Relevant and even prescient commentary on news, politics and the economy.

The 2020 Electoral College playing field expands for Democrats

The 2020 Electoral College playing field expands for Democrats

Polling firm Morning Consult has an interactive graph measuring Trump approval by State for each month since January 2016. You can visit it here.

The map has some interesting insights for the 2020 Presidential election race. In the first place, while it would be too cumbersome to show here, in general Trump’s disapproval has spread and intensified over the course of his term. As the latest map, for December, does not include reaction to his reckless warmongering with Iran, I am going to guess that January’s map will be worse for him.

Anyway, while there is obviously some variation from month to month, the latest two months shown below in chronological order, November and December, show – in shades from light pink to red – all of those States that the Democratic candidate has the most decent chance of carrying:

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January’s reports start out with a decidedly mixed picture for 2020

January’s reports start out with a decidedly mixed picture for 2020

We have our first bits of forward-looking data for the year: November residential construction, December ISM manufacturing, and December light vehicle sales. They paint a decidedly mixed picture. Let’s take a look in order.

Residential construction spending improved by a strong 1.9% in November. Further, October, which had originally been reported as a decline, was revised to a 0.7% increase:

Housing is recovering from its early 2019 slump thanks to the decline in interest rates. This is a tailwind for the economy as we get into the second half of this year.

 

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Republics and the war-making power

Republics and the war-making power

In view of the militry carrying out Trump’s order to kill an Iranian general, I thought I would weigh in on the issue of the war-making power historically by republics.

I don’t have much to add to the substance of the immediate debate. Killing an Iranian general was certainly an act of war. It was also a big escalation on the US side. At the same time, the US’s economic blockade of Iran, which it has been attempting to enforce against third parties as well, has been if not an act of war itself, at least tiptoeing up to the very line. Similarly, Iran’s conducting of low-grade hostilities by proxies against the US has also really been an act of war. So I’m not sure that the line-crossing is as bright as it may appear at first blush.

That being said, it seems obvious that the consequences of the strike were not well-thought out, and there almost certainly is no strategic follow-up plan.

Additionally – and what I want to focus on here – is that also almost certainly, there was no imminent emergency requiring immediate action by the President rather than consultation with an approval by the Congress, as mandated by, you know, the Constitution. This event has been at least equal to the most blatant usurpation of Congress’s power in decades (Reagan’s reprisals against Libya and George HW Bush’s capture of Noriega in Panama were probably in the same league).

This got me to thinking: how historically have republics vested their war making power? Since recently I’ve read two books on the Roman Republic, histories of medieval Venice and Genoa, and am now reading about the Dutch Republic, that’s something I can contribute — because their systems had a common theme.

 

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Initial jobless claims still negative, but no recession signal

Initial jobless claims still negative, but no recession signal

As you know, I’ve been monitoring initial jobless claims closely for the past several months, to see if there are any signs of a slowdown turning into something worse. Simply put, if businesses aren’t laying employees off, those same people are consumers who are going to continue to spend, which is 70% of the total economy. So the lack of any such increase has been the best argument that no recession is imminent.

Yesterday morning’s report of 222,000 initial claims continues the string of numbers above the 2018-19 average. Superficially the four week average of 233,250 is also enough for a recession flag, but as we will see below this is really an artifact of seasonality.

To reiterate, my two thresholds for initial claims are:

1. If the four week average on claims is more than 10% above its expansion low.

2. If the YoY% change in the monthly average turns higher.

I’ve also added a threshold for the less leading, but also much less volatile 4 week average of continuing claims at 5% higher YoY.

As indicated above, the 4 week moving average of claims has risen to 233,250, which  is 15.8% above the lowest reading of this expansion, which occurred back in April

On a YoY% change basis, the 4 week average is 11,500, or 5.2%, higher:

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The chart of the decade

The chart of the decade

Today doesn’t just mark the end of 2019, but the end of the 2010’s as well. So it’s only suitable that I post the one chart that I think most explains the economy over the past 10 years.

In terms of public policy, that chart would be of the continual explosion of income and wealth inequality, particularly at the very top 0.1% or 0.01% of the distribution.

But in terms of explaining why the economy has chugged along at roughly 2% GDP growth every year for 10 years, with no recession, the below graph, that was part of my year-end review last week, sums it up nicely. Here it is again, the YoY changes in the Fed funds rate and the YoY% change in the price of gas:

What generally kills economic growth is either a sharp change in the cost of financing and/or a sharp increase in the costs of inputs. In the 2010’s we never had either. In 2018 we came close, particularly in a YoY change in gas prices, but it was an increase from a very low level, and it didn’t last that long.

This very long moderation in both interest rates and important commodity prices is the most basic explanation for the fact that the expansion that started in 2009 is still going on as we begin 2020.

See you on the other side. In the meantime, Happy New Year!

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A response to Kevin Drum: for wages and inflation, it’s all about the price of gas

A response to Kevin Drum: for wages and inflation, it’s all about the price of gas

Last week Kevin Drum had the following inquiry:

[H]ow is it that wages can go up but overall inflation remains so subdued? That seems to be the real disconnect here. During the dotcom boom, wages went up but inflation remained around 3 percent. During the housing bubble, wages didn’t go up and inflation remained around 3-4 percent. Right now, wages are going up but inflation has remained around 2 percent. Wages no longer seem to have much correlation with overall inflation.

I haven’t seen anyone address this specific issue, but I’d be interested in hearing more about it…. What’s the deal?

The answer here, I believe, is quite simply that in the modern era since 1983, consumer inflation more than anything else is about the price of gas. Let me show you why.

First, here’s the relationship that is the subject of Drum’s query: wages for non-supervisory workers (blue) vs. consumer inflation (red) YoY:

Overall inflation has been more variable than Drum’s summary indicates, but it is fair to say that during the 90’s and 00’s it averaged roughly between 1.5%-4% regardless of wage growth. During the present expansion,

 

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A roadmap to a Democratic Senate supermajority

A roadmap to a Democratic Senate supermajority

A worthy criticism made by many observers on the Democratic side is that most of the plans being painstakingly described by the Presidential candidates will come to nothing, because the filibuster in the Senate will kill them all. The GOP will then run on the “do nothing” socialist democrats in 2022 and 2024 to retake the Congress and Presidency. As things now stand, that is a reasonable position.

Bear in mind the Mitch McConnell and the GOP are perfectly happy with a Senate that still employs a filibuster for legislation: they don’t want to pass any! Seriously, when was the last time you heard a GOPer tout any sort of legislation at all? Now that the GOP has packed the courts (full of judges who will overrule any progressive legislation put in place since, oh, 1866), they have no incentive to allow any movement of legislation at all. The only change is that they will instantaneously revert to deficit scolds who bemoan that Social Security and Medicare are killing us fiscally, at roughly 12:01 pm on January 20, 2021.

So, are we helpless in the face of a rural-State packed filibuster-proof GOP Senate? It’s a definite uphill climb, but I don’t think so.

Here’s the interesting thing. If you want to flip a Senate seat, the most efficient use of resources is in a *small* State, since flipping just 100,000 or 200,000 votes there makes all the difference, and the media markets – and their expenses – are a lot cheaper. With that in mind, I took a look at the 2018 Congressional results to see if I could identify 30 States where the Democrats might, admittedly with lots and lots of effort, elect Senators. I came up with 32.

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Happy [insert name of preferred religious holiday here]! 3 quick hits

Happy [insert name of preferred religious holiday here]! 3 quick hits

I’ll be traveling and enjoying the holiday for a few days, so … light to non-existent posting!

In the meantime, three quick hits for you:

1. New home sales – continued strength in this very forward looking sector. Even though sales declined m/m, the upward trend is pretty clear:


Figure 1
2. Durable goods – flat (blue), except for Boeing (red), which is bad:

 

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Live-blogging the Fifteenth Amendment: December 15, 1868

run75441: Catching up something we missed. NDD pointed out AB had missed a post on the 15th Amendment which happened two days before the last posted (17th) “Live Blogging  the 15th. “

Live-blogging the Fifteenth Amendment: December 15, 1868

Sen Orrin S. Ferry (R-Conn), in the course of offering a joint resolution to lift the disabilities mandated by the 3rd Section of the Fourteenth Amendment against those who participated in the rebellion:

[I]t does seem to me as if the experience of the last fifty years ought to enlighten us as to the chimerical character of the dangers which have been apprehended from the extension of suffrage and to eligibility to office at one time and another.

It has been thought once, even in this land, that poverty disqualified a man from voting, and no man, unless he was the owner of property, was permitted to exercise the suffrage. Time went on; the property qualification disappeared; and nowhere are the law and order more respected, are person and property more secure than in those communities where suffrage is most universal and government rests upon the broadest foundation.

It has been thought that dangers might assail us in the influx of the enormous immigration from the Old World, and a great party was once organized upon that very apprehension. The fear has passed away, for time and experience have demonstrated that the evils accompanying that immigration are but temporary, and will pass away in a single generation.

The time has been when the negro was a beast of burden, and nothing else. The time is now when good men too often apprehend the danger of the extension of the suffrage unto him be reason of the ignorance which is the result of centuries of slavery; but it is beginning to be seen by the practical operation of the laws extending suffrage [mandated by the Congress in the constitutions of reconstructed States], that all these fears are chimerical, and that the black man as well as the white is an element of strength and prosperity in civil society.

In support of the resolution, Sen. Willard Warner, a union general, who moved from Ohio to Alabama after the war, and was elected to the Senate from Alabama in 1868, argued that a Republican-controlled legislature in Alabama had removed the disabilities to those who had engaged in rebellion, but that even after that, Republican candidates had triumphed in the next election.

To which, Garrett Davis, a unionist KY Democrat, replied:

[S]uppose there was no military force moving from this center, this capital, and from States and places outside of Alabama, what would become of the honorable Senator’s negro government and of his representation of it in this body? I am inclined to think they would be fugitives from it.

…. I will never consent that the Congress of the United States shall vote to force negro suffrage upon the State of Alabama or the State of Kentucky or any other State; and I assert that Congress has not a vestige of power to enforce such a constituency upon the people of any State.

The honorable Senator [Warner] … seems to be very much enamored with the idea of negro suffrage, and he seems to think that I and my political party are responsible for the non-existence of that political power in the other States. Who voted down negro suffrage in Kansas? Who voted down negro suffrage in Ohio? Who voted down negro suffrage in Michigan, but the honorable Senator’s political friends…. Now, when Ohio by more than forty thousand, Kansas by eight or ten thousand, Michigan by twenty or thirty thousand, all the northern States, where there are no negroes to vote, voted down the principle of negro suffrage by such immense majorities, with what grace can they or their southern auxiliary, the Senator from Alabama, vote to force negro suffrage upon the ten southern States, under the principle of the Constitution of the United States that the people of a State have the sole and exclusive power of framing their own governments.

[ Source, Congressional Globe, 40th Congress, Third Session, pp. 79, 86 ]

As Davis pointed out, when it came to their own States, northern States had refused to grant to African-Americans the right to vote. That a majority of their own constituents did not actually believe in racial equality, but that the effects of the Fifteenth Amendment would overwhelmingly be felt in the South, has to be taken into account when considering why the Amendment wound up being more narrowly crafted.

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The consumer vs. producer divergence widens at year end

The consumer vs. producer divergence widens at year end

My economic theme for about the past half year has been the contrast between the floundering producer sector vs. the decent consumer sector. With two of the last important reports of the year out this morning, that divergence has been highlighted.

First, the good news: real personal income rose +0.4% in November, and real personal spending rose +0.3%. Here’s a look at the past five years:

Figure 1

No perceptible slowdown here!

But now, let’s look at the producer side, where the Kansas City Manufacturing Survey was the last of three regional surveys to be reported this week.  Here is the moving monthly average of all five regions that I update in my weekly post:

 

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