US Economy, the stock market , and other investment/savings strategies

[Crafty_Dog]

Monday Morning Outlook
________________________________________
Don't Cut Rates, Cut Spending To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 4/1/2019

We've been "Comrades in Supply-side Arms" with Stephen Moore (now a Federal Reserve nominee) and Larry Kudlow (Administration Economist) for decades, with very few disagreements on economic policy. However, with both having called for a 50 basis point cut in short-term rates, we find ourselves in total disagreement with their conclusion.

They both make supply-side arguments. Kudlow told CNBC on Friday, "the [Fed] should not tighten just because of prosperity." We agree! While Moore, in an op-ed, argued that a 15% drop in a basket of commodity prices during Q4 showed the Fed was too tight. We've supported price targeting in the past.

It's true the yield curve is flat - inverted in some places - but that's because the market is pricing in a rate cut. We don't see it, nor do we see the reason for it. Our model is simple: add inflation and real growth to get nominal GDP growth. Then look at it over the past two years to remove volatility. If the Fed lifts rates too close to nominal GDP growth, or over it, then it's too tight. Nominal GDP is up 4.9% annualized in the past two years while the federal funds rate is 2.375%. The Fed is at least 200 basis points away from being too tight.

From 1913 until 2008, the Fed had to make reserves in the banking system scarce in order to lift rates. It did this by selling bonds to banks and removing the cash from the system. When rates moved above nominal GDP, it was a signal the Fed had removed too many reserves. It was the lack of money, not the higher rates or the inverted yield curve, that caused the recession. Then, the Fed would reverse course and buy bonds to inject reserves into the system, making them plentiful, which lowered rates. It was the extra money that lifted economic growth, not the lower interest rates.

The Fed has now changed the system. During the Crisis, the Fed injected trillions into the banking system, and there are now $1.5 trillion in "excess reserves." Normally this would automatically keep rates low. But the Fed is paying banks interest on those reserves – currently 2.4%. But this is an experiment. No one knows if paying interest on reserves will keep banks from lending them out. And, no one knows the exact interest rate needed to keep those excess reserves from creating inflation. And as long as those excess reserves exist, the Fed isn't "tight."

Short-term rates are low, and there are other policies that risk slowing growth. Government spending is growing faster than GDP and is projected to reach around 21% of GDP this year, taking resources from the private sector. Tariff uncertainty doesn't help either. Bad policies are the most salient threat to growth. Shifting blame to the Fed is not the answer.

[ccp]

The rising debts and deficits are going to give the Crats a good MSM supported argument for raising taxes (under the guise that is the richly who get the tax) .

OF course we know they NEVER speak of spending cuts unless it is military

I don't recall even a peep from Donald about debts.

If we/he/Repubs  can't even cut NPR NEA and special olympics for goodness sakes  ......

[Crafty_Dog]

For me, it is pretty simple, unless we take on entitlement formulas, it is all for nought.   Anyway, let's take the Debt conversation to the Budget thread. 

[DougMacG]

https://apnews.com/e48cd0b437294313b570c490b83c63fa

Mainsream media will cover this story, with a pillow until it stops breathing.

[G M]

https://apnews.com/e48cd0b437294313b570c490b83c63fa

Mainsream media, cover this story, with a pillow until it stops breathing.

Well, the economy is racist, so...

[DougMacG]

3 months ago we were told the government shutdown would kill off economic growth.

All but the economists who appreciate the supply side missed the idea that deregulation and tax reform would foster growth.  Projected growth was 0 to 1%, if not the beginning of a recession.

Static analysis did not see this coming.

In other news, The economic establishment fights to keep supply siders off of the Federal Reserve because they know nothing about the economy.

Maybe the Keynsians, the smart planners, the socialists and the public private crony partnership crowds are not quite as smart as they think.

[Crafty_Dog]

I don't have the data in front of me, but apparently a goodly part of the growth was due to increasing inventories , , ,

[DougMacG]

I don't have the data in front of me, but apparently a goodly part of the growth was due to increasing inventories , , ,

Yes.  It's always for some factor in the sub data.  It still beats all the alternatives, stagnation, recession, collapse or a Venezuelan result that Democrats apparently want. 

Compare with 'Democratic Socialism in Sweden.  3.2% is greater than any quarter they have had in a half century.
https://tradingeconomics.com/sweden/gdp-growth
GDP Growth Rate in Sweden averaged 0.56 percent from 1981 until 2018

By the end of the next quarter the US could have two new trade deals.

[Crafty_Dog]

https://www.ftportfolios.com/Commentary/EconomicResearch/2019/4/29/conventional-wisdom-wrong-again

[ccp]

yet the debt goes up:

https://www.washingtonexaminer.com/news/white-house/larry-kudlow-trump-wont-pay-down-any-of-the-national-debt

[DougMacG]

yet the debt goes up:

https://www.washingtonexaminer.com/news/white-house/larry-kudlow-trump-wont-pay-down-any-of-the-national-debt

More debt or higher taxes on doctors?  Even that doesn't help because there is no limit on spending.

I would settle for any path to a balanced budget in his time.  We need the debt burden to shrink, and that happens with growth of the private incomes and restraint on the public side.  Good luck getting both.

[Almost] No one gives a bleep about the deficit or debt except to make an expedient political point.  "Your side is running up the deficit [this time]."

Two trillion in increased infrastructure spending discussed today.  Both sides wanted more?!

For every Dem [or R] spending proposal, instead of asking how are you going to pay for it when nothing is paid for anyway, ask:  Instead of WHAT??  Free college? Instead of what?  Social security?  It's not a "priority" if it's just piled on top everything else.  Representative government was supposed to be where we elect people to make difficult choices for us.

Young productive people should be the deficit hawks.  Instead it's the $100T green new deal for them.  Raising tax rates didn't bring in more money or grow the economy.

[DougMacG]

Previously in the budget thread:
"Change the growth rate from  Obama levels, the CBO projection of 1.9% to 3% growth, the average over the 50 years before the latest collapse and malaise, and the deficit to GDP ratio in 30 years drops from 150% to 50%."

https://www.cbo.gov/system/files/115th-congress-2017-2018/reports/52480-ltbo.pdf
https://dogbrothers.com/phpBB2/index.php?topic=1847.msg110272#msg110272

[Crafty_Dog]

Sorry to be a party pooper, and I do want to believe, but what were the spending assumptions by the CBO then and how do they compare to now?

[DougMacG]

Sorry to be a party pooper, and I do want to believe, but what were the spending assumptions by the CBO then and how do they compare to now?

I'm glad you are asking the tough questions.  The point of the previous post is that at any projected level of spending, the burden of the debt is 300% greater after 30 years for a stagnant 1.9% economy than one growing at 3%. 

Or if you are liberal or RINO you will  just spend more with more money.  I don't know what assumptions CBO made, current baseline?  We can just assume they are wrong.
You can grow the economy out of debt burden without paying down the debt IF you hold the line on spending.  Maybe somebody someday will propose that but in the current state of politics, it doesn't sell.
------------------
The question to me, what is the right policy mix?  For the Obama years, we knew we were screwed, but we survived - carrying $20T in debt.  In the first two years of Trump, what should they have done?  Trump had a DOA budget that cut every department except defense and ? by 10%.  It didn't happen.  Republicans were what?  Afraid of losing the House!

On the tax question, I thought lowering corporate taxes to OECD average, 24-25%, was good enough but they lowered them to 20%, losing some revenue short term in exchange for long term growth.  As mentioned, provisions like the child tax credit are spending programs in the tax code, costing revenue.  It wasn't all about growth and revenue.  Now people look to see if they are actually paying less, 80% are, and then are shocked to see we aren't collecting way more in aggregate.  Kind of an unfair expectation.  If people care truly about deficits, pay more and spend less.  But we tried taxing more under Obama and it didn't bring in more revenue.  That leaves spending and LONG TERM growth as the only deficit tools.

On spending, consider this:
3.6 million people are off of food stamps since the Trump election:
https://www.dailysignal.com/2018/08/03/fact-check-trump-says-3-5-million-people-have-been-lifted-off-food-stamps/
Most spending is payments to people and millions off of food stamps is an indication that LESS IS NEEDED from the government, yet we spend more.
Here is another indicator, fewer need disability assistance in a stronger economy, admitted in the NYT!
https://www.nytimes.com/2018/06/19/business/economy/social-security-applications.html
Who knew that disability correlates with the economy instead of health.

They mis-projected growth on the low side and it is out-performing.  They should adjust "baseline" spending downward to correct that mistake!  Instead spending always goes up.

[Crafty_Dog]

Thank you.


BTW, if anyone wants the graphs that Scott sent me, please email me at craftydog@dogbrothers.com

[DougMacG]

Private payrolls surge by 275,000 in April, blowing past estimates in biggest gain since July
https://news.yahoo.com/economics-tyranny-venezuela-103004780.html

Note to the previous discussion, it takes an accumulation of months like these with more and more people working to replace the 'lost revenues' of tax reform.  Job growth and business growth is not instant; it is a flow.  If we don't screw it up, these are permanent gains in the number of people paying in.  Also a decrease in the number of people dependent on government programs as this exceeds population growth.

[Crafty_Dog]

Monday Morning Outlook
________________________________________
This Crazy Rate Cut To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 6/24/2019

The narrative that the U.S. economy is in trouble – some say teetering on the edge of recession - has become so powerful and persuasive that few investors give it a second thought. So of course, they believe, the Fed should cut interest rates. We haven't seen anything like it since the Fed was hiking rates in the deflationary late- '90s. Those rate hikes, which were totally unwarranted, ended up causing a recession.

The rate cuts that the Fed now seems to be planning are equally unwarranted. The dovish tones arose back in the fourth quarter of 2018, when the U.S. stock market experienced a correction while the Fed was lifting rates. Many believe this correction ended when the Fed signaled an end to rate hikes. But simply put, no one really knows if this was correlation or causation. We believe it was the former...pure happenstance.

The Fed is not tight. No way, no how. The federal funds rate is currently 2.375% and no one can look at us with a straight face and say that this interest rate is keeping anyone, anywhere from making an investment.

Of more important note, every prior Fed-induced recession happened because the Fed withdrew reserves from the system, pushing up interest rates. It was the lack of money - the squeeze on reserves – that pushed interest rates higher and caused the recession. Rates themselves don't cause recessions, it's the reason rates move that really matters.

Today, the Fed still has $1.4 trillion in excess reserves in the system, so it can hardly be called tight by any stretch of the imagination. It is when the Fed withdraws too many reserves, pushing the federal funds rate above the pace of nominal GDP growth, that the economic tides turn toward recession. So how close are we now? Over the past two years, nominal GDP is up at a 4.8% annualized rate, twice the current federal funds rate.

Some argue a slowdown in foreign growth should have the Fed concerned. But we know of no U.S. recession ever caused by weakness overseas. Japan collapsed in the 1990s, the U.S. boomed.

It is true there have been some weak economic data points of late. The bears have been pointing, for example, to the Markit Services and Manufacturing indices. But, these are surveys and have never, to our knowledge, been successfully used to predict a recession.

Others are fretting over the tepid 75,000 new jobs added in May. But since this recovery began, the initial payroll reports have come in weak on multiple occasions without signaling recession, just look at May 2012, or December 2013, or May 2016, or September 2017, or February 2019. All months at first came in weaker than the May report and not one signaled recession.

What investors should be focused on is initial unemployment claims as a share of total employment at the lowest reading ever. Job openings, meanwhile, are 1.6 million greater than the total unemployed. Retail sales are booming, up 10.9% in the past three months at an annual rate. After revisions, real GDP likely grew 3.3% at an annual rate in Q1 and is likely to rise 2.0% in Q2 (held down by a 1.0 point slowdown in inventories). There is absolutely no evidence of recession.

The worst part of the proposed rate cut is that all those who think they see a recession will become convinced that the Fed avoided it, even though it was never coming.

It's true that inverted yield curves, as we now see between the 3-month and 10-year Treasury yields, often proceed recessions. But typically, those inversions have happened when the Fed took out too many reserves from the system, which is not the case today. Instead, today's inversion is based, completely, on the market pricing in rate cuts. This is not your father's yield curve inversion.

We think a rate cut is crazy. However, it makes our bullish case for stocks even easier to defend, in spite of the fact that we think the Fed would be sowing the seeds of future economic problems.

[Crafty_Dog]

Personal Income Rose 0.5% in May To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 6/28/2019

Personal income rose 0.5% in May, beating the consensus expected gain of 0.3%. Personal consumption rose 0.4 % in May (+0.5% including revisions to prior months), versus a consensus expected +0.5%. Personal income is up 4.1% in the past year, while spending has increased 4.2%.

Disposable personal income (income after taxes) rose 0.5% in May and is up 3.9% from a year ago.

The overall PCE deflator (consumer prices) rose 0.2% in May and is up 1.5% versus a year ago. The "core" PCE deflator, which excludes food and energy, rose 0.2% in May and is up 1.6% in the past year.

After adjusting for inflation, "real" consumption rose 0.2% in May, and is up 2.7% from a year ago.

Implications: Strength in income and spending continued in May, on the back of a strong report in April that was revised even higher. Personal income rose 0.5% in May - matching April for the largest one-month jump in 2019 and tied for the second largest monthly increase in more than two years - as interest income and wages & salaries pushed overall incomes higher. Meanwhile spending rose 0.4% in May, made more impressive considering that comes after a 1.0% jump in March and a 0.6% increase in April (which, we should note, was revised higher in today's report from the original reading of +0.3%). To put that in perspective, the 8.3% annualized growth in spending over the past three months is the fastest pace we have seen since late 2009. And it's not just spending that has picked up, personal income is up 4.1% in the past year, but up at a faster 4.5% annualized rate over both the past three and six-month periods. This is not the type of data that would suggest a need for lower interest rates, and the Fed acknowledged the health of consumer activity in leaving rates unchanged at the June meeting just over a week ago. Their focus was instead on inflation, which has continued to run below its 2% target. PCE prices rose 0.2% in May and are up 1.5% in the past year, while "core" prices, which exclude the volatile food and energy sectors, also rose 0.2% in May but is up a slightly faster 1.6% in the past twelve months. However, over the past three months those measures have accelerated, with overall PCE prices up at a 2.8% annualized rate while "core" prices are up 2% annualized, both either at or exceeding the Fed's targets. Unfortunately, today's data will probably do little to change their leanings toward cutting rates in July barring resolution on the trade tariffs with China and signs that inflation is moving higher. Is a rate cut needed? Not at all. The US continues to benefit from the tailwinds of tax reform and deregulation put in place over the past two years, and the economy is on track to once again grow near the fastest annual pace in more than a decade. There is no recession on the horizon, and no need for government intervention. The economy is doing just fine on its own. In other news this morning, the Chicago Purchasing Managers Index (a gauge of business sentiment in the region) fell to 49.7 in June from 54.2 in May, while yesterday saw the Kansas City Fed Manufacturing Index decline to 0 in June from 4 in May. Plugging this data into our models suggests the national ISM Manufacturing index, scheduled for release next Monday, is likely to decline to 51.6 for June after 52.1 in May. We think these recent survey declines are largely due to trade-related headlines that have temporarily stoked negative sentiment and fear, and do not suggest a significant slowdown in actual production.

[Crafty_Dog]

Temporary Tepid Growth for Q2 To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 7/22/2019

This Friday, the government will release its initial estimate of real GDP growth in the second quarter, and the headline is likely to look soft. At present, we're projecting an initial report of growth at a 1.8% annual rate.

If our projection holds true, we're sure pessimistic analysts and investors will latch onto the slowdown from the 3.1% growth rate for the first quarter, implying that we're back to slower Plow Horse growth for good. They will argue nothing has substantially changed since Trump took office, despite tax cuts and deregulation.

It's true that an annualized growth rate of 1.8% would be the slowest pace since the first quarter of 2017. But, as we will explain below, growth in the second quarter was likely held down temporarily by businesses returning to a more sustainable pace of inventory accumulation following the rapid pace of inventory building in the second half of 2018 and first quarter of this year. Excluding inventories – focusing on what economists call final sales – we estimate that real GDP grew at a 3.1% annual rate in Q2.

We also like to follow what we call "core GDP," which is real growth in personal consumption, business investment, and home building, combined. Core GDP looks like it grew at a 4.1% annual rate in the second quarter, the fastest pace in a year. In other words, while the economy may not be booming like the mid-1980s or late-1990s, the underlying trend remains quite healthy, and certainly much better than the Plow Horse period from mid-2009 through early 2017.

Here's how we get to our 1.8% real growth forecast for Q2:

Consumption: Automakers say car and light truck sales grew at a 2.8% annual rate in Q2 while "real" (inflation-adjusted) retail sales outside the auto sector grew at a 3.9% rate. Combined with some less up-to-date figures on consumer spending on services, real personal consumption (goods and services combined) looks to have grown at a 4.0% annual rate, contributing 2.7 points to the real GDP growth rate (4.0 times the consumption share of GDP, which is 68%, equals 2.7).

Business Investment: Reports on durable goods shipments and construction suggest all three components of business investment – equipment, commercial construction, and intellectual property – rose in the first quarter. A combined growth rate of 5.1% adds 0.7 points to real GDP growth. (5.1 times the 14% business investment share of GDP equals 0.7).

Home Building: After five straight quarters of contraction, it looks like home building – a combination of new housing as well as improvements – increased at a 2.6% annual rate in Q2. Expect more gains in the quarters ahead as home builders are still constructing too few homes given population growth and the scrappage of older homes. In the meantime, a 2.6% pace translates into a boost of 0.1 point to real GDP growth. (2.6 times the 4% residential construction share of GDP equals 0.1).

Government: Looks like a relatively large 2.3% increase in real public-sector purchases in Q2, which would add 0.4 points to the real GDP growth rate. (2.3 times the government purchase share of GDP, which is 17%, equals 0.4).

Trade: Net exports' effect on GDP has been very volatile in the past year, probably because of companies front-running - and then living with - tariffs and (hopefully) temporary trade barriers. Net exports added 0.9 points to the GDP growth rate in Q1, but should subtract an almost equal 0.8 points in Q2.

Inventories: Inventories are a potential wild-card, because we are still waiting on data on what businesses did with their shelves and showrooms in June. We get a report on inventories on Thursday, the day before the GDP report arrives, which may change our final GDP forecast. In the meantime, it looks like the pace of inventory accumulation got back to more normal levels in Q2, which should temporarily subtract 1.3 points from real GDP growth.

Add it all up, and we get 1.8% annualized real GDP growth. Don't let this tepid headline number spoil your day; the trend remains strong where it matters most, and prospects are bright for the US economy.
________________________________________

[DougMacG]

Voters elected a democratic House in large part because of a false expectation of Mueller report  collusion and now it has been a year since we have had any further economic reforms. Why should people expect rapid growth when they vote against it? The argument needs to be, if you support my successful economic policies, you need to support the right candidates up and down the ticket.

[Crafty_Dog]

The First Estimate for Q2 Real GDP Growth is 2.1% at an Annual Rate To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 7/26/2019

The first estimate for Q2 real GDP growth is 2.1% at an annual rate, beating the consensus expected 1.8%. Real GDP is up 2.3% from a year ago.

The largest positive contributions to real GDP growth in Q2 were consumer spending and government purchases. The largest drags were inventories and net exports.

Personal consumption, business investment, and home building, combined, grew at a 3.2% annual rate in Q2 and are up 2.3% in the past year.

The GDP price index increased at a 2.4% annual rate in Q2. Nominal GDP (real GDP plus inflation) rose at a 4.6% annual rate in Q2, is up 4.0% from a year ago, and up at a 5.0% annual rate from two years ago.

Implications: Real GDP was stronger than the consensus expected in the second quarter, growing at a 2.1% annual rate. This is consistent with our projection that real GDP will grow at close to a 3.0% annual rate in 2019 (Q4/Q4). The details on the second quarter were stronger than the headline, showing that what we call 'core GDP" – real growth in personal consumption, business investment, and home building, combined, grew at a 3.2% annual rate. Notably, inventories grew at a much slower pace in the second quarter, which was a temporary drag on real economic growth. Inventories may continue to be a drag on growth into the third quarter but should stop slowing GDP growth by late this year. In addition, today's report made mincemeat of the idea that the Federal Reserve needs to cut rates or should cut rates at next week's meeting. Nominal GDP – real GDP growth plus inflation – grew at a 4.6% annual rate in Q2, is up 4.0% from a year ago, and up at a 5.0% annual rate in the past two years, all figures well above the current federal funds rate of 2.375%. In particular, the GDP deflator, which measures prices for all components of GDP, increased at a 2.4% annual rate in Q2, adding to the list of data that have exceeded expectations since the last Fed meeting in June, including job growth, industrial production, and retail sales. If the Fed were really data dependent, it wouldn't be discussing a rate cut. Today's report on GDP was the one time every year that the government goes back and revises data for multiple years. The most interesting part of this year's changes were a significant downward revision to corporate profits and a similar upward revision to workers' incomes. However, our capitalized profits models still show that US equities are very cheap and don't suggest a reason to deviate from our year-end projection that the S&P 500 will hit 3250. The US economy is in excellent shape. Deregulation and lower tax rates have boosted economic growth and we expect continued healthy growth in the year ahead.

[DougMacG]

Atlanta Fed, GDP Now Latest forecast: 1.3 percent — July 25, 2019
"The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2019 is 1.3 percent."
https://www.frbatlanta.org/cqer/research/gdpnow.aspx

Once again growth beats expectations.  The press all winter and spring said we might already be in a recession.  Maybe there is something wrong with 'expectations'.

The US still has strong growth compared to the Obama years and relative to the rest of the world.  China's reported growth (an exaggerated number) is the worst since 1992.  Germany, Europe are headed downward dragging others with them.

Negative factors on US growth:  Trade and a lousy global economy.  Also, we are running our economy in a political environment where we face a 50/50 chance of turning into a third world country in the next election, nationalizing industries, punishing capital, taxing wealth and curtailing freedoms.  24 Democrats running for President and a far Left US House promise a Venezuelan path.  Who makes great long term investments in that environment?  A rational player focuses on defense with their assets instead of taking risks needed to surge forward.

Solution:  Shift from proving to trade partners they can't keep screwing us to inspiring them to fix what is wrong.  An escalating trade war is in NO ONE's best interest.  This has gone on long enough.  Trump needs to shift from being a pariah on the world stage to being Leader of the Free World.  We want reciprocal free trade in Europe and in China in particular, and a level playing field governed by technology patents and rule of law.  President Trump has the bully pulpit.  Take the case to the people - in Europe, in China if necessary.  Start calling out these nations to implement the solutions, not escalate the problems.

One quick and lasting stimulant in the economy that doesn't require an act of the Leftist Pelosi House:  Index capital gains to inflation effective August 1 2019 - by executive order.  This would unlock assets, capture revenue and have a velocity multiplier effect throughout the economy.  His top economic adviser (Kudlow) is for it.  Do something bold and positive for the country.  Out-perform your socialist opponents by embracing the free movement of capital in an entrepreneurial economy.  Let them run against success, not argue that they offer better stagnation.

[ya]

I have not followed this thread very much.....but buying Bitcoin is the once in a generation assymetric bet. Please read, https://www.amazon.com/Bitcoin-Standard-Decentralized-Alternative-Central/dp/1119473861/ref=sr_1_1?keywords=saifedean&qid=1564242545&s=gateway&sr=8-1

The book has been translated in 14 languages. Can also be downloaded free from Saifedean Ammous's twitter handle and explore this website https://dergigi.com/

6 months back bitcoin was at 3200$, its now down to 9500$ (after peaking at 13800$)...it will moon again before Dec 2019. 85 % drawdowns are routine with Bitcoin, so invest only what you are willing to lose and hold for 5-10 years.

[Crafty_Dog]

I made what for me is a fairly substantial bet on a bitcoin ETF about two weeks ago.

[ya]

Thats a good start, but really the mantra is "Not your keys, not your coin". One of the driving forces behind BTC (Bitcoin) use is of being a sovereign individual, This means you store your own private keys using a hardware wallet. That means no one can put a hold on your bank acct, you can cross borders freely with the codes in your brain or in your hardware wallet etc. In a world moving to a cash less society, the ability to be your own bank is vitally important.

[Crafty_Dog]

Personal Income Rose 0.4% in June To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 7/30/2019

Personal income rose 0.4% in June while personal consumption rose 0.3%, both matching consensus expectations. Personal income is up 4.9% in the past year, while spending has increased 3.9%.

Disposable personal income (income after taxes) increased 0.4% in June and is up 4.7% from a year ago.

The overall PCE deflator (consumer prices) rose 0.1% in June and is up 1.4% versus a year ago. The "core" PCE deflator, which excludes food and energy, rose 0.2% in June and is up 1.6% in the past year.

After adjusting for inflation, "real" consumption increased 0.2% in June, and is up 2.5% from a year ago.

Implications: Consumers should have a smile on their face headed into the second half of 2019, as wages continue to rise at a healthy clip. Before we jump into the details for June, today's report also shows large upward revisions for income growth since the end of 2016. Previously, we had income figures through May 2019 and the data showed that personal incomes had grown at a 4.3% annual rate since the end of 2016. But the revisions show that income was instead growing at a 5.3% annual rate, largely due to faster growth in worker compensation. Spending was revised up slightly, which means, with better incomes, spending has more room to improve in the future. For June, personal income rose 0.4% for a fourth consecutive month, led higher by private sector wages and salaries. Spending rose 0.3% in June, made more impressive considering that comes after a 0.6% jump in April and a 0.5% increase in May. To put that in perspective, the 5.7% annualized growth in spending through June is the fastest pace of growth for the first half of a year since 2006. Incomes are also accelerating, with personal income up 4.9% in the past year, but up at a faster 5.2% annualized rate over both the past three and six-month periods. This is not the type of data that would suggest a need for lower interest rates, and the Fed acknowledged the health of consumer activity in leaving rates unchanged at their last meeting back in June. Their focus was instead on inflation, which has continued to run below its 2% target. PCE prices rose 0.1% in June and are up 1.4% in the past year, while "core" prices, which exclude the volatile food and energy sectors, rose 0.2% in June but are up a slightly faster 1.6% in the past twelve months. However, over the past three months those measures have accelerated, with overall PCE prices up at a 2.2% annualized rate while "core" prices are up 2.5% annualized, both exceeding the Fed's targets. Unfortunately, today's data (or any of the other strong data released since the last Fed meeting) will probably do little to change its leanings toward cutting rates tomorrow. Is a rate cut needed? Not at all. The US continues to benefit from the tailwinds of tax reform and deregulation put in place over the past two years, and the economy is on track to once again grow near the fastest annual pace in more than a decade. There is no recession on the horizon, and no need for government intervention. In other news this morning, the national Case-Shiller index rose 0.2% in May and is up 3.4% from a year ago, a significant slowdown from the 6.3% gain in the year ending in May 2018. In the past twelve months, price gains were led by Las Vegas, Phoenix, and Tampa, while prices have dropped slightly in Seattle and risen only slightly in San Francisco, and San Diego.

[Crafty_Dog]

Data Watch
________________________________________
Industrial Production Declined 0.2% in July To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 8/15/2019

Industrial production declined 0.2% in July (-0.4% including revisions to prior months), below the consensus expected gain of 0.1%. Mining output fell 1.8% in July, while utilities rose 3.1%.

Manufacturing, which excludes mining/utilities, fell 0.4% in July (-0.6% including revisions to prior months). Auto production declined 0.2%, while non-auto manufacturing fell 0.4%. Auto production is up 3.7% versus a year ago, while non-auto manufacturing is down 0.9%.

The production of high-tech equipment rose 0.2% in July and is up 5.3% versus a year ago.

Overall capacity utilization declined to 77.5% in July from 77.8% in June. Manufacturing capacity utilization fell to 75.4% in July from 75.8% in June.

Implications: No doubt about it, industrial production was weak in July. The one positive contribution for the month came from utilities, the result of temperatures returning to normal and boosting demand for air conditioning following the coolest June since 2009. Aside from that series, declines were broad-based. Auto manufacturing fell 0.2% in July following two months of strong gains. Meanwhile, manufacturing outside the auto sector (which represents the majority of activity) declined 0.4%. Putting the two series together shows overall manufacturing fell 0.4% in July and is now down 0.5% from a year ago. This represents a considerable slowdown in the twelve-month growth rate since the end of 2018, and the same pattern can be seen in overall industrial production as the chart in the attached PDF shows. However, it's important to remember that we saw a similar slowdown in 2015-16 during the oil price crash, and no recession materialized. Keep in mind that manufacturing is only responsible for about 11% of GDP and is much more sensitive to global demand than other sectors of the economy. Even though non-auto manufacturing is now down 0.9% in the past year, the various capital goods production indices continue to outperform the broader index. For example, over the past twelve months business equipment is up 1.0%, high-tech equipment is up 5.3%, and durable goods more generally are up 1.1%. By contrast non-durable goods production is down 2.1%, demonstrating that the ongoing weakness in non-auto manufacturing growth isn't being led by the death of business investment Finally, mining activity fell 1.8% in July, its largest monthly drop in over three years. However, according to the Fed this was just the result of a sharp temporary decline in oil extraction due to hurricane Barry. In the past year mining is still up 5.5%, showing the fastest year-over-year growth of any major category. In other recent news from the manufacturing sector, the Philly Fed Index, a measure of East Coast factory sentiment, dropped to +16.8 in August from +21.8 in July. Meanwhile, the Empire State Index, which measures factory sentiment in the New York region, continued its rebound, rising to +4.8 in August from +4.3 in July. Notably, both of these readings beat consensus expectations and signal continued optimism. On the housing front, the NAHB index, which measures homebuilder sentiment, rose to 66 in August from 65 in July, matching its 2019 high. The increase was driven by expectations of stronger sales activity and buyer foot traffic.

===============================

Data Watch
________________________________________
Retail Sales Increased 0.7% in July To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 8/15/2019

Retail sales increased 0.7% in July, easily beating the consensus expected gain of 0.3%. Retail sales are up 3.4% versus a year ago.

Sales excluding autos rose 1.0% in July, easily beating the consensus expected 0.4% gain. These sales are up 3.7% in the past year. Excluding gas, sales rose 0.6% in July and are up 3.8% from a year ago.

The increase in sales in July was led by non-store retailers (internet & mail order), gas stations and restaurants & bars. Auto sales were the only major decline.

Sales excluding autos, building materials, and gas rose 1.0% in July (+1.1% including revisions to prior months). If unchanged in August/September, these sales will be up at a 7.1% annual rate in Q3 versus the Q2 average.

Implications: Tell us again why the Fed should be cutting rates? Add today's retail sales report to the litany of other positive news coming out of the US economy over the past few months. A truly "data dependent" Fed should not have cut rates in late July and would not be heading for another rate cut in September, like it has signaled and as the financial markets fully anticipate. Today's retail sales report shows the consumer is doing very well. Sales increased 0.7% in July, rising for the fifth consecutive month and beating even the most optimistic forecast on Bloomberg. Ten of the thirteen major categories had higher sales, led by non-store retailers (think internet & mail order), gas stations, and restaurants & bars. Powered by "Prime Day," non-store sales were up 16.0% from a year ago, sit at record highs, and now make up 12.8% of overall retail sales, also a record. The only significant decline in today's report was for autos. "Core" sales, which exclude autos, building materials, and gas stations (the most volatile sectors) were up 1.0% in July, up 1.1% including revisions to prior months, and are up 4.8% from a year ago. Jobs and wages are moving up, companies and consumers continue to benefit from tax cuts, consumer balance sheets look healthy, and serious (90+ day) debt delinquencies are down substantially from post-recession highs. For these reasons, expect continued solid gains in retail sales in the year ahead. In other news today, nonfarm productivity (output per hour) rose at a 2.3% annual rate in the second quarter, coming in well above the consensus expected increase of 1.4%. The rise in nonfarm productivity came as output rose while hours worked declined, pushing output per hour higher. Nonfarm productivity is up 1.8% in the past year and up 1.7% at an annualized rate over the past two years. This is the fastest two-year increase since 2011, which was early in the recovery, when it's normal for productivity growth to surge as firms increase output while still reluctant to add hours. The recent gain, however, comes deep in an economic recovery, which suggests tax cuts and deregulation are the key drivers. We expect productivity will remain elevated in 2019, as the investments in machinery and R&D continue to come online. Meanwhile, the tight labor market will encourage firms to keep looking for more efficient ways to produce. Also today, initial jobless claims rose 9,000 last week to 220,000. Continuing claims rose 39,000 to 1.726 million. Plugging these figures into our model suggests nonfarm payrolls continue to grow at a healthy pace in August. In other news yesterday, on the inflation front, both import and export prices rose 0.2% July. In the past year, import prices are down 1.8%, while export prices are down 0.9%. We expect these inflation figures to continue to head north in the coming months.

[ccp]

and job growth up

https://www.breitbart.com/the-media/2019/08/16/anthony-scaramucci-plotting-trump-takedown-with-bill-kristol/

fastest growing industry - the anti Trumpers

highest pain in the industry are the back - stabbing rats

[DougMacG]

https://www.foxbusiness.com/economy/august-retail-sales

US retail sales rise more than expected in August as auto sales surged

Recessions aren't caused by political wishful thinking.  Who knew?

[Crafty_Dog]

Data Watch
________________________________________
Industrial Production Increased 0.6% in August To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 9/17/2019

Industrial production increased 0.6% in August, easily beating the consensus expected gain of 0.2%. Mining output jumped 1.4% in August, while utilities rose 0.6%.

Manufacturing, which excludes mining/utilities, increased 0.5% in August (+0.6% including revisions to prior months). Auto production declined 1.0%, while non-auto manufacturing rose 0.6%. Auto production is up 0.5% versus a year ago, while non-auto manufacturing is down 0.6%.

The production of high-tech equipment rose 0.8% in August and is up 1.9% versus a year ago.

Overall capacity utilization increased to 77.9% in August from 77.5% in July. Manufacturing capacity utilization rose to 75.7% in August from 75.4% in July.

Implications: Industrial production surged in August, easily beating consensus expectations to post its largest monthly increase in a year. And the details of the report were as good as the headline, with nearly every major category showing growth. The one exception came from auto manufacturing, which fell 1.0% in August. However, that comes on the heels of three consecutive months of strong gains, and auto production is still up 0.5% from a year ago. Meanwhile, the best news came from manufacturing outside the auto sector (which represents the majority of manufacturing activity) where production rose 0.6%, its largest monthly gain in over a year. Putting the two series together shows overall manufacturing increased 0.5% in August but is still down 0.5% from a year ago. This represents a considerable slowdown in the twelve-month growth rate since the end of 2018, and the same pattern can be seen in overall industrial production as the chart in the attached PDF shows. However, the slowdown has begun to taper off, and there is evidence that manufacturing activity may be turning a corner. Over the past four months, manufacturing has risen at a 2.6% annualized rate, a stark reversal from an annualized decline of 5.8% during the first four months of 2019. Despite all the recent doomsday predictions related to the US-China trade dispute, it's important to remember that we also saw a similar slowdown in 2015-16 during the oil price crash, and no recession materialized. Keep in mind that manufacturing is only responsible for about 11% of GDP, and is much more sensitive to global demand than other sectors of the economy. Finally, mining activity rebounded 1.4% in August following a sharp temporary decline in July due to hurricane Barry. In the past year, mining is still up 5.1%, showing the fastest year-over-year growth of any major category. Expect a further acceleration in the coming months as US shale drillers ramp up activity to fill the gap in production caused by the recent attacks on Saudi Arabia's oil infrastructure. In other news this morning, the Empire State Index, which measures factory sentiment in the New York region, fell to +2.0 in September from +4.8 in July. On the housing front, the NAHB index, which measures homebuilder sentiment, rose to 68 in September from 67 in July, an eleven-month high. This represents a significant and consistent rebound in optimism following the collapse in the index at the end of 2018.

[ppulatie]

Hey Everyone.

I am back! 

Just wondering anyone's thoughts on all the REPOs and the current liquidity crunch going on.

Pat

[Crafty_Dog]

Welcome back!!! 


https://www.ftportfolios.com/blogs/EconBlog/2019/9/18/repo-madness

[DougMacG]

http://ftalphaville.ft.com/2019/09/17/1568721798000/A-story-about-a-liquidity-regime-shift/

[Crafty_Dog]

Huh?

QE, or not QE? On Friday, the U.S. Treasury formally announced plans to start buying back short-term U.S. Treasury debt. The plan calls for the New York Federal Reserve Bank to buy about $60 billion through mid-November – an attempt to correct liquidity shortages in the banking system in September – and with buy-backs continuing through the second quarter of 2020, it also aims to preempt future liquidity crunches. (Future buy-backs will be determined based on the demand for dollars.) The Fed has said that this is not a change in monetary policy and insists that it categorically is not qualitative easing. The U.S. economy is due for a cyclical recession sooner or later, and moves made by the Federal Reserve now will impact the severity and tools available for dealing with a recession when it arrives.

[DougMacG]

Trump economy is growing faster in the middle of a trade war than the Obama economy grew under artificial stimuli while neglecting the long term threats.

How many MSM warnings have we seen that we may already be in recession (wish, wish) yet our growth rate is greater than all of Europe.  Who knew.

https://www.msn.com/en-us/finance/markets/us-economy-holds-up-with-19-25-growth-on-consumer-strength/ar-AAJzqQX

[Crafty_Dog]

Industrial Production Dropped 0.8% in October To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 11/15/2019

Industrial production dropped 0.8% in October, lagging the consensus expected decline of 0.4%. Mining output fell 0.7% in October, while utilities dropped 1.3%.

Manufacturing, which excludes mining/utilities, declined 0.6% in October. Auto production fell 7.1%, while non-auto manufacturing declined 0.2%. Auto production is down 11.9% versus a year ago, while non-auto manufacturing is down 0.7%.

The production of high-tech equipment rose 0.1% in October and is up 5.6% versus a year ago.

Overall capacity utilization declined to 76.7% in October from 77.5% in September. Manufacturing capacity utilization fell to 74.7% in October from 75.2% in September.

Implications: Industrial production continued to take it on the chin in October, as the GM strike dragged on. That said, outside autos there wasn't much to like in today's report either, with nearly every major category of production showing declines. Autos led industrial production lower in October, declining 7.1%, and over the course of September and October the GM strike dragged auto production down by a total of 12.2%, the largest two-month decline since the recession in 2009. The good news is that the strike has since been resolved, so autos are poised for a sharp rebound in November. Manufacturing, excluding autos, had a more muted decline of 0.2% in October. Despite the GM strike, over the past five months, overall manufacturing has declined at a 0.9% annualized rate, a smaller decline than the large annualized drop of 4.5% during the first five months of 2019. We think this trend will continue and expect a return to positive growth in industrial production in the months ahead. The strike is over, USMCA is likely to be passed soon, and a Phase 1 trade deal with China looks to be around the corner. It's also important to remember that we had a similar slowdown in 2015-16 during the oil price crash, and no recession materialized. And keep in mind that manufacturing is only responsible for about 11% of GDP and is much more sensitive to global demand than other sectors of the economy. Outside the manufacturing sector, mining activity fell 0.7% in September, primarily due to a decline in coal extraction. Utilities were also weak in October, falling 2.6% as an increase in natural gas usage was swamped by lower demand for electricity. Given relatively harsh weather for much of the country so far in November, utility output is set to rebound. High-tech equipment production was the one bright spot in October, rising 0.1%, and is now up 5.6% in the past year, the fastest year-over-year growth of any major category. In other manufacturing news this morning, the Empire State Index, which measures factory sentiment in the New York region, fell to +2.9 in November from +4.0 in October, still signaling growth in that area of the country.

[Crafty_Dog]

second post

Retail Sales Rose 0.3% in October To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 11/15/2019

Retail sales rose 0.3% in October (+0.2% including revisions to prior months) versus a consensus expected 0.2%. Retail sales are up 3.1% versus a year ago.

Sales excluding autos increased 0.2% in October, falling short of the consensus expected 0.4% gain. These sales are up 2.8% in the past year. Excluding gas, sales rose 0.2% in October and are up 3.9% from a year ago.

The rise in sales in October was led by non-store retailers (internet & mail order), autos, and gas stations. The largest decline was at clothing & accessory stores.

Sales excluding autos, building materials, and gas increased 0.2% in October (+0.1% including revisions to prior months). If unchanged in November and December, these sales will be up at a 1.1% annual rate in Q4 versus the Q3 average.

Implications: Retail sales bounced back in October after falling for the first time in seven months in September. Sales grew 0.3% in October and are up a solid 3.1% from a year ago, but the underlying details of the report were a little more mixed than the overall headline would suggest, as sales rose in only six of thirteen major categories. Non-store retailers (think internet & mail order) and autos led the way rising 0.9% and 0.5% in October, respectively. Non-store sales are up 14.3% from a year ago, sit at record highs, and now make up 12.9% of overall retail sales, also a record. The largest decline in sales in October was for clothing and accessory stores, which dropped 1.0%. In spite of the lack of breadth, there should be no doubt the consumer is doing well. "Core" sales, which exclude autos, building materials, and gas stations (the most volatile sectors) grew 0.2% in October, and are up 4.2% from a year ago and 7.8% at an annualized rate since the start of 2019, the fastest ten-month pace of growth since December 1999. Jobs and wages are moving up, companies and consumers continue to benefit from tax cuts, consumer balance sheets look healthy, and serious (90+ day) debt delinquencies are down substantially from post-recession highs. For these reasons, expect continued solid gains in retail sales in the year ahead. In inflation news today, import prices fell 0.5% in October, driven by a decline in petroleum prices. Meanwhile, export prices declined 0.1% primarily due to industrial goods. In the past year, import prices are down 3.0%, while export prices are down 2.2%. We expect a turnaround to at least modest price gains in the year ahead.

[DougMacG]

Manufacturing jobs multiply in state
Report: State has second highest manufacturing job growth in U.S.
By Bethany Blankley - The Center Square
Oct. 10, 2019
http://www.gmtoday.com/news/local_stories/2019/10102019-manufacturing-jobs-multiply-in-state.asp

[G M]

Manufacturing jobs multiply in state
Report: State has second highest manufacturing job growth in U.S.
By Bethany Blankley - The Center Square
Oct. 10, 2019
http://www.gmtoday.com/news/local_stories/2019/10102019-manufacturing-jobs-multiply-in-state.asp

Strange, I was told that jobs like these weren't coming back. Something about a magic wand....

This just in, Trump to be impeached for sorcery! "He turned me into a newt" says unnamed whistleblower...

[DougMacG]

For the record, unleashing free market, entrepreneurial capitalism IS magic.

The other side has an even more powerful belief in capitalism.  They think you can put any weight on it, any burden, any moral hazard and any set of disincentives to produce, and nothing (much) will go wrong.

[DougMacG]

Even in this so-called recession, Trump economy growth is more than a third better than the average or last year growth of the Obama economy.

https://www.foxbusiness.com/markets/markets-us-gdp-third-quarter-revised

The markets that will never recover hit record highs for the 100th time under Trump.

[Crafty_Dog]

Data Watch
________________________________________
The ISM Manufacturing Index Declined to 47.2 in December To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 1/3/2020

The ISM Manufacturing Index declined to 47.2 in December, lagging the consensus expected 49.0. (Levels higher than 50 signal expansion; levels below 50 signal contraction.)

The major measures of activity were mostly lower in December. The production index fell to 43.2 from 49.1 in November, while the employment index declined to 45.1 from 46.6. The new orders index moved lower to 46.8 from 47.2. The supplier deliveries index rose to 54.6 from 52.0 in November.

The prices paid index rose to 51.7 in December from 46.7 in November.

Implications: Manufacturing activity continued to slow as 2019 came to a close, according to the Institute for Supply Management (ISM) survey, hitting the lowest level since 2009. However, the ISM index is calculated through a survey of purchasing managers who are often swayed more by sentiment than actual activity, so we think it should be taken with a grain of salt. The index has dipped below 50 earlier in this recovery - without signaling recession - on three occasions in 2012, once again in 2013, and for five consecutive months in 2015/16. Each time, the economy kept growing. The two most forward-looking indices - new orders and production – both declined in December and remain below 50, signaling a slowdown in activity. The new orders index fell to 46.8 from 47.2 in November, while the production index dropped to 43.2 from 49.1. Despite the continued weakness, we expect a return to growth in the months ahead. Why? The ISM data doesn't match what we are seeing from other reports. The latest report on personal consumption shows goods consumption through November up at a 6.6% annualized rate, on-track to show the largest annual increase for the series in fifteen years! So, if consumers are clearly buying, and companies are apparently - according to today's report - not producing, something has got to give. In fact, today's report showed the customers' inventories index declined to 41.1. Customers' inventories have now been declining for 39 consecutive months, which is positive for future factory output. Given that we are also not seeing a pickup in layoffs – something you would expect to see if business significantly slowed - we lean towards the hard data over the survey output when it comes to judging the health of the economy. Speaking of workers, the employment index declined to 45.1 from 46.6 in November. While December employment isn't likely to replicate the 200,000+ reading from November (which, remember, was aided by GM workers returning from strike), we still expect to see healthy nonfarm payroll growth of around 154,000. Finally, on the inflation front, the prices paid index rose to 51.7 in December, pushed higher due primarily to metals (namely steel and aluminum). While the ISM manufacturing index has proved shaky over recent months, the preponderance of the data point to continued growth in the economy. In other news this morning, construction spending rose 0.6% in November (+2.6% including revisions to prior months), coming in above the consensus expected gain of 0.4%. A pickup in home building and public construction of highways and streets were partially offset by a slowdown in spending on manufacturing facilities. In recent employment news, initial jobless claims fell 2,000 last week to 222,000, while continuing claims rose 5,000 to 1.728 million. On the housing front, the Case-Shiller national home price index rose 0.5% in October and is up 3.3% from a year ago, while the FHFA index, which measures prices for homes financed with conforming mortgages, increased 0.2% in October and is up 5.0% over the past twelve months. Both indexes show slower price gains in the past twelve months than in the year ending in October 2018. Finally, pending home sales, which are contracts on existing homes, rose 1.2% in November after a 1.3% decline in October. We expect existing home sales (counted at closing) will rise modestly in the months ahead.

[Crafty_Dog]

The ISM Non-Manufacturing Index Rose to 55.0 in December To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 1/7/2020

The ISM Non-Manufacturing index rose to 55.0 in December, beating the consensus expected 54.5. (Levels above 50 signal expansion; levels below 50 signal contraction.)

The major measures of activity were mixed in December, but all stand above 50, signaling growth. The business activity index rose to 57.2 from 51.6 in November, while the supplier deliveries index increased to 52.5 from 51.5. The new orders index fell to 54.9 from 57.1 in November, and the employment index declined to 55.2 from 55.5.

The prices paid index was unchanged at 58.5.

Implications: While so much attention has been given to the ISM manufacturing index as it dipped below 50 in recent months, data from the much larger service sector continues to show solid growth. And the growth was broad-based in December, with eleven industries reporting growth, while six showed decline. The two most forward-looking indices – business activity and new orders – moved in opposite directions in December, with activity rising but orders slowing. Companies reported increased order activity in November as remaining 2019 budgets were put to work, and healthy orders activity continued in December – though at a modestly slower pace, in part due to reduced holiday schedules. Meanwhile, the pickup in orders from October and November led to a rise in activity as orders are filled. Activity could have grown faster but for increasing lead times for materials and difficulty in finding qualified labor to fill additional positions (which shouldn't be a surprise with the unemployment rate at multi-decade lows). Speaking of workers, the employment index slipped to 55.2 from 55.5 in November. While we are waiting on tomorrow's ADP employment report and Thursday's initial claims data to finalize our forecast, we believe that Friday's employment report will show a print of around 154,000 nonfarm jobs added. That represents a slowdown from the 200,000+ jobs added in November as GM workers returned from strike, but healthy growth nonetheless. On the inflation front, the prices paid index was unchanged at 58.5 in December, as rising costs for beef, cheese, and fuel were offset by a decline in prices for steel and lettuce. At the end of the day, the service sector report from the ISM should be given more weight than the manufacturing report when it comes to the outlook on the broader economy, but the media loves negative news and these data simply don't support their dour outlook. Fear sells, even when the fear isn't justified.

[DougMacG]

10 years of NASDAQ

https://twitter.com/AlanReynoldsEcn/status/1215421037380341762
 
@AlanReynoldsEcn
Those habitually critical of American corporations ("big tech" in particular) have presumably put their money where there mouth was, such as government securities or bank deposits - anyplace except NADAQ stocks.  Now they resent us tech investors for their own foolish timidity.

]https://pbs.twimg.com/media/EN4K_cYU4AATgQ9.png
-------------------------------------------
From 2500 to 9000, who else sat this one out?

[Crafty_Dog]

The US economy is not in an economic boom, but growth has been consistently faster than during the Plow Horse phase from mid-2009 through the end of 2016. Real GDP has grown at a 2.6% annual rate since the start of 2017 versus 2.2% beforehand.

But most analysts expect a noticeable slowdown in 2020; not a recession, but slimmer 1.8% real GDP growth (Q4/Q4). This is an even steeper decline than the 2.2% consensus forecast for 2019 that analysts made a year ago. By contrast, we're forecasting real GDP growth in the 2.5 - 3.0% range in 2020.

We're not trying to be contrarian, and don't think that label applies to us. We're not just saying "up" because others are saying "down." The reason our forecast is different is that most analysts are Keynesians, and we're supply-siders; they follow money, we follow incentives.

As a result, they think the extra economic growth related to the tax cut was a temporary phenomenon, due to putting more money in the pockets of consumers and businesses. Instead, we're focused on what the changes to the tax law due to the incentives to work, invest, and run businesses more efficiently.

That last part is particularly important given that the incentive effects of the Trump tax cut were focused so heavily on businesses. Some analysts have claimed those tax cuts didn't work, noting that business investment in plant and equipment hasn't boomed.

But the way businesses operate has changed substantially over recent decades. The old way of raising worker productivity was by giving them more equipment. Now companies push the work, the decisions, to the consumer by using Apps. Instead of buying a shiny new computer, they figure out how to use computers and networks most effectively. No wonder corporate profits have remained at such high levels.

This may also explain why productivity growth has accelerated in spite of lukewarm growth in the dollar value of business investment. Productivity growth is normally strong early in an economic expansion, and then fades later on. For example, productivity grew 3.7% in the first year of the current expansion. In the next 6½ years it grew at a very weak 0.7% annual rate (through the end of 2016). Since then, productivity is up at a much more respectable 1.4% rate.

The economic expansion isn't going to last forever, but look for the US economy to continue to outperform the doubters until the doubters realize their model of how the economy works has a fundamental flaw.

[Crafty_Dog]

https://www.ftportfolios.com/Commentary/EconomicResearch/2020/1/14/2020-economic-and-marketing-outlook

[DougMacG]

https://finance.yahoo.com/news/u-jobs-top-estimates-225-133001952.html

https://finance.yahoo.com/news/u-jobs-top-estimates-225-133001952.html

Beware the sell-off the day this fall Bernie is nominee and leads the incumbent in the polls.

[DougMacG]

https://www.ftportfolios.com/Commentary/EconomicResearch/2020/1/14/2020-economic-and-marketing-outlook

Good analysis.  I agreed with his optimism all the way through, then wondered what could bring it down?

An economic collapse in China and Asia could.

In Hubei province, a population the size of Italy’s is under lockdown
https://www.economist.com/china/2020/01/30/tough-quarantine-measures-have-spread-across-china

[Crafty_Dog]

Nonfarm Payrolls Rose 225,000 in January To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 2/7/2020

Nonfarm payrolls rose 225,000 in January, beating the consensus expected 165,000. Including revisions to November/December, nonfarm payrolls were up 232,000.

Private sector payrolls rose 206,000 in January, while revisions to the two prior months added 7,000. The largest increases in January were for education & health services (+72,000), construction (+44,000), leisure & hospitality (+36,000), and transportation & warehousing (+28,000). Government increased 19,000 while manufacturing declined 12,000.

The unemployment rate ticked up to 3.6% in January from 3.5% in December.

Average hourly earnings – cash earnings, excluding irregular bonuses/commissions and fringe benefits – rose 0.2% in January and are up 3.1% versus a year ago.

Implications: A solid report on the labor market for January; not quite as strong as the big headline, but strong nonetheless. Nonfarm payrolls rose 225,000 in January, beating the consensus expected 165,000 and were higher than the forecast from any economics group. Some are saying the gain was due to unusually mild weather in January throughout much of the country. But the government keeps track of the number of people who miss work due to weather each month and fewer people missed work due to weather back in January 2015, when overall payrolls rose only 191,000 (smaller than the gain this January), so weather is likely only a small part of the explanation for strong payrolls. However, civilian employment, an alternative measure of jobs that includes small-business start-ups, declined 89,000. As a result of the decline in civilian employment the jobless rate ticked up to 3.6%. Don't get us wrong: today's report is good news overall, but the top-line increase in nonfarm payrolls isn't going to happen every month. Looking at the past year, nonfarm payrolls have averaged an increase of 171,000 per month while civilian employment has averaged a gain of 174,000, both solid figures but closer to the underlying trend than the 225,000 gain in payrolls. Perhaps the best news in today's report was that the labor force participation rate (the share of adults who are either working or looking for work) increased to 63.4%, the highest since early 2013. Participation among "prime-age" adults (25 to 54), hit 83.1%, the highest since the Lehman Brothers bankruptcy in 2008. The share of adults who are employed hit 61.2%, also the highest since 2008. Meanwhile, workers' purchasing power continues to grow. Average hourly earnings grew 0.2% in January and are up 3.1% from a year ago. Total hours worked grew 0.2% in January and are up 0.9% from a year ago. As a result, total earnings by all private-sector workers combined are up 4.1% in the past year. Today's report pushes back against market expectations that the Federal Reserve will cut short-term rates later this year. Monetary policy isn't tight and we don't need lower rates.

[DougMacG]

What does everyone here think about market implications of this so-called Coronavirus?
1.  Medically, how does this end?
2.  Mathematically, how is this expanding?  Remember, information from China is likely false, understated.
3.  Economy of China:  If the economic impact only hit with a huge recession in China, how does that affect our markets, my 'growth stock funds'?
4.  If the virus hits epidemic levels elsewhere, what is that economic and market impact?
5.  If stock markets start to panic, how far does it go.

I am thinking I should be in an all cash position now and buy back in at the bottom.  That is against my nature but it is too late to panic after everyone else already has.

Ideas, advice?