Monday, September 17, 2018

GOVERNMENT DEBT AND MIXED ECONOMIC INDICATORS

There is much mention about the tax cuts by Republicans, but little mention that they are financed by debt.   I am not alone in worrying about the increased debt.  Billionaire Tepper feels the tax cuts were too steep and likely borrowed economic growth from the future.*  The estimate of the debt for this fiscal year (2018) had risen to 895 billion from 665 billion for fiscal 2017.

Though the economy overall is doing very well, from an individuals point of view, it is more problematic.  Indicators are best described as mixed.

After five months of decline in Consumer Sentiment, it has bounced up and is now near a high (see figure for recent behavior).**

"Fifty-one percent of the electorate lives paycheck-to-paycheck," explains David Winston, a strategist for GOP leaders battling to save their House majority. "Their issues are wages and the cost of living. Ultimately for those folks, the question is, are those paycheck-to-paycheck dynamics getting better?"***

I think that it can not be overstated how much many people were affected by the Great Recession and it may affect them the rest of their lives. In a survey of workers from the Transamerica Center for Retirement Studies, 56 percent of respondents said they have not fully recovered from the Great Recession.***  In spite of that, we are told that jobs are at an all-time high and workers are feeling more free to changes jobs.**** 

 Lack of business investment in capital spending was the largest drag on GDP, but in the first quarter, business investment was found to increase by 39% which is good news.****  There are disturbing signs in the economy such as the decline in both new and existing home sales.*****
Another wild card in the economic mix is what will the American Global Tariff War have on the American economy, especially the Tariff War with China?  In one "stress test" case, the effects on the U.S. stock market are substantial percentage declines with three scenarios.  As this piece is being written, it appears that President Trump is to impose tariffs on 200 more Chinese items.  (https://www.cnbc.com/2018/09/11/stress-testing-the-trade-war-possible-bear-market-in-stocks-looms-for-us.html): 
               
Optimistic
Base case
Conservative
U.S.-10.83-16.45-21.88

In spite of all the mixed news, my conclusion is the same as last April and July and continues to be that we cannot go into a recession this year because there is just too much money sloshing around (http://stopcontinentaldrift.blogspot.com/2018/07/economy-tariffs-and-stock-markets.html; http://stopcontinentaldrift.blogspot.com/2018/04/investors-are-changing-from-stocks-to.html).  It should be noted that the value of the S and P 500 index is roughly the same in mid-September as it was at the peak of January 28th.  While this is still a nice gain from the beginning of the year, growth in the stock markets has stalled.

* https://www.cnbc.com/2018/09/13/tepper-says-tax-cuts-were-too-steep-and-likely-borrowed-economic-growth-from-the-future.html
** https://www.cnbc.com/2018/09/14/september-consumer-sentiment.html
https://www.cnbc.com/2018/08/29/second-estimate-of-q2-2018-gdp.html
*** https://www.cnbc.com/2018/09/13/watch-out-gop-the-economy-is-roaring-but-most-americans-arent-feeling-it.html
https://www.cnbc.com/2018/09/10/nearly-6-in-10-workers-are-still-recovering-after-the-great-recession.html
**** https://www.cnbc.com/2018/09/11/job-openings-hit-record-high-and-more-people-confident-enough-to-quit.html
https://taxfoundation.org/business-investment-increases-39-percent-q1-2018/
***** https://www.cnbc.com/2018/08/29/pending-home-sales-fall-for-seventh-straight-month-in-july.html
https://nationalmortgageprofessional.com/news/68237/existing-home-sales-drop-fifth-straight-month
https://www.cnbc.com/2018/08/28/the-trump-tax-cuts-were-supposed-to-depress-housing-prices-they-havent.html

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