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[21 Aug 2019 | No Comment | ]

The threat of a recession is on the minds of investors. Some traditional measures of the yield curve are inverted and, in the past, those have preceded recessions. The link between an inverted yield curve and a recession has so dominated recent financial news that for some investors it’s no longer a matter of whether we get a recession, but how long until it starts.

What these investors are ignoring is how different recent circumstances are from the environment that preceded prior recessions.
Think about the Panic of 2008. The bubble in …

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[30 Apr 2019 | No Comment | ]

Less than two months ago, conventional wisdom thought the US economy was in real trouble. The consensus expected real GDP would barely grow, if at all, in the first quarter of 2019. Many were in a tizzy about the “second derivative,” of growth, obsessing that near zero growth in Q1 would mean three straight quarters of deceleration in real GDP, which if extrapolated meant a recession could be lurking.
Oops! The US economy accelerated in the first quarter, with real GDP up at a 3.2% annual rate for the quarter and …

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[11 Feb 2019 | No Comment | ]

Whatever happened to the recession calls?
Seems like just a few weeks ago that the correction in the stock market as well as the partial government shutdown had convinced many analysts and investors the US was about to enter a recession.
Fortunately, the data haven’t cooperated. Ten days ago we got the employment report for January, which showed a payroll increase of 304,000 and the highest share of adults working since 2008. Yes, February has seen both initial and continuing unemployment claims average higher than in January, but only slightly. In other …

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[16 Jan 2019 | One Comment | ]

For the more than three decades we have been involved in analysis of the economy, one nagging constant has been pessimistic prognostications over the U.S. debt. Now once again, debt is the news de jour. Consumer, business, and government debt are all at record highs, and, therefore, the theory goes, the economy is tempting fate.

We have some very basic problems with this theory. Debt has been rising for decades, as it usually has since the US was founded more than 200 years ago. But just like debt, assets, incomes and …

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[5 Nov 2018 | No Comment | ]

Growth is determined by a perpetual tug-of-war between entrepreneurship and government redistribution. When President Obama was in office, we believed incredible technological innovation would allow for economic growth in spite of Obamacare, greater redistribution, higher taxes and increased regulatory burdens. We thought it would be a Plow Horse Economy, and that things would get better if we did not grow government so much.
From mid-2009 through early 2017, real GDP grew at a 2.2% annual rate, with plodding growth in wages. It certainly wasn’t an economic boom, but it wasn’t recessionary …

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[11 Sep 2018 | No Comment | ]

Friday’s jobs report finally included what appears to be evidence of the long-awaited acceleration in wage growth.
Average hourly earnings grew 0.4% in August, which meant they were up 2.9% from a year ago, the largest 12-month increase since the economic recovery started in mid-2009. By contrast, these wages were up 2.6% in the 12-months ending in August 2017. Moreover, this measure of wages doesn’t include extra earnings from irregular bonuses and commissions, like those paid out since the tax cut was passed late last year.

Total wages, which factors in both average hourly …

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[9 Jul 2018 | No Comment | ]

The US labor market is going from strength to strength. Like with corporate earnings, June jobs data beat consensus estimates – up 213,000 – pushing the average monthly gain for the past year to 198,000 per month.
Meanwhile the unemployment rate jumped from 3.8% to 4.0%. Why? Because the civilian labor force grew by 601,000. We hate blowing one month’s data point out of proportion, but there is enough concurrent evidence out there to conclude that this gain in the labor force is a bullish sign for the economy. It signals …

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[16 Apr 2018 | No Comment | ]

When the report on international trade came out earlier this month, protectionists were up in arms. Through February, the US’ merchandise (goods only, not services) trade deficit with the rest of the world was the largest for any two-month period on record. “Economic nationalists” from both sides of the political aisle, think this situation is unsustainable.
Meanwhile, some investors ran for the hills when President Trump started announcing tariffs on steel, aluminum, and other goods, thinking this was the reincarnation of the Smoot-Hawley tariffs that were a key ingredient of the …

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[6 Feb 2018 | No Comment | ]

Back in the 1970s, supporters of the status quo said there was nothing to be done about stagflation (high inflation and slow growth). It was a “fact of life” that Americans had to accept after experiencing faster growth and lower inflation during the decades immediately following World War II.

Then, along came the supply-side and monetarist economists with new ideas about how the “policy mix” mattered, that marginal tax rates affected the incentive to work and invest and that the supply of money helped determine inflation. Simple ideas, in retrospect, but …

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[7 Nov 2017 | No Comment | ]

Washington D.C. used to complain that Ronald Reagan employed a strategy of “starving the beast” – cutting taxes so that new spending was tough to legislate. Now, D.C. seems to employ the strategy of “gorging the beast” – spending so much that tax cuts are hard to pass.
Persistent over-spending, and costly entitlements have created permanent deficits. In addition, arcane budget rules and “scoring” models (which estimate the budget impact of legislation) make tax reform very complicated.
In order to let it pass with just 51 votes in the Senate, the cost …