Economist Paul Krugman was the King of Doom and Gloom, he projected on Election Night that the Global Markets would never recover from a Trump Presidency. Fast forward to 2018 when the concern was that we would see 3 interest rate hikes this year and two the next. Someone at Goldman Sachs even got it in their head that the Federal Reserve would boost rates five times this year.
Now, there is talk that we may see four rate hikes this year and three or four more next year.
Why is the “market” and the “MSM” cheering for a decline in the economy? I have no idea.
We need to see two consecutive quarters of negative growth to be in a recession, by definition. The question is, is this “same quarter declines” or “Quarter to quarter declines?”
The Gross Domestic Product (GDP) is a lagging economic indicator. It covers a quarter of growth that happened in the rear-view mirror. This data is revised every month and every year, and then some more. This year the data was revised back to 1929. Most people ignored the revisions.
I published an article, “Grossly Revised Gross Domestic Product” that detailed how the data was revised and that President Trump’s first quarters were revised lower than originally reported last year. Further, I have repeatedly said that the “fear of a recession” is unfounded. This article will be clear as to why this does not appear to be a real concern at the present time. There are four components to the GDP we need to monitor. There is a considerable amount of attention paid to the Personal Consumption Expenditures component of GDP. The second component , Gross Private Domestic Investment, has also received considerable attention. Imports and Exports are the third component. Government consumption is the last.
The Great Recession was three recessions rolled into one. There was a Housing Recession, a Jobs Recession, and a Retail Sales Recession. “When did the Great Recession Really End” goes into more detail. Retail Sales are on a record Pace this year, again. We are not in a Retail Ice Age. We’re in a Retail Renaissance. We’ve already had 4.9 trillion dollars of total retail sales, non-seasonally adjusted, this year. This is comparable to the 5.001 trillion dollars in retail sales we had during all of 2013. We have sold over $6 trillion in retail goods during the past twelve months. We are moving into “Peak Retail” for this year. We are on track for a year end total of roughly $6.07 trillion. We have the most full-time jobs ever during the month of October. We lost over 14 million full-time jobs between July 2007 and January 2010. July 2007 was the “Peak Jobs” month prior to the recession of 2008. We almost eclipsed the total number of jobs that we had during July 2018 this October. We had a record level of October jobs, non-seasonally adjusted.
Unemployment claims are recording year over year declines. I did express a small amount of concern that the same week first-time unemployment claims data crept higher at the end of September 2017. This was caused, in part, by Hurricanes Harvey and Irma. The thing to remember here is that we have one week during 2015 when the non-seasonally adjusted (NSA) first-time unemployment (FTU) claims data was under 200,000. We saw two weeks during 2016 with NSA FTU under 200,000 claims, four weeks during 2017, and 21 weeks of under 200,000 NSA FTU claims during 2018.New home construction continues to grow. New home starts are well ahead of where we were during October of 2008 through October 2017, current year to date. The same can be said regarding new home completions. The problem here is that the MSM are recording seasonally adjusted data instead of non-seasonally adjusted data. Existing home sales while sluggish, appear to be turning another corner. I do not recall much hand-ringing when the existing home sales data peaked during October of 2013. This October we saw a slight, and welcome, year over year increase in inventory. It is difficult, if not impossible, to return to pre-recession levels of existing home sales without a corresponding return to pre-recession levels of inventory to sell.
We are not at full-employment. We saw “Peak Participation” during the late 1990s under former President Clinton. Participation was fairly constant under former President George W Bush. Participation cratered under former President Obama. He left office with the lowest participation rate in over a generation.
Former President Reagan inherited a higher participation rate in 1981 than President Trump inherited.
If we have low unemployment and high jobs then we should be at “full-employment.” We are not at full-participation, therefore it is not genuine to compare the unemployment rate of October 2018 ( with 3.55% unemployment and participation of 62.95%) with October of 2001 (with 3.63% unemployment and participation of 66.86%.) The effective unemployment rate, when participation is factored into the equation, is well over 8%.
Jobs Openings do not really exceed the number of unemployed workers. This is a statistically disingenuous comparison. The JOLTS Job Opening data is closest in comparison with the Current Employment Statistics worker data. The unemployment data comes from the Current Population Jobs Survey data. They might as well compare the jobs openings data with the number of people who are receiving continuing unemployment benefits. The sectors with the highest job openings are in the industries with the highest levels of quits, the highest levels of hiring, and, for the most part, the lowest weekly wages. “Peak This, Peak That.” Peak jobs. Peak earnings. Peak Oil. Peak GDP. We were told by Team Obama that we could no longer expect anything better than 2.0% annual GDP growth during 2014. We are not at “Peak Construction” nor “Peak Home Sales.” It takes time for those people who lost their homes during the Housing Recession to qualify for mortgages. A pause is not an end to growth. We saw “Peak Home Sales” during the Summer of 2005 and peak “Existing Home Average Sales Price” during the Summer of 2006. Now we are “past peak” average sales price for new and existing homes.
Success breeds success. If companies are selling more goods and services they need more workers to produce or provide those goods and services. If more people are needed to provide goods and services then companies need to hire more people. If companies hire more workers, especially permanent full-time workers, then more workers can make longer-term decisions and purchase larger items, including homes. If more people sell their home to move “up,” then more “entry level homes” become available. If we see more existing home sales, some home sellers will purchase new homes. New homes “require” new appliances, new electronics, new furniture and furnishings, new home and garden equipment, and maybe even new cars for the new garages.
A recession is a contraction, not slower expansion. The momentum is higher for same quarter GDP growth. This metric has risen since the second quarter of 2016. We are growing faster than we were this time last year, which was faster than the third quarter of 2016. The recession was in the making for a long time when it hit during 2008. There was slowing in the number of new and existing homes that were being sold. We will be receiving the first revisions to the advance third quarter GDP this week. It will still be positive. So far the retail sales data is the strongest that it has ever been. This will drive the rest of the market higher than it already is. The gross private domestic investments data will be critical to observe during the fourth quarter. Right now the employment data is better than it was this time last year, the unemployment situation is better than it was this time last year, and they are receiving higher wages, the economy should continue to grow. There is nothing that indicates that a recession is imminent this quarter or for 2018Q4. This means that a “recession will not occur” at least until after July of 2019, because two quarters of negative GDP are required for a recession to be “called.” Remember that all of the GDP data is seasonally adjusted. Remember that this column “lives, breathes, and dies” the non-seasonally adjusted data.
It’s the economy.
Categories: Economic Forecasts