"Economy Firing On All Cylinders"..What?!

[HFWR]

The desirability, or lack thereof, of the tax bill notwithstanding, the trends were growing gdp, reduced unemployment, and reduced deficits. Since the tax bill, the deficit broke trend. Perhaps it will eventually reverse, per “trickle down”, or not...

I think the extra growth may have been expensively borrowed from future years.

 

[audreyh1]

I think the extra growth may have been expensively borrowed from future years.

I think you are likely right.

 

[Oz investor]

it is fairly easy to understand

if you run your household budgets , like the Federal or State governments do , do you feel relaxed and unconcerned

and there are certainly mixed messages coming from the corporate sector

look at US retail as a guide for the economy at citizen level

( it is still 'we the people ' , right ? )

 

[donheff]

I've been hearing more about Modern Monetary Theory lately.

https://en.wikipedia.org/wiki/Modern_Monetary_Theory



I heard a segment on NPR a while back that discussed it. I understand there were MMT advocates involved with the Sanders campaign in 2016 but I don't have details.

For MMT to work, I believe that we'd have to completely revise the methods of taxation.

I follow an RSS feed on MMT - fascinating. I don't pretend to understand the underlying mechanisms but it seems glaringly obvious that the US government is not like a single family and can handle debt much differently. It does not seem logical that we could just keep creating fiat currency forever but the austerity hawks that believe we have to starve ourselves into a balanced budget don't have much of an alternative. I don't think MMT requires a new taxation scheme. It seems like the Fed dipped their toes in a bit with quantitative easing.

 

[USGrant1962]

Since the tax bill, the deficit broke trend. Perhaps it will eventually reverse, per “trickle down”, or not...

This is not correct. The deficit started increasing again in 2016, two years before the TCJA took effect.

https://www.taxpolicycenter.org/statistics/federal-receipt-and-outlay-summary

I think the extra growth may have been expensively borrowed from future years.

I don’t disagree, but TCJA is hardly the root cause. Over the next decade it is only adding maybe 5-7% to the previously existing $20T debt.

You can see in the linked table that from 2015 to 2017 receipts increased by $66B while outlays increased by $293B - before TCJA and in a “good” economy.

 

[mpeirce]

Viewing the national budget/debt as a big version of household budget/debt is a reasonable first approximation, but it breaks down quickly when you get into how the world really works.

 

[HFWR]

"Economy Firing On All Cylinders"..What?!

This is not correct. The deficit started increasing again in 2016, two years before the TCJA took effect.

https://www.taxpolicycenter.org/statistics/federal-receipt-and-outlay-summary




I don’t disagree, but TCJA is hardly the root cause. Over the next decade it is only adding maybe 5-7% to the previously existing $20T debt.

You can see in the linked table that from 2015 to 2017 receipts increased by $66B while outlays increased by $293B - before TCJA and in a “good” economy.

Indeed, the trend broke in 2016. I stand corrected. Still, the narrative of many that things are “firing on all cylinders” and “better than ever” is mostly political cheerleading, and is not necessarily based on the data. Good, though not dramatically off trend; more a continuation.

The combination of lowering taxes and keeping rates overly accommodative is, in my view, a way to goose the economy now, at the expense of later. Or, perhaps, an attempt to inflate away other problems.

I don’t see either party seriously considering a glide path to fiscal responsibility. Mostly just red meat for the base...

 

[GravitySucks]

I think you are likely right.

+2

 

[brett]

The economy is firing on all cylinders but it is an economy that is changing, and has changed significantly since 2008. Many manufacturing jobs are disappearing. Some because of imports but most others simply because of automation. As an example, the stat on how many an employees a coal mining firm needs to extract a ton of coal in 1980 vs today are incredible. Those jobs are gone. Same in the auto sector.

Gone are the days when someone can come out of high school and get a reasonably good paying job in manufacturing....and in their home town. Where is the growth...in service industries. No fun if you have been laid of from a $26/hr job with benefits and pension and what you see before you is a $10-15 job, no benefits, in a service industry.

I suspect many are subsidizing lower pay jobs with credit in order to live or pay medical bills. No doubt there are those who have never really recovered financially from 2008.

 

[brett]

The economy is firing on all cylinders but it is an economy that is changing, and has changed significantly since 2008. Many manufacturing jobs are disappearing. Some because of imports but most others simply because of automation.

Gone are the days when someone can come out of high school and get a reasonably good paying job in manufacturing....and in their home town. Where is the growth...in service industries. No fun if you have been laid off from a $26/hr job with benefits and pension and what you see before you is a $10-15 job, no benefits, in a service industry.

I suspect many are subsidizing lower pay jobs with credit. Others have never really recovered from 2008.

 

[retiredunder50]

Firing on all cylinders? The producer price index jumped to 0.6% for the month of October. It's not likely going to sustain the annualized 7.2% rate but it is an indicator that inflation is beginning to ramp up. The CPI will be released this week (not expecting more than 3% year to year). Year over year wage growth is still relatively low (0.5%) when factoring in inflation and is quite laughable as corporations are simultaneously benefiting from a 40% drop in the corporate tax rate. It’s the year of the stock buyback! The National debt as well as the annual budget deficits are increasing, the tariff effect is beginning to creep in (Ford is claiming a $1B profit hit already and will lay off 24,000), Sears is dead, Subway is closing 500 stores this year, Lowes is beginning to close a few stores, brick & mortar retail is still closing stores, auto sales numbers are down for the year (albeit last year was a record year), interest rates are rising for those that need to borrow (good for us savers), a barrel of oil was up over 40% (1 Oct 2017 to 1 Oct 2018) but thankfully it has dropped in the last few weeks, insurance rates are rising, and housing sales are slumping (mortgage rate increases aren’t helping). Student Loan debt has risen to over $1.5 Trillion. Credit card debt also tops $1 Trillion. Many domestic and international stock indices are not having a banner year... sure, everything is just peachy. We can look forward to gridlock in government, more frequent and very costly weather events and natural disasters, geopolitical events, trade wars… lions and tigers and bears – oh my!

 

[HFWR]

Without overstating the case, the various headwinds we’ve discussed are why Bogle and others have set market return expectations where they have. Whether it turns out better or worse remains to be seen.

 

[Popeye]

Firing on all cylinders? The producer price index jumped to 0.6% for the month of October. It's not likely going to sustain the annualized 7.2% rate but it is an indicator that inflation is beginning to ramp up. The CPI will be released this week (not expecting more than 3% year to year). Year over year wage growth is still relatively low (0.5%) when factoring in inflation and is quite laughable as corporations are simultaneously benefiting from a 40% drop in the corporate tax rate. It’s the year of the stock buyback! The National debt as well as the annual budget deficits are increasing, the tariff effect is beginning to creep in (Ford is claiming a $1B profit hit already and will lay off 24,000), Sears is dead, Subway is closing 500 stores this year, Lowes is beginning to close a few stores, brick & mortar retail is still closing stores, auto sales numbers are down for the year (albeit last year was a record year), interest rates are rising for those that need to borrow (good for us savers), a barrel of oil was up over 40% (1 Oct 2017 to 1 Oct 2018) but thankfully it has dropped in the last few weeks, insurance rates are rising, and housing sales are slumping (mortgage rate increases aren’t helping). Student Loan debt has risen to over $1.5 Trillion. Credit card debt also tops $1 Trillion. Many domestic and international stock indices are not having a banner year... sure, everything is just peachy. We can look forward to gridlock in government, more frequent and very costly weather events and natural disasters, geopolitical events, trade wars… lions and tigers and bears – oh my!

You forgot Zombie Apocalypse!

So, what would a good economy look like? And when was the last time we saw it?

 

[retiredunder50]

In recent years, I would guess FY1998-FY2000, the government actually had annual budget surpluses. The unemployment rate was 4.4 % in 1998, 4.0% in 1999, 3.9% in 2000. GDP was 4.5% (1998), 4.8% (1999) and 4.1% (2000). Inflation was 1.6% (1998), 2.7% (1999) and 3.4% (2000). The S&P 500 on 1 Jan 1998 stood at 963.36 and climbed to 1248.77 (1 Jan 1999), to 1425.59 (1 Jan 2000). Of course, there was a lucrative one-shot infusion of tobacco lawsuit money, cuts in welfare, income tax increase, and a looming tech bubble soon to explode.

 

[GravitySucks]

 

[GravitySucks]

https://www.amazon.com/photos/share/SIKImLFP79wOXN288hzcne7IEDTnwpdxYdtOD54QQjh


A little humor?

 

[audreyh1]

Maybe not firing on all cylinders in the near future.

Three different reports/opinion pieces in the last two days. Some gurus are seeing a sudden economic slowdown, and think the Fed is seeing it too. This is new.

If the market gets a whiff of a sudden slowdown (Fed seemed to be suddenly backpedaling some on aggressive Fed Rate raises today and interest rates have been dropping) IMO stock prices will continue to drop.

 

[njhowie]

If the market gets a whiff of a sudden slowdown (Fed seemed to be suddenly backpedaling some on aggressive Fed Rate raises today and interest rates have been dropping) IMO stock prices will continue to drop.

The Fed chiefs from around the country always have differing opinions. While I saw stories of some backpedaling, I saw another today reiterating the potential for four hikes in 2019.

https://www.marketwatch.com/story/fe...019-2018-11-16

 

[Ger0n1mo]

My federal income tax went down 16% with the tax cut, so it is not imaginary as some are suggesting.

 

[willing2try]

My federal income tax went down 16% with the tax cut, so it is not imaginary as some are suggesting.

Mine went up.

 

[Chuckanut]

We'll see how things play out.

 

[TwoByFour]

My federal income tax went down 16% with the tax cut, so it is not imaginary as some are suggesting.

That tax cut was paid for by incurring more debt. The US Treasury recently announced that US debt has gone up 17% in 2018. A large part of that is due to the decrease in tax revenues going into the treasury. The shortfall of course is made up by printing bonds which are then sold to the Chinese. So you can thank them for your tax windfall.

 

[Ger0n1mo]

I will take my tax cut. Thank you very much. The naysayers can give all of their income to the IRS if they think they can have Nirvana. China has been buying U.S. bonds and buying up U.S. companies for years - long before the tax cut. A case can be made for U.S. bonds funding the near zero interest rate over all these years. I put very little faith in financial journalism with their simplistic cause and effect analysis. For example, the Dow Jones dropped 600 points today because Target missed analyst's estimates!!!

 

[travelover]

I will take my tax cut. Thank you very much. The naysayers can give all of their income to the IRS if they think they can have Nirvana. China has been buying U.S. bonds and buying up U.S. companies for years - long before the tax cut. A case can be made for U.S. bonds funding the near zero interest rate over all these years. I put very little faith in financial journalism with their simplistic cause and effect analysis. For example, the Dow Jones dropped 600 points today because Target missed analyst's estimates!!!

Exactly. If those economists are so smart why aren't they rich?

 

[Koolau]

No great words of wisdom here. It's just that my personal economy seems in pretty good shape. We'll set a life-time spending record this year (DW had two elective surgeries - heh, heh, Medicade called her up and offered to help until she explained the situation.) So even though we're on a spending tear, our "nut" is bigger than ever. With only about 30% in the stock market, I pretty much ignore the doom and gloom of the talking heads. My biggest fear is inflation and the next big fear would be that both of us would need to go into a "home." Barring those (or an asteroid or NK nuke) I think our economy is doing just fine, thank you. YMMV