It is time and in some ways past time for another delve into the state of play in the US economy which some would have you believe has been doing extraordinarily well. I spotted this from @Trickyjabs on Twitter earlier this week.
George Osborne, January 2015:
“Britain could be richer than US by 2030”
2.5 years later:
US GDP +21.5%
UK GDP +4.5%
If we skip the attempt to make a political point this is the sort of thing to cheer Donald Trump especially if he could find a way to argue it had all happened this year! Sadly of course the lesson here is not to use figures you do not understand as the US figures are realised in an annualised version. So still better than the UK but not by much.
If we look back we see that the US Bureau of Economic Analysis or BEA tells us that economic output as measured by GDP peaked at 14.99 Trillion US Dollars in the last quarter of 2007 ( 2009 prices). If we jump forwards to the second quarter of this year we see that it had risen to 17.03 Trillion US Dollars. So if we allow for the likely growth in the third quarter an increase of the order of 14%. This tells us that the US has done relatively well on this measure but that growth is lower than what used to be considered normal. Putting it another way we have a type of confirmation that as output did not reach its previous peak until halfway through 2011 the new normal for economic growth may be of the order of 2% per annum.
Also the BEA gives us an insight into the structure of the US economy which goes as follows. 69% is consumption, just under 17% is investment and just over 17% is the government. You may have spotted a mathematical flaw which is solved when we put in net trade which is -3%.So investment has fallen as has the relative size of the government and the gap has partly been filled by services consumption rising from 44% to 47%.
Perhaps the most interesting change is the decline in the trade deficit which peaked at just under 6% of GDP before the credit crunch but is now around 3%. I wonder how much of a role the shale oil industry has played in this.
One view was expressed by the Donald back in August. From CNBC.
“If we achieve sustained 3 percent growth that means 12 million new jobs and $10 trillion of new economic activity. That’s some number,” Trump said during a speech last month in Missouri promoting tax reform. “I happen to be one that thinks we can go much higher than 3 percent. There’s no reason we shouldn’t.”
If the US Federal Reserve was on board with that then we would have seen more interest-rate increases but its latest forecasts suggest annual economic growth of around 2%. So belatedly they have caught up with us on here!
This is an intriguing one as markets expect another rise to circa 1.25% in December and it became more intriguing as we learnt this from the European Central Bank and its President Mario Draghi yesterday.
Real GDP increased by 0.7%, quarter on quarter, in the second quarter of 2017, after 0.6% in the first quarter. The latest data and survey results point to unabated growth momentum in the second half of this year
So better than the US so far in 2017 and the Euro area has seen growth for a while.
Growth is growing and momentum is also growing and labour market and everything is doing – well, I think it’s, I can’t remember how many quarters of consecutive growth, 17 I believe.
But the picture for interest-rates is completely different.
The sequence stays what it is, namely this – the interest rates will stay and they remain at their present – are expected to remain at their present levels for an extended period of time and well past the horizon of our net asset purchases.
So President Draghi is giving us Forward Guidance that the ECB deposit rate will remain at -0.4% for at least the next couple of years and maybe beyond. This is because the cut to the monthly amount of QE to 30 billion Euros a month was accompanied by not only an extension of its term but more hints that it might go “on and on and on ” to coin a phrase.
Whilst 2017 looks like being somewhere between a good year for both the US and Euro area economies sooner or later a recession will come along. Oh except of course in the forecasts of central bankers which seem to actually believe they have ended them! But my point is should it come then we will see a US central bank which has raised interest-rate but an ECB with them starting it in negative territory. The rationale as we look at comparisons is given here.
As such, the US recovery is way more advanced than ours
Quite a compliment for the United States I think.
This remains by historical standards relatively mild with this being the latest release from August.
The PCE price index increased
0.2 percent. Excluding food and energy, the PCE price index increased 0.1 percent.
This means that the annual rate for Personal Consumption Expenditure has fallen from 2.2% in February to 1.4% in August. So good news overall and in case you are wondering why CPI is not used the gap between the two measures is variable but tends to see CPI around 0.4% higher.
From the Bureau of Labour Statistics or BLS.
Real average hourly earnings increased 0.7 percent, seasonally adjusted, from September 2016 to
September 2017. The increase in real average hourly earnings combined with no change in the average
workweek resulted in a 0.6-percent increase in real average weekly earnings over this period.
So there is some growth but hardly stellar.
In many ways the US economy has done pretty well in the credit crunch era but this does not mean that there are not begged questions. This start in an apparent area of strength because the unemployment has fallen to 4.2% and the underemployment rate to 8.3%. But the catch as was discussed in the comments section yesterday comes from the participation rate which in spite of an improvement in September is some 3% lower than pre credit crunch. So what has happened to nearly 8 million people or ten million if we look further back?
The next issue is one of debt. I am not particularly thinking of the level of it but the way that it seems to have permulated and percolated back down to the sub-prime level again. From Bloomberg in August.
There’s a section of the auto-loan market — known in industry parlance as deep subprime — where delinquency rates have ticked up to levels last seen in 2007, according to data compiled by credit reporting bureau Equifax.
“Performance of recent deep subprime vintages is awful,” Equifax said in a slide show on second-quarter credit trends.
I dread to think what “deep subprime” means don’t you? As to the car market itself this from Automotive News does not seem entirely reassuring.
October is on track to be the second-best month of 2017 for U.S. new-vehicle sales, analysts said, partly due to surging demand in states recovering from hurricane damage, though volume is projected to fall slightly from the same month last year.
When will the next big hurricane come along to boost sales and I note what is happening with prices.
Fleming said incentives have risen to 11 percent of average transaction prices — “an indicator that new-vehicle demand is still contracting, and production cuts could be on the horizon to prevent oversupplies.”
Discounts are all but certain to rise further in the coming months, as automakers roll out year-end promotions that typically start in the next few weeks and stretch into early January.
My financial lexicon for these times of course defines an “incentive” as a price cut.