Fri 29 Jan, 2016 11:36 am
1 hr ·
Data released this morning confirm my fear that the U.S. economy may fall into recession later this year. The economy expanded at an annual rate of just 0.7 percent in the fourth quarter of 2015. My concern has been inadequate demand for the goods and services the economy is capable of producing. This morning’s report showed (1) slower sales of durable goods like cars and appliances, (2) weaker demand from abroad, and (3) a slowdown in business investment, coupled with unprecedented $29 trillion corporate bond binge that has left many companies more indebted than than ever.
Meanwhile (4) Consumers are also holding back. Lower gas prices aren’t stimulating more spending because most Americans have to save whatever they can. Boomers haven’t saved enough for retirement; millennials haven’t saved enough to start families, and many are burdened with student debt; many others are in the “on demand” economy and have to save against the possibility of not having enough work. And most of the new jobs being created – although abundant – don’t pay squat.
Finally, (5) the government – which should be the spender of last resort to make up for shortfalls in the rest of the economy – is holding back: The Republican Congress is still wedded to austerity economics, many state governments continue to cut spending, and the Fed is raising interest rates.
The down side is that the world economy has slowed a lot and that is reducing demand, but the on the upside gas prices are down a lot and that is adding a fair amount to the free cash in a lot of households. For me that is around $40/wk difference in available cash. Employment is also still strong adding more money into the pot. On the down side, the Republicans who control Congress would benefit by a recession in the election cycle. The reality is that they don't have a lot of incentive to increase government spending and the last time around state government were cutting support payments like unemployment that tend to help the economy achieve a soft landing. In short, I don't see it yet, but it wouldn't surprise me much.
I'd say that Reich's scenario is scary, but plausible. And since the best single indicator for election results is economic growth in the recent past (somewhere between six months and a year), there's something even scarier that Reich doesn't seem to contemplate: Hello, president Trump!
I don't think he can wrap his head around the concept. I certainly cannot.
Well, it's now October 2016, and still no recession. As a matter of fact, our economy is going gang-busters compared to other developed countries.
The US GDP grew at 1.4% in the second quarter of this year according to Bankrate.com.
The US GDP growth ranked number 1 in the world last year.