live without anxieties about money.

Slow and steady inflation has eroded buying power over the past decade. According to The Nation, the minimum wage rose to $7.25 by 2009, but since then inflation has eroded 10% of its buying power. So this year, someone will have to work 41 additional days to make the equivalent of the 2009 minimum wage.

  • Healthcare costs are projected to go up 20% in the coming year.
  • Credit card debt has crested at a trillion dollars and is projected to increase at 4.7% by 2020.
  • Wages have been increasing by only 2.9% per year.
  • For the young, education debt has reached a record $1.52 trillion.

How long is this sustainable?

What’s genuinely astonishing to me is that the private sector doesn’t see the immense danger in all this—not simply the prospect of a collapse from enormous household debt loads, but the prospect of civil unrest after another huge correction like the one in 2008. Our current course is unsustainable. And for all the proposals for changes in public policy to ameliorate income inequality, only the private sector can get the nation on a better track by raising wages, increasing benefits and investing in new ventures and expanded markets.

There are numerous ways in which our wealthiest companies could help change the course of our economy. Here are some suggestions from Larry Thompson, former executive VP for PepsiCo, and his coauthors writing for Fortune magazine:

  • Get involved in early education for children of employees. Programs that start at birth can lift their earnings by up to 26%. At PNC Financial Services Group, their Grow Up Great program has served over 2 million children throughout the U.S., through grants to organizations that support early learning in math, science, and the arts.
  • Fund higher education for existing employees. In collaboration with Southern New Hampshire University, Anthem Insurance (ANTM, -0.06%) recently began making associate’s or bachelor’s degrees available at no cost for 50,000 eligible workers. Another company, FedEx, partners with nearly 20 higher education institutions including Western Governors University.
  • Businesses also should look to re-employ the long-term unemployed, Frontier Communications has hired more than 250 of the long-term unemployed in 2014 alone by eliminating most qualifications and simply observing how well applicants communicated.

These initiatives only scratch the surface, but they are exactly what all companies need to be thinking of doing. If every employer in America came up with even just one modest step—higher wages, regular profit sharing, tuition reimbursement—to help workers spend and save more, the nation would begin to right itself economically. It needs to happen now. We’re running out of time.

 

 

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