Along with fourth quarter  GDP, corporate profits for the the fourth quarter was also reported.  Profits growth was either quite strong or very weak depending on how you looked at them.  On a year over year basis, after tax profits growth was 11% and appeared to be accelerating. However, on a quarter to quarter basis after tax profits actually fell -6.73% (SAAR) in the fourth quarter  and that is after a third quarter annual growth rate of only  3.7%(SAAR).  By comparison after tax profits growth surged 38.4 % (SAAR) and 14.0 % (SAAR) in the first and second quarters, respectively.  Much of this early 2018 growth was due to the tax cut.  But now that the tax cut is behind us, it looks like the Administrations promised strong growth remains just that, a Republican  forecast and we all know how seriously to take them.

After this it looks like a good time to look at the impact of the corporate tax cut on the effective corporate tax cut — taxes as a share of  pre-tax profits.

The effective tax rate fell from around 20% to just over 10%.  That sounds like a big drop, but compared to the historic trend where the effective tax rate has fallen from almost 50% in 1950 to just over 10% now it does not look like such  a massive tax cut after all.  Moreover, as the data shows the big impact appears to be behind us and is unlikely to provide much of a boost to growth in 2019.

It also raises serious questions about the Republican promises to eliminate loopholes and other special arrangements so that the revenue loses from lower corporate taxes would not be significant.  I have not seen them make much of an effort along those line.  But maybe I am missing something and commenters can point out such legislation.

Comments (0) | Digg Facebook Twitter |

Real personal income and spending sag

Comments (0) | Digg Facebook Twitter |

The last long leading indicator, corporate profits, declined in Q4 2018

Three months after the quarter ended, corporate profits for Q4 of 2018 were reported this morning, and they were down slightly (-0.1%). Here’s the quote from the BEA:

Corporate profits deflated by unit labor costs are a long leading indicator. Since these costs were already reported at +1.6% q/q, that means that adjusted corporate profits were down about the same percentage.

>Earlier, proprietors income for Q4 had been reported at positive, but that is a less accurate placeholder. In contrast, Q4 corporate earnings for the S&P 500, with 99.7% reporting, declined over -3% q/q.

This means that, in Q4 of last year, almost *all* of the long leading indicators declined, the first time that has happened since – perhaps not coincidentally – shortly before the last recession.

Comments (0) | Digg Facebook Twitter |

Here’s a model that didn’t pan out in 2018

A little over a year ago, I proposed A simple model of interest rates and the jobs market. As I explained at the time, “during the past such era of [low interest rates in] 1930-1955 several recessions including the very bad 1938 recession occurred without a yield curve inversion, I have been looking at alternative measures.”

What I found was that “a YoY increase in the Fed funds rate equal to the YoY% change in job growth has in the past almost infallibly been correlated with a recession within roughly 12 months.”

Here’s the graph I posted of “the relationship I describe in the above paragraph over the last 60+ years:”

Another graph “subtract[ed] the YoY change in the Fed funds rate from YoY payroll growth, and subtracts a further -0.5%, showing that even when the relationship gets that close, with the exception of 2002-03 (a near recession), a recession has always followed:”

Comments (0) | Digg Facebook Twitter |

by Joseph Joyce

Capital Flows in a World of Low Interest Rates

Interest rates in advanced economies continue to persist at historically low levels. This trend is due not only to the response of central banks to slow growth, but also fundamental factors. If these interest rates continue close to their current levels, what are the consequences for international capital flows?

The decline in rates in the advanced economies has been widely documented and studied. Lukasz Rachel and Thomas D. Smith of the Bank of England have investigated the determinants of the fall in global real interest rates. They attribute the decline in part to increased savings due to demographic forces, higher inequality and a glut of precautionary savings in emerging markets. Investment spending, which has fallen due to the falling price of capital and lower public investment, also contributes to low interest rates. Most of these factors, they claim, will continue to prevail.

Lukasz Rachel and Larry Summers of Harvard have also looked at falling real rates in the advanced economies, which they attribute to secular stagnation. They point out that since the current rates reflect higher levels of government debt, the interest rate that we would observe if there was only a private sector would be even lower. They urge policymakers to tolerate fiscal deficits and also to engage in policies to increase private investment.

The low rates have been an incentive to potential borrowers, and consequently debt levels have risen. The IMF has updated its Global Debt Database,  which includes private and public debt for 190 countries dating back to the 1950s. The data show that the three currently most indebted countries are China, Japan and the U.S., accounting for more than half of global debt. The increase in the debt of China and other emerging markets is due to increases in private debt. Corporate borrowing in these countries has soared, and much of it is denominated in dollars. Public debt has risen in the advanced economies, and more recently in the emerging market and low-income countries as well.

Comments (2) | Digg Facebook Twitter |

by New Deal democrat

February housing data indicates slump not over UPDATED

Comments (0) | Digg Facebook Twitter |

The coming slowdown in employment

Comments (3) | Digg Facebook Twitter |

by New Deal democrat

Weekly Indicators for March 18 – 22 at Seeking Alpha

Comments (0) | Digg Facebook Twitter |

Over 50% of all wealth in the US is inherited not earned

Comments (4) | Digg Facebook Twitter |

… And, the 10 year treasury yield inverts

Yesterday over at Seeking Alpha I wrote about how the Fed is boxed in. The essence of the article is that, while lower rates are good for the housing market, a fuller yield curve inversion adds to the evidence that a recession may take place first, unless the Fed completely reverses course and starts cutting interest rates very soon.

Please click on over and read the whole article. Not only should it be educational for you, but it rewards me a little for my efforts in writing about the economy.

And so what do I see when I check out interest rates this morning? This:

For the first time, the yield curve inversion has spread to the 10 year Treasury, which is yielding less than either the 6 month or even the one month Treasury bill.

Comments (0) | Digg Facebook Twitter |