2018 Midterm election economic forecast: a struggling expansion that may amplify a wave
2018 Midterm election economic forecast: a struggling expansion that may amplify a wave
We are now one year out from the 2018 midterm elections. Generally speaking, only the more involved voters show up for midterms, which seem to turn mainly on how much voters who “strongly” disapprove of actions in Washington outnumber those who “strongly” approve. Last week I noted that this metric correlated very well with the Virginia results, which featured elevated turnout by strongly approving GOPers, but an even bigger surge by strongly disapproving Democrats.
While the economy does not play so important a role as it does in presidential elections, certainly the economy is relevant to “strong” approval vs. disapproval.
So let’s take a look at what the economy is likely to look like one year from now when midterm voters cast their ballots. To cut to the chase, if you are a democrat and you were counting on a recession to drive angry voters to the polls, that’s unlikely to happen. But on the other hand, the expansion is likely to be very lackluster, enough so that, if there is going to be a wave anyway, it may be amplified.
There are generally three sectors of long leading indicators: financial, producer, and consumer. The housing market is uniquely important, and straddles to some extent all three.
[I still suspect that the yield curve is the indicator most likely to not accurately signal in our deflationary era.]
Real M1 is also very positive (blue in the graph below), but it is offset by a neutral real M2 (red):
Housing permits, both for all houses, and for the less volatile single family houses, have not made new highs since last winter:
and real residential fixed investment as a share of GDP has also declined in the last two quarters:
But on the plus side, real retail sales per capita, which has peaked about 12 months before the last several recessions, has continued to improve:
The bullet-point summary of all these indicators is that we have a stretched but still spending consumer, muddling along producers, and wide open financial spigots. Overall these are a weak, but not yet negative, set of metrics.
Barring an outside shock, one year from now when midterm voters cast their ballots, we should expect an economy that is still growing, but more weakly than last week when voters in Virginia and New Jersey swept away GOP candidates. In short, if there is going to be a big wave anyway, the condition of the economy is likely to increase somewhat the intensity of that wave.
From Bonddad —
I agree with NDD’s analysis, although approach it from a slightly different angle. I wrote about it last week in my US Economic Week in Review
Disagree. A struggling expansion this is not. Corporate bond bubble is boosting non-res growth which the government is under counting. That is why you see the big surge in Christmas spending expectations and imports to boot.
I doubt much changes next year. Nor does that mean much for the 2018 elections. 2006 had the US economy at its peak and a mortgage bubble that was supposed to gently deflate into the night. Yet, there was a wave based around anti-Iraq/Bush feelings.
Looks like to me you still don’t get this expansion and indeed, the governments poor accounting is usually the issue. But your obsession over real estate is your big error. RE is irrelevant to this expansion. It simply isn’t driving it. Try harder.
Is there any historic reasonably correlation (Rsquared >= 75%) since WWII or perhaps even just since Reagan’s admin, between DEPTH of a recession and time to the next recession, irrespective of the next recession’s cause(s)?
I only ask because of your assessment that there won’t be a recession between now and the 2018 midterms should be plastered up against some historic empirical data to support it. To date it’s been nearly
9 years since the onset of the Great Recession without another one yet.
Granted that the present Fed has kept their foot on the brakes so far and is still anticipated to continue to do so but that in and of itself is only evidence that the Fed is concerned with another recession occurring and this attempting to stall it or prevent it from occurring due to domestically induced overheating. But there are many reasons for recessions besides the Fed and domestic conditions.
Since we now live in a far more interdependent global economy it’s difficult to simply dismiss any “adverse” changes to it as external “shocks”.as if our domestic economy is a thing unto itself (“no man’s an island” comes to mind).
Furthermore the present pending tax cut legislation is a huge unknown in terms of what it may actually induce (besides dramatic increase in demand for U.S. equities driving the stock market indices up in a speculative frenzy). The last time that happened we crashed big-time (due to irrational exuberance underpinned by nothing).. .
WRT potential for a recession by the 2018 midterm and the present pending legislation on the Cut, Cut, Cut Act.
The first thing that comes to mind with the corporate tax cuts and inflows of foreign capital to take advantage is that those inflows are outflows to other nation’s economies.
In the past most major economies counteract those outflows with policies to minimize them to the degree than can do so.by their own incentives to keep that capital from leaving. this generally takes the effective form of reducing their own capital tax rates (by one method or another) which then reduces their own tax revenues or force tax hikes on wage earners, In either event these reduce foreign nation’s internal spending (consumption) which backflows into their own economic recessions or reductions in GDP growth. If this occurs in the U.S.’s major trading nations then it adversely impacts the US’s growth and economy so there’s no way I can see for the Cut, Cut, Cut Act to be a boon to our own GDP and thus a good reason to bring on a U.S. recession.