US economy in August: moving sideways
With the (roughly) 11% decline in US equities year-to-date, talk of a US recession has resurfaced. Through mid August, the high frequency economic indicators point to further weakness, rather than a double dip.
In my view, whether or not the US is IN a recession – defined as the coincident variables followed by the NBER (.xls) are turning downward – is really a moot point for a good chunk of the working-aged population. It probably ‘feels’ like the economy never exited recession to many.
As an aside, it would be difficult for the US economy to actually ENTER a contractionary phase right now, since the cyclical forces that normally drag the US into recession – inventories, auto sales, and housing – are at severely depressed levels. Confidence (or lack thereof) can reduce domestic spending and investment – it’s in this respect that the losses in equity equity markets are important. It takes time for shocks to work their way into the economic data. Nevertheless, high frequency indicators do not point to recession…for now.
Claims are elevated but ticked up last week. If claims do not fall back in coming weeks, the unemployment rate will rise again. This could indicate the outset of a contracting economy.
Weekly diesel production shows an increase in transportation activity (please see this post for an explanation of the data).
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The demand for diesel (in real barrels per day) recovered, rising at a rate of roughly 15% annually for each of the weeks of July 29 and August 05. Annual growth declined to -3% in the week of August 12; but this series (even in annual growth rates) is highly volatile, and the 4 week moving average of annual growth decelerated only mildly, from 7% to 6%.
Finally, daily Treasury tax receipts are slowing but growth remains positive.
The chart illustrates the annual growth rate of the 30-day rolling sum of daily withholding receipts for income and employment tax payments. This series proxies the health of the labor market. Spanning the last three months, the annual growth rate decelerated to 4% (May 18 through August 18 this year compared to the same period last year) from 4.6% in the three months previous. There’s no indication of a contraction in tax receipt activity, but a further trend downward in the pace of tax receipt gains would turn some heads.
Nothing to indicate a contraction in the high-frequency data; but the deceleration is worrisome, given that consumers must ‘earn’ their consumption rather than ‘borrow’ for consumption. I don’t feel particularly positive about the state of the US economy. Neither does Mark Thoma.
Rebecca, and I think we should be happy it is still not negative. Lateral is better than down.
Lateral is only a slower torture. Less pain for a longer time. I think we will be seeing regular swings in the diesel and tax receipts for a long time (years) until either income share improves down the line to the base or the contraction has leveled to that of the new median income of the bottom 80%.
Frankly lateral movement, no real rise in growth, is just slow contraction considering over time population if rising, inflation is present and incomes are stagnate or declining. People just buy less. Though at times we’ll see ticks up simply because the last batch of washing machines, and cars, and TV’s etc after 10 to 20 years needs to be replaced.
moot1. open to discussion or debate; debatable; doubtful: a moot point. 2. of little or no practical value or meaning; purely academic. 3. Chiefly Law . not actual; theoretical; hypothetical.
I disagree, that stall-speed is better than negative growth. I would argue that the economy is in need of heavy fiscal stimulus over the near term, as represented by the meager growth numbers amid debt deflationary pressures. If the economy were actually contracting, perhaps we’d get that stimulus and jumpstart the labor market. As it is now, we’re more likely to see further cuts in 2012 rather than aid.
As I argued (somewhat curtly, I admit), a quick and precipitous recession is not in the cards at this time. It’s more like watching a slow moving train come toward you. We need growth, not sideways, to generate jobs.
This brings up a point that a colleague had made to me. We’re in a world of low and volatile growth. This requires a new policy prescription to smooth and boost the process, one that policy makers have apparently not figured out yet.
When I look at the tax receipt data I see annual growth that is well above the historical average. The problem is, though, that wage and salary growth is not increasing quickly enough to deleverage AND spend at the margin, more is required than in previous cylces. There’s simply not enough aggregate demand to generate sufficient wage and salary growth – more is needed.
Salary/wage growth can not come via demand until income inequality in reduced. That is the salary/wage growth has to come from those who are historically pocketing way too much. Either it is done via hiking the income tax to the large side or it is done via labor policy and trade policy.
This is not a US only problem. Income is growing as Spencer always notes, but as you know not enough to allow those who make up the real market (the end user of all that is produced better know as the consumer) to have extra to spend to create the extra growth.
In the 90’s as the consumer was going under water in 1996 as I have noted, the world and use economy was growing fast enough and there was enough clean balance sheets that the lack of GDP growth of the 50/60/70’s was not realized. Clinton’s 8 yrs only looks good in comparison to Bush 1/2. But his term push the income inequality 6 points in 8 years vs 4 points in 12 yrs of Reagan/Bush.
Now that there are not enough consumers to loan to do to their imbalanced P & L’s statements, the jig is up.
This is the real “liquidity” trap. It is unfortunate that this current crisis is referred to as such because it denies the truth that people of the world are tapped out and without them having excess money, growth can not happen.
I am convinced the “policy makers” have figured out the problem. They just are still trying to find a way to game it such that the income that is so out of balance can stay as it is. I don’t believe there is another trick to be had, but then I thought the whole thing should have crashed in the 90’s at the latest and certainly with the 2001 recession. I did not know enough then as to just how much the “policy makers” could rig the game.
The short, as was said on the farm: They would not say “shit” even if the had a mouth full of it.”
We have to shoot for 10 to 15% share of income to the top 1%. Below that and the 99’ers feel rich and can be swayed by Reagan. Above that and we get what we have now and had in the ’29 along with the corruption do to assumptions of monitary royalty.
@Dan – “We have to shoot for 10 to 15% share of income to the top 1%. Below that and the 99’ers feel rich and can be swayed by Reagan.”
Leading us right back to where we are. And were in ’29. How many collapses of capitalism are required for the sheeple to get it?
We are at 21 to 24% depending on who is doing the counting. We started the rise in 1976 at 8.8% or so. Via my prior postings looking at income share changes from 1932 to 2005 vs personal consumption. 15% is the crossing point of which either the 99% of us are under water (below personal consumption) or above water (below personal consumption and thus savings).
So, I do not understand what you are saying.