Is The U.S. Economy Really In Trouble? A Debate by Gary D. Halbert
FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
November 3, 2015
IN THIS ISSUE
- 3Q GDP Report Disappoints, But Not All Bad News
- Widespread Fears That America is on the “Wrong Track”
- Editorial: “Is the Economy Really in Trouble? A Debate”
- Conclusions: 2008 Was Not a Once-a-Century Kind of Storm
Today we’ll take a closer look at last Thursday’s disappointing GDP report for the 3Q. It turns out that the report was not quite as bad as the headline 1.5% growth suggested. Following that, we’ll look at some polls which show that about two-thirds of Americans are worried about the direction the country/economy is headed.
Along that line, I have reprinted a very interesting column from The New York Times’ senior economics writer, Neil Irwin. In a debate with himself, Mr. Irwin discusses the many pros and cons regarding the economic outlook, and suggests that maybe we worry too much. While you might not agree with him, he quotes a lot of economic stats and the article will make you think.
3Q GDP Report Disappoints, But Not All Bad News
Last Thursday’s advance report on 3Q GDP showed disappointing growth of only 1.5% (annual rate), down from the sizzling 3.9% rate in the 2Q, and below the pre-report consensus of 1.7%. But on further review, some of the internals of the report were actually encouraging and suggest the economy could be doing better in the 4Q. Let’s take a look.
America’s economy pulled back in the 3Q mainly because companies reduced inventory growth. Slower inventory growth counts as a drag on the economy. Yet beneath the headline number of 1.5%, the government’s latest tally of GDP showed buoyant consumer and business spending.
Consumer spending which makes up almost 70% of GDP remained firm in the 3Q at 3.2% (annual rate), down only modestly from 3.6% in the 2Q – even as inventories were worked down and sales to overseas customers were lower.
Stable employment in 2015 and cheaper prices at the pump have helped pad Americans’ pocketbooks. While payrolls advanced at a slower pace than forecast in August and September, the pace of hiring this year has averaged almost 200,000 a month, beating the annual average for seven of the 10 years through 2014.
After-tax household incomes adjusted for inflation climbed at a 3.5% annual rate in the 3Q, almost three times the 1.2% percent gain in the 2Q. That allowed the US savings rate to increase to 4.7% from 4.6% in the 2Q, indicating consumers have increasing buying power to continue to drive growth.
Source: US Bureau of Economic Analysis; Bloomberg
The bottom line is, without the drag from slower inventory growth, the economy would have grown by almost 3% in the 3Q. Since inventory slowdown is normally a temporary phenomenon, we could see an improvement in the GDP report for the 4Q. Of course, we won’t see the first report on 4Q GDP until late January next year.
Widespread Fears That America is on the “Wrong Track”
Most Americans worry that the economy is headed for worse times, perhaps a new recession before long. According to Rasmussen, almost two-thirds (65%) believe the economy is heading on the “wrong track,” whereas only 27% believe the country is moving in the “right direction.” The RealClearPolitics poll asking the same question has almost identical results.
With so much data out there in this digital age, and so many ways to crunch it, you can build just about any scenario you want – optimistic or pessimistic. For whatever reasons, most of us choose the pessimistic. I suspect the underlying culprit is our gargantuan national debt of $18.4 trillion (and growing every year) that we silently know will never be paid back.
In any case, it’s easy to worry about the country, the economy and where it’s headed. On Sunday, I read the latest column from The New York Times’ senior economics writer Neil Irwin who has an interesting take on the argument over where the country is headed. He’s confused, like many of us, so he decided to have a debate on the pros and cons – with himself.
I think you’ll enjoy it, so I have reprinted it for you below (along with a few charts I added.)
Is the Economy Really in Trouble? A Debate
by Neil Irwin, New York Times
October 30, 2015
I write about economics for a living. Part of my job is to look into the maw of economic data, financial market indicators, anecdotal reports from businesses and whatever else I can get my hands on, and turn it all into a crisp, clear narrative about the United States and global economies.
But right now I’m stuck. I have no idea how the United States economy is doing. And the closer I look at the data, the more contradictory it looks.
A strong case could be made that it is in its most vulnerable spot in years, at risk of a new recession amid a global slowdown. The market for many types of risky bonds is in disarray, and “the dangers facing the global economy are more severe than at any time since the Lehman Brothers bankruptcy in 2008,” the former Treasury Secretary Lawrence H. Summers wrote recently.
There is also a strong case that the United States economy is robust enough to withstand whatever challenges might arise from overseas, and that the evidence of a slowdown is scattered and overstated. Fewer people have filed for unemployment insurance in recent weekly readings, for example, than any time since 1973.
I’ve tried several times in the last few weeks to convince myself that one of those stories is correct, but just can’t decide between them. And because The New York Times is not fond of headlines that include the “shruggie” emoticon (for the uninitiated, that would be ¯_(?)_/¯), I have held off writing anything.
[Gary here: Emoticons are cartoon facial representations of a writer’s mood, such as the happy face or the sad face. The “shruggie” suggests that the writer is confused or uncertain – Idunno… Back to the article.]
Why am I telling you all this? Because sometimes the most accurate portrayal of a situation revolves around uncertainty — and because we journalists aren’t always honest about that. This is my effort to be a little more honest.
Rather than picking an analytical case and pretending to be more certain than I am, I want to walk readers through the conflicting evidence. Below, I do so in the form of the debate that has been playing out within my own head — and, very likely, around conference tables at every economic research group and central bank you can think of.
It sure feels as if we’re on the verge of something bad. The expansion is six years old, making it already the fourth-longest since World War II. If the economy does soften, the Federal Reserve is out of ammunition to do much of anything about it. This feels a little like late 2000, when there were signs the economy was losing momentum even though growth was still technically positive. Then in 2001 there was a mild recession.
Whoa, not so fast. Back then there was a