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Slow Economic Growth Will Be Around For A Long Time

March 26, 2017

Written by Steven Hansen
The White House website reads:

To get the economy back on track, President Trump has outlined a bold plan to create 25 million new American jobs in the next decade and return to 4 percent annual economic growth

Follow up:
Elected officials have a very shallow and misguided views of economic gearing. I have no problem with people setting goals pushing the limits of what MAY be possible. However, USA economic growth of 4% year-over-year is likely impossible without massive deficit spending. Economic dynamics are simply not there for the consumer segment of the economy to expand spending.
Life Cycle Spending
The life-cycle hypothesis says consumers save during earning years and dis-save when they retire. The logic of this hypothesis implies that retirees spend at the same rate as they did when they were working. This ain’t true. Good posts on this subject were published by the Richmond Fed. [here][here] One assertion:

Consumption may be lower for young people than the model predicts if they are credit constrained. They may wish to borrow against expected higher future earnings but can do so only if lenders extend the credit to them. Uncertainty may play a role as well.

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Will Jobs In The Future Be Gained Through Dead Man’s Shoes?

March 18, 2017

Written by Steven Hansen
The are more and more words printed every day on the effects of automation – some even believe in the "tooth fairy",  like a British study claiming that automation over the last 15 years created 4 times more jobs than were lost.

Follow up:
If you give me some money, I will produce a study with any conclusion desired. But even if the data and analysis in a study are not biased and accurate – that does not mean you can extrapolate the findings into the future.
I have seen too many contradictions in my career to believe the current form of automation will create as many jobs as it destroys.  Now I have read the following from the San Francisco Fed which likely will add to job headwinds:

In coming decades, the share of seniors age 65 and older in the U.S. working-age population is projected to rise sharply – from about 19% currently to 29% in the year 2060 – approaching equality with the shares of those aged 25 – 44 and 45 – 64 (Figure 1). With much lower employment among those aged 65 and over, the aging of the population will pose fundamental public policy challenges, as the “dependency ratio" – the ratio of nonworkers to workers – rises sharply and labor force growth slows.
Figure 1
Projection of U.S. working-age population by age group

Source: U.S. Census Bureau (2014).

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Trumpcare or Obamacare – They Both Suck

March 11, 2017

Over the last two weeks, versions of Trumpcare have made it out of hiding for consideration. Of course the media immediately jumped on the bandwagon pointing out various defects and generally slamming Trumpcare, often with bias rather than detailed facts.

Follow up:
It appears that Obamacare IS headed on the road to failure – but Trumpcare ain’t any better. Why? The largest problem with health care is not who will pay, or who it covers – but the rapid escalation of costs which make it unaffordable to most in the present system.

Like Skynet, Obamacare became fully operational in 2014. Since then, Americans have been paying more on health care (red line on the above graph). You read continuously how select groups of people are benefiting from Obamacare – but the average person is not.
Most of the media analysis of  Trumpcare Vs Obamacare is line by line highlighting of who gains and who loses. This type of analysis misses the forest for the trees.
The REASON health insurance is a hot button subject is that the costs are outrageous to households. Since 1985, medical care costs have risen at twice the rate of inflation.

I am a trend person – trends continue until they do not. Nothing suggests to me that Trumpcare will be any more successful than Obamacare to rein in costs.

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The Confusing State Of Retail Sales

March 4, 2017

Written by Steven Hansen
Warren Buffett is confused about retail trade stating "retailing is tough for me to figure out". Not only is the retail model changing – but consumer spending and inflation trends are changing also.

Follow up:
Mr. Buffett was lamenting about missing the Amazon investing train – not understanding that the retail model was changing from the box stores to internet purchasing. But it is not just the trend towards online purchasing occurring in retail – but other significant fundamentals are changing also.
One development is that retail purchases have become a smaller component of disposable income.

Does it come as any surprise that the old brick and mortar stores are in trouble with increased competition (profit margin squeeze) from Amazon et al – as well as retail’s shrinking proportion of consumer spending.
There are three major components of retail – durable goods, non-durable (soft) goods, and services. This post is concentrating on durable and non-durable goods which is what Mr. Buffett was discussing.
This evokes discussion of inflation in the retail sector.

The red line on the above graph is durable goods (items which have more than a three year lifespan). In the last 30 years, durable goods have seen little inflation.

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Is Growing Household Debt An Economic Counter-Dynamic?

February 25, 2017

Written by Steven Hansen
According to Liberty Street Economics:

The latest Quarterly Report on Household Debt and Credit from the New York Feds Center for Microeconomic Data showed a substantial increase in aggregate household debt balances in the fourth quarter of 2016 and for the year as a whole. As of December 31, 2016, total household debt stood at $12.58 trillion, an increase of $226 billion (or 1.8 percent) from the third quarter of 2016.

Follow up:
The bottom line of this Liberty Street post was that consumer debt is now less than 1% below 3Q2008 peak. Debt contributed to the Great Recession, and to know we are back to the pre-recession levels does not deliver warm thoughts.

Graphic source: medialibrary/ interactives/ householdcredit/ data/ pdf/HHDC_2016Q4.pdf
Keep in mind:
That mortgages are THE main component of household debt. Most people spend similar amounts on mortgages or renting a home – so mortgage levels are not important when thinking through consumer debt.
That student loans are now the second largest component of student debt.
And that home ownership has fallen around 6% from the peak in 2004 – but home mortgages levels are down 8.8% from its peak in 2008.
The hard part of understanding debt levels is that debt is not inflation adjusted or normally correlated to any benchmark except GDP.

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Is Free Trade Harming the Economy?

February 19, 2017

Written by Steven Hansen
I generally get inspiration from the mindless crap (aka opinion) the media pumps out pretending it is news. The media has turned from being mostly biased towards (and non-objective about) the Obama Administration – and mostly biased against (and non-objective about) the Trump Administration. Could it be people are not objective when it comes to those they like or hate?

Follow up:
Most of my posts are aimed at cherry picked points perpetrated by the media or pundits that are misleading and not objective.
The focus of this post is again on free trade.
I continue to witness a significant media slant advocating unrestricted free trade is the only way the USA should go (likely because Trump wants to go the other way). I personally believe that monitored and optimized free trade is in the best interests of the USA. I also believe President Trump has not properly framed the problems with free trade (or for that matter, proposed solutions that will work).
You will note that literally all posts on free trade have little data to support their position. That is because there is little data to support any trade position except through extrapolation, coincidence, and smoke and mirror correlations. Economists like to point out that the USA (and the rest of the world) imposing duties exasperated the depth of the Great Depression.

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Chaos Theory Applied To Trump Presidency

February 12, 2017

Written by Steven Hansen
The New York Times published its view:

The unanimous verdict: Thus far, the Trump administration is a textbook case of how not to run a complex organization like the executive branch.

Follow up:
And they found a few Ph.Ds to backup their statement:

“This is so basic, it’s covered in the introduction to the M.B.A. program that all our students take,” said Lindred Greer, an assistant professor of organizational behavior at the Stanford Graduate School of Business. By all outward indications, Mr. Trump “desperately needs to take the course,” she said.
Jeffrey Pfeffer, professor of organizational behavior at Stanford and the author of “Power: Why Some People Have It and Others Don’t,” said Mr. Trump’s executive actions as president “are so far from any responsible management approach” that they all but defy analysis.
….. Some Trump defenders have said that the president thrives on chaos, and it has proved to be an effective management approach for him in the past. But every expert I consulted said there is no empirical data or research that supports the notion that chaos is a productive management tool.
“I’m not aware of anyone who advocates that,” Mr. Polzer [professor of human resource management at Harvard Business School] said.

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The Economy Continues To Claw Its Way Upward?

February 4, 2017

Written by Steven Hansen
Will the Trump administration effect the economy – either positively or negatively?  I have written in the past that it takes a long time (except for helicopter drops of money directly to consumers) for fiscal policy actions to impact the economy overall.

Follow up:
So far, the only event since 20 January I have seen which would affect the USA economy is the increase in consumer and business confidence starting the week of the election.  I am not a fan of consumer confidence surveys for a variety of reasons – but I do lean towards the notion that spending increases generally correlate to a positive outlook.
Having said that there has been a general correlation, There are few (if any?) economic theories which rise to the level of a scientific law.  Scientific laws are always true.  If economic theories were laws – operation of economies would be push-button. If a fluctuation in the force was noted, the correct counter-dynamic would be executed and the economy would return to its planned trajectory.  No more recessions. 
Understandably, what is understood to be the economy has too many variables acting at once for simple laws to be discovered.  Logically, if economic laws are ever discovered, it is likely they will be complex utilizing a daunting multiplicity of dynamics.

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Higher Employment Levels Not Energizing The Economy

January 28, 2017

Written by Steven Hansen
I have written on many occasions about the economic reset which occurred somewhere around the turn of the century. Inflation adjusted family incomes and prime age employment have little changed since 2000.

Follow up:
I am a boomer. I have seen much better economic times. I know that demographics are part of the negative dynamics affecting the  current economy. For instance, the population of the 25 to 54 age group in the USA has increased only 5% since 2000 – versus 16% for the population overall.  Before 2000, at least as far back as the 1950s, total employment grew faster than population.  See graph below.  Since 2000, population has grown faster than employment.
Further, the employment level of this 25 to 54 prime working-age group is unchanged since 2000.
I smile when I hear economists lecturing China for them to revamp their economy from an export driven to internal consumption – but who lectured the western economies to prepare for the demographic shift. Negative dynamics need to be countered by positive dynamics. Is / were there no economic remedies to mitigate the affects of an aging population?

The big problem facing America is not the Russians, or drugs, or even immigration – but it is the economy.

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The Destruction of the Existing Workforce

January 22, 2017

Written by Steven Hansen
All of us have opinions on the affects of automation. My university education stressed that there was nothing to fear from automation, as historically automation created at least as many jobs as destroyed.

Follow up:
The Mainstream View
From McKinsey Global Institute:

While much of the current debate about automation has focused on the potential for mass unemployment, people will need to continue working alongside machines to produce the growth in per capita GDP to which countries around the world aspire. Thus, our productivity estimates assume that people displaced by automation will find other employment. Many workers will have to change, and we expect business processes to be transformed. However, the scale of shifts in the labor force over many decades that automation technologies can unleash is not without precedent. It is of a similar order of magnitude to the long-term technology-enabled shifts away from agriculture in developed countries’ workforces in the 20th century. Those shifts did not result in long-term mass unemployment, because they were accompanied by the creation of new types of work. We cannot definitively say whether things will be different this time. But our analysis shows that humans will still be needed in the workforce: the total productivity gains we estimate will only come about if people work alongside machines.

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Many (But Not All) Dynamics Improving But Federal Tax Receipts Are Down

January 14, 2017

Written by Steven Hansen
I am getting the feeling the economy is lifting. The actual data to support my feelings is not obvious. 

Follow up:
I have written on many occasions that I am biased against opinion surveys. The theory is that good times require optimistic businessmen and consumer. But too many things affect one’s opinion on any particular day – but it was hard to ignore this week’s NFIB Small Business Optimism Survey which skyrocketed to its highest level since 2004.

I also am seeing improvement in rail transport – which is a leading indicator.

Although rail’s 52 week rolling average is not yet positive, it is on a steep improving trend [although this past weeks data showed deceleration the upward trend is still in play].
There is one lagging indicator which concerns me – US Treasury Tax Receipts.
For the Great Recession, the rolling averages went negative in February 2008 – two months after the Great Recession’s start. For the 2001 recession, the rolling averages for tax revenues went negative two months after the official start of the recession. In May 2016, the rolling averages (red line) for tax revenues went negative, and since has been jumping between expansion and contraction.

[click on image to enlarge]
According to the Congressional Budget Office, tax receipts are down 3 % in the first quarter of fiscal year 2017.

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What Should Trump Do With Free Trade?

January 8, 2017

Written by Steven Hansen
Water is necessary for your health. Drink too much water and you can get hyponatremia. It is very serious, and can be fatal. Too much of anything is not good. President-elect Trump believes one of the major problems in the economy is too much free trade.

Follow up:
Here is President-elect Trump’s 7 point plan on free trade:

1. Withdraw from the Trans-Pacific Partnership, which has not yet been ratified.
2. Appoint tough and smart trade negotiators to fight on behalf of American workers.
3. Direct the Secretary of Commerce to identify every violation of trade agreements a foreign country is currently using to harm our workers, and also direct all appropriate agencies to use every tool under American and international law to end these abuses.
4. Tell NAFTA partners that we intend to immediately renegotiate the terms of that agreement to get a better deal for our workers. If they don’t agree to a renegotiation, we will submit notice that the U.S. intends to withdraw from the deal. Eliminate Mexico’s one-side backdoor tariff through the VAT and end sweatshops in Mexico that undercut U.S. workers.
5. Instruct the Treasury Secretary to label China a currency manipulator.
6. Instruct the U.S. Trade Representative to bring trade cases against China, both in this country and at the WTO.

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President Trump Likely Will Deliver A More Robust Economy In 2017

December 31, 2016

Written by Steven Hansen
One of my favorite mottos is: "It is better to be lucky than good." No matter you good you are at what you are doing – the unforeseen and unpredictable can occur spoiling your efforts. 

Follow up:
An incoming USA President is given an economy. Certain elements in an economy (such as employment) lag around six months. Some economic improvement can be almost immediate – like those triggered by lowering taxes (especially when withholding or other payments are reduced). Economic improvement triggered by regulatory relief can be swift or can lag by years – depending on the relief.
As an example, President-elect Obama was given an economy in recession in January 2009 – and that recession ended in June 2009. How much credit should President Obama be given for ending the recession?
My position is little to nothing.
The previous Congress and President Bush had already put in place TARP (including rescue of GM and Chrysler),  In his first 100 days in office – the only real anti-recession legislation was the stimulus – American Recovery and Reinvestment Act of 2009 – which added only $114 billion to the economy in ALL of 2009 – and likely next to nothing by June 2009. 
In reality, President Bush and the previous Congress got the USA into the recession – and set the stage to get the USA out of the recession.

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USA Election Results Show The Real Divide In America Is Economic

December 25, 2016

Written by Steven Hansen
This past week, the electoral college confirmed Donald Trump was going to be the next USA President. He did not win the majority of popular votes cast – but won the majority of electors in the system designed by the founding fathers which was intended to prevent the more populous states from dominating the election process. Much of our economic policies seemed geared towards higher population areas, and falling short in rural America.

Follow up:
This post is a departure from my normal process of drilling down into the economic data and showing hidden trends. In this post, I acknowledge that the data lacks clarity and there can be many ways of postulating what it means.
Here is the infamous Washington Post post election map showing the counties won by President-elect Trump (red) and Hillary Clinton (blue).

What struck me is that generally since 1984 – this pattern of rural Vs. populated voting patterns existed (exception was President Bill Clinton’s election years). Many are pushing the idea is that there is a problem with the Democratic Party agenda. I say hardly anybody votes against their pocketbook – and for most voters will vote for what is working (or what they think will work better).
I postulate that the red on the above map is the perceived failure of economic policies in that area.

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Most of the Working Class Missed The Current Economic Expansion

December 18, 2016

Written by Steven Hansen
If I hear one more idiot declare how well the economy is doing – I will scream. Half the population has not enjoyed economic improvement in the 21st century.

Follow up:
The economy is measured by the medieval metric which is called Gross Domestic Product (GDP). GDP does not measure or correlate to the economic situation of the median household.

In the 21st century, the inflation adjusted "economy" per capita has improved 13% per capita whilst the inflation adjusted income of the median household is literally unchanged.
The median household has not seen an increase in income in the 21st century.
Of all USA households, 37%  do not own a house and did not enjoy the 60% appreciation of home prices in the 21st century – but this appreciation is only 17% after inflation adjustment, held down by the housing bubble collapse 2007-2012.

The rate of home ownership has declined to 35-year lows.
Only half of American adults own stocks – and this too is at 21st-century lows.

Half the population missed out on the 50% appreciation of the stock market in the 21st century – but this appreciation is only 8% after inflation adjustment, again held down by the two of the largest bear markets since the 1929-32 stock market crash.

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The Problem With Obamacare Is That It Did Little To Reduce Overall Healthcare Spending

December 10, 2016

Rearranging the deck chairs on a sinking ship
Written by Steven Hansen
I was opposed to Obamacare when I read the actual legislation before it was passed by Congress. My concern was that it was not designed to reduce overall health care expenditures – it only redistributed costs between the insured.

Follow up:
Obamacare was analogous to rearranging deck chairs on a sinking ship. Yes, the deck chairs were not in the right place but the priority was stopping the ship from sinking. The health care system in the USA costs too much while providing too little. The poor delivery situation is apparent from the below graph from USA, Inc (slide 111).

And on Thursday this week, the CDC (Centers for Disease Control) released the USA’s mortality data for 2015, and in summary:

Life expectancy for the U.S. population in 2015 was 78.8 years, a decrease of 0.1 year from 2014.
The age-adjusted death rate increased 1.2% from 724.6 deaths per 100,000 standard population in 2014 to 733.1 in 2015.
The 10 leading causes of death in 2015 remained the same as in 2014. Age-adjusted death rates increased for eight leading causes and decreased for one.
The infant mortality rate of 589.5 infant deaths per 100,000 live births in 2015 was not significantly different from the 2014 rate.
The 10 leading causes of infant death in 2015 remained the same as in 2014, although two causes exchanged ranks.

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Are You Feeling the Economic Surge?

December 3, 2016

Written by Steven Hansen
Wow. According to the headlines the USA economy in the third quarter has surged to 3.2% growth. Hope you are feeling it!

Follow up:
To begin, I hate the quarter-over-quarter methodology which produces the headline GDP. It exaggerates any change in growth by compounding relatively small changes making them huge changes. 

The red line in the above chart is the percent change from the same quarter one year ago (year-over-year change). Note how relatively smooth the red line is compared to the compounded jumping around of headline GDP (blue line).
Anyone believing the economy is rolling along at 3.2 % is on drugs – and the 1.6 % growth from one year ago is a much more representative quantification for the USA economy.
But alas, there is a second problem which creates a lot of noise – change in private inventory. For whatever strange reason GDP recognizes goods warehoused but not yet sold to the final user. Removing the adjustment creates a much smoother and more realistic metric.

I find little logic in the inventory adjustment – as inventory growth can be a precursor to a recession – and speaking as an industrial engineer – inventory change may or may not be an economically positive event
You will note that despite the great jump in GDP in 3Q2016 – the above graph shows the economy is little changed for the last year.

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The Federal Reserve’s Distorted Economic View – Or Is It Just Spin?

November 26, 2016

Written by Steven Hansen
I have a hard time believing that the FOMC members actually believe what comes out of their mouths.

Follow up:
What follows is testimony from Federal Reserve Chair Janet Yellen to Congress earlier this month followed by my view of the reality of the economic situation.

Meanwhile, U.S. economic growth appears to have picked up from its subdued pace earlier this year. After rising at an annual rate of just 1 percent in the first half of this year, inflation-adjusted gross domestic product is estimated to have increased nearly 3 percent in the third quarter. In part, the pickup reflected some rebuilding of inventories and a surge in soybean exports.

Inventories are historically high (and in recession territory) based on business inventory to sales ratios. There has been recently an improvement in the inventory to sales ratios but "rebuilding of inventories" which are historically high a negative economic event.

In addition, consumer spending has continued to post moderate gains, supported by solid growth in real disposable income, upbeat consumer confidence, low borrowing rates, and the ongoing effects of earlier increases in household wealth.

What continues to aggravate – is talking about real income instead of real median income.  Since 2000, increases in real income means the upper end of the economy is doing better.

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President-Elect Trump Is Walking Into A Zombie Economy

November 19, 2016

Written by Steven Hansen
It was not logical to blame President Obama for the Great Recession. On the other hand, President Obama does have varying levels complicity in the extremely weak recovery – and the current zombie economy. 

Follow up:
In all events, the purse strings are held by Congress, and that body holds most of the authority to create laws. And in the last eight years, Congress was willing to create laws without reading what is in the law (see Obamacare).  I would argue the USA in the last eight years went through the most ineffective Congressional period since its founding.
Just like the first years of the Obama administration, Trump will enjoy a Congress controlled by his party. This is a "get out of jail free" card (where his agenda can be implemented) – and will disappear when the population sees that the "change" delivered is not what the the population expected. From Wikipedia:

Say the newly elected President Trump implemented his promised changes – how soon would this change become noticeable to the group of people who voted for him?
Not for years. The economy takes time to react. The stock markets may rise, and the upper end of the economy could immediately benefit if investors see opportunity based on Trump’s actual agenda. But the lower end of the economy depends on jobs which take time to percolate.

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Does the Economy Remain Too Weak For The Fed To Raise The Federal Funds Rate?

November 12, 2016

Written by Steven Hansen
I have written before on the raising of the federal funds rate [here] in June.  The main thrust of that post:

…. the Fed was negligent in not raising the federal funds rate earlier – when the economy was running on all cylinders in 2014. I have consistently forecast that beginning in 2015, the economy was slowing and that raising the federal funds rate coincident with a slowing economy is not logical on many levels.

Follow up:
Before every FOMC meeting, several misguided souls continue to echo the manure spread by the mass media that the economy continues to improve – and the FOMC is on the cusp of raising the federal funds rate.
The Chicago Fed National Activity Index (as well as other leading indices) say the economy is not running on all cylinders now ….

….. and the economy will suck into the foreseeable future [graph below is a projection 6 months into the future]….

… and the rate of growth of jobs is continuing to slow – and the growth rate is now the worst seen since May 2011.

Inflation is understated – and is likely the only reason [based on the FOMC’s forward guidance of what would trigger a federal funds rate increase] for raising the federal funds rate.
IMO one of the reasons the economy sucks is because of the artificially low interest rates.

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Riddle Me This: Why Has Employment Gained and Sales Declined?

November 5, 2016

Written by Steven Hansen
Using technical jargon, the employment numbers and business sales are seriously out of whack. Sales are in contraction and employment is in expansion – an event usually associated with recessions.

Follow up:
There are issues with defining the problem.
For one thing, employment data includes a certain amount of double counting (the same person holding two or more jobs and being counted as two or more people).
A second problem, I have serious reservations about the ability to detect flows in outsourcing manufacturing overseas.  No doubt after NAFTA, jobs moved outside of the USA to Canada and Mexico. This had little effect on sales, but reduced man-hours per sale in the USA. If there were a moderate reversal of outsourcing, it would show a gain in employment without the gain in sales.
Which brings up a third problem:  There are limitations using the productivity numbers produced by BLS. When a production or service disappears – it also disappears in the productivity analysis. When a new technology or service appears, it starts showing no productivity growth as it is a new product baseline. And say a component or service was outsourced years ago – and was brought back with no or few jobs – again there was no productivity improvement even though real productivity skyrocketed. 

Source: BLS
Yet there is enough data to show there is a problem.

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Should We Believe Next Week’s BLS Jobs Report?

October 29, 2016

Written by Steven Hansen
Next week we will see the final employment report before the November elections. Will the Bureau of Labor Statistics (BLS) have their fingers on the scales to make the Democratic party look good going into the election?

Follow up:
This suspicion is the result of the perception of a massive dose of political spin coming from all political parties.  And the BLS is housed under the political purview of the Executive branch. Americans do not trust the government to tell them the truth.
Well, here is my take:  I have found no compelling evidence of political bias in the BLS jobs report.  Taking a look at original headline jobs growth (total non-farm from the establishment survey) for Octobers of election years:

Source: BLS
There is little consistency in growth between September and November.  Out of the last 13 years (6 being election years), September had the best growth only once (and that was an election year), October seven times (three times during election years), and November five times (twice during election years). On the surface, it appears the seasonal adjustment model is defective for the month of September as it generally reads low.  The opposite seems true for Octobers.  You could spin a case that there was election bias – but it is far from convincing.

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Rising Tide Does Not Lift All Ships

October 22, 2016

Written by Steven Hansen
Much has been said about trickle up and trickle down economics. It seems like a litmus test to divide the political parties. Is there any evidence that any variation of the trickle theme works?

Follow up:
Since 1980, the USA has had 17 years of Democratic Presidents and 20 years of Republican Presidents. And Congress (which holds the purse strings) was almost equally divided between control by Democrats, control by Republicans, and split control.
The basic problem with any of the trickle themes:
Trickle up tries to put more money in the lowest strata of households. I am hard pressed to think of a theory that believes putting money into hands where the purpose is survival (food, shelter, clothing) energizes the economy. This is a social engineering belief that is important and beneficial to society – but does little for the economy and is likely contributing to increasing the divide between the wealthy and the poor (as it is not lifting the lower strata into the middle).
Trickle down tries to put more money into the upper strata of households. The belief is that this segment is responsible for the majority of investing. It would then follow that the more investments – the more jobs would follow. As seen since the Great Recession, there are periods where there are few places to invest.

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Income Is Not Wealth

October 16, 2016

Written by Steven Hansen
Some time back, a reader commented on one of my posts stating:

Just out of curiosity for whom have lower taxes created more wealth? Certainly not the middle class – you know, the people in the charts up above with the 40k or less in net worth. A large number of folks in that median and sub-median are pay little or no Federal income tax, although if they work they do pay the flat earnings tax called FICA. Yet they still can’t or won’t save.

Follow up:
Recently, Statista pumped out this graphic:

How many people have a savings account? I do not have one. My "savings" is in a brokerage account.
One cannot imply that 2/3rds of all Americans are spending 100% of their disposable income – as they have no savings account. Some in this group have a 401k or other retirement program. Some own houses (48% of the families with less than median income own houses; 34% of people under 35 years 0f age own houses). Some in this group own stocks or mutual funds (48% of Americans own stock).
So many Americans have savings – just not savings accounts.
Historically, the way to wealth for the majority was not through income but through investments.
But something has happened in the 21st century which has weakened this argument.
Real income for most is slightly below the levels seen at the end of the 20th century (red line on graph below).

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Health Care Expenditure Growth Eats Away At Economic Growth

October 8, 2016

Written by Steven Hansen
Every economic decision made has a good side and a bad side. Government deficit spending has both good sides and bad sides. Interest rate changes have good and bad sides also. Added to this dilemma is that each decision affects the dynamics of the other decisions made – making the outcome of the sum of the decisions unpredictable.

Follow up:
I see the economic world (actually might better be called the political economic world) in shades of gray. The road to failure is paved with litmus test opinion – austerity, deficit spending, exceptionalism, credit, consumerism, socialism, trickle up, trickle down …. Every week I try to focus on an economic subject where I know some readers have strong beliefs – and shoot some holes in it. Admittedly, I sometimes have penned posts which I believe the opposite of what I wrote. My objective is to try to explore the opposite side – and challenge the logic of conventional wisdom.
Could it be that the most likely cause of the slowing USA growth is health care?
This could be true if you consider that GDP measures money movements for essentials of life.
And the more you spend to survive, the more GDP grows. The average human spends survival money for:
the place where you sleep at night,
clothes you wear,
the cost to get to work,
and health care costs.

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The Devil’s Advocate – There ARE Recession Warning Flags

October 1, 2016

Written by Steven Hansen
I started writing on the economy because I was horrified with the biased analysis being pumped out by pundits. Even today, most analysis I read is either a simple regurgitation of the government’s spin on the data or a cherry picking of data points to present an overly positive or overly negative view. I can count on one hand those which try to provide real balanced data analysis.

Follow up:
I have always believed with real facts you can make the best decisions. However, there are many issues which are not being accurately tracked which results in too many decisions which are based on anecdotal or circumstantial information.
There seems little discussion of a possibility of a recession. My belief is, that based on the way recessions are determined, there is close to a zero chance of a recession. Even ignoring the way the BEA determines GDP, and using my own methodology which uses counts of "things" and not money (so inflation is not an issue) – there is no trend line currently which leads one to suspect a recession is coming.
Yet, there are a few recession flags you should be aware.
Trucking employment is contracting year-over-year.
One of our litmus test recession indicators is trucking employment – which is continuing in recession territory for the second consecutive month. Consider that rail movements.

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2015 Household Income Up 5.2% Is Just Spin

September 24, 2016

Written by Steven Hansen
The media spread US Census’ good news:

Median household income in the United States was $56,516 in 2015, an increase in real terms of 5.2 percent from the 2014 median of $53,718. This is the first annual increase in median household income since 2007, the year before the most recent recession.

5.2% is a big number which does not gel with other economic realities.

Follow up:
Most ignored the second line in the sentence in the US Census summary:

In 2015, real median household income was 1.6 percent lower than in 2007, the year before the most recent recession, and 2.4 percent lower than the median household income peak that occurred in 1999. (The difference between the 2007 to 2015 and 1999 to 2015 percentage changes was not statistically significant.)

The 5.2% is not the take home number (disposable income).
The 5.2% gain does not include the affects of personal taxes – as most of us think of income as the value of our paycheck, not the surprise number that is shown on your W-2. Incidentally, taxes increased 8.5% in 2015 (BEA Table 2.1. Personal Income and Its Disposition) – and taxes averaged 12.5% of personal income in 2015 and 12.1% in 2014.  
Most of use view income as disposable income – not the W-2 number.

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USA Government Is Starving Social Programs?

September 17, 2016

Written by Steven Hansen
Americans have been convinced that due to demographics and general waste, social programs are out of control and need to be reined in. True or Not?

Follow up:
I would like to disclose my biases – anything big (like big government, big business, the wealthiest 0.1%) ends up doing a growing number of bad things.  It is dangerous to design systems where power can be concentrated.  That said, even small systems cannot be perfect. So there is no argument that there is waste in all systems.
Americans see graphs like this showing government spending on social programs are a significant government expenditure [hat tip]

source: CBO
And social programs will be a significant reason for future deficit spending.

source: CBO
But what is unsaid is that many social programs not only have a cost side in the government’s ledger, but and income side also – unlike MOST other government expenditures.
Comparing Social Program’s Expenditures (red line) to Social Program’s Income (blue line)

source: BEA, FRED
So what appears to be concerning the government leaders is that social programs are noticeably not paying their own way – and Uncle Sam now is kicking in a few coins. To a large extent for the USA, social programs are a transfer of wealth – and have little affect overall on the economy [removing income from some and giving income to others to spend].

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Health Care Costs Are Falling …..

September 10, 2016

[unable to retrieve full-text content]Written by Steven Hansen
I am confused. Using some measures, health care costs are deflating whilst other measures say real health care costs per family are accelerating. 

Full story »

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Are The USA Government and Business, Not The Consumer, The Real Drivers Of the Economy?

September 4, 2016

Written by Steven Hansen
According to Wikipedia:

A consumer economy describes an economy driven by consumer spending as a percent of its gross domestic product, as opposed to the other major components of GDP (gross private domestic investment, government spending, and imports netted against exports).

Follow up:
Using Gross Domestic Product, the economy looks this way – and is driven by consumers (66% consumer driven).

GDP starts with cash flow data, separates income from expenditures, determines whether the spending meets the definition of included elements in GDP, and then must determine the FINAL spender of the money so the money is placed in the correct pocket.  
And the final conclusion is that the USA has a consumer driven economy.
Really? Does the consumer drive the economy? It does if you focus on GDP. If one looks at initial expenditures instead of final, the economy looks like this before, or in parallel to, any income is transferred to the consumer:

The federal government takes money in from business (employees have tax money removed by business and sent directly to government), spends some – then transfers the majority to state governments and individuals in the form of social security et al. The USA federal, state and local governments handle 40% of GDP before transfer payments reduce this number to 17%.

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