The #1 likely reason I suspect the economy has not gone into recession yet
The #1 likely reason I suspect the economy has not gone into recession yet
– by New Deal democrat
I’ve been reading increasing talk about the fabled “soft landing,” or alternatively, “rolling recession.” For example, over the weekend Liz Ann Sonders of Schwab told “Wall Street Week” that housing is already in a recession, but the larger services side of the economy was still in good shape.
Let me start out by noting that the goods side of the economy has almost always rolled over first, as shown in the graph below:
That’s why things like the manufacturing workweek and the ISM manufacturing index are leading indicators, while consumer spending on services is not.
But here’s a bigger issue: despite the huge downturn in housing permits and starts, that important sector isn’t really in recession yet at all! That’s because, due to the supply chain issues in building materials that plagued the industry last year, the number of houses under actual construction hasn’t turned down at all. In fact, last month it was at a new record high:
And why do I think that is the #1 reason the economy hasn’t gone into recession yet? Below is a graph of the YoY% change in housing units under construction (blue) vs. the YoY% change (*4 for scale) in real GDP (red):
There has *never* been a time when real GDP turned negative YoY without housing construction having turned negative YoY first. Never.
And as the graph shows, as of December YoY housing units under construction were up 12%.
I fully expect this to turn down sharply, and soon. Of course, it has been something I have expected for a few months already. We’ll find out what happened in January when housing permits, starts, and construction for January are reported on Thursday.
Credit conditions in Q4 were recessionary – Angry Bear, New Deal democrat
US on Track to Add $19 Trillion in New Debt Over 10 Years
NY Times – Feb 15
Congressional Budget Office projections released on Wednesday suggested rising interest rates and bipartisan spending bills are adding to deficits.
The United States is on track to add nearly $19 trillion to its national debt over the next decade, $3 trillion more than previously forecast, the result of rising costs for interest payments, veterans’ health care, retiree benefits and the military, the Congressional Budget Office said on Wednesday.
The new forecasts project a $1.4 trillion gap this year between what the government spends and what it takes in from tax revenues. Over the following 10 years, deficits will average $2 trillion annually as tax receipts fail to keep pace with the rising costs of Social Security and Medicare benefits for retiring baby boomers.
To put those numbers in context, the total amount of debt held by the public will equal the total annual output of the U.S. economy in 2024, rising to 118 percent of the economy by 2033. …
How the US Government Amassed $31 Trillion in Debt
NY Times – Jan 22
America’s debt is now six times what it was at the start of the 21st century. It is the largest it has been, compared with the size of the U.S. economy, since World War II, and it’s projected to grow an average of about $1.3 trillion a year for the next decade.
The United States hit its $31.4 trillion legal limit on borrowing this past week, putting Washington on the brink of another fiscal showdown. Republicans are refusing to raise that limit unless President Biden agrees to steep spending cuts, echoing a partisan standoff that has played out multiple times in the last two decades.
But America’s ballooning debt is the result of choices made by both Republicans and Democrats. Since 2000, politicians from both parties have made a habit of borrowing money to finance wars, tax cuts, expanded federal spending, care for baby boomers and emergency measures to help the nation endure two debilitating recessions. …
What Recession? Some Economists See Chances of a Growth Rebound.
NY Times – Feb 9
Many economists and investors had a clear narrative coming into 2023: The Federal Reserve had spent months pushing borrowing costs rapidly higher in a bid to tame inflation, and those moves were expected to slow growth and the labor market so much that the economy would be at risk of plunging into a downturn.
But the recession calls are now getting a rethink.
Employers added more than half a million jobs in January, the housing market shows signs of stabilizing or even picking back up, and many Wall Street economists have marked down the odds of a downturn this year. After months of asking whether the Fed could pull off a soft landing in which the economy slows but does not plummet into a bruising recession, analysts are raising the possibility that it will not land at all — that growth will simply hold up. …