US Economy

The Economy

by Dave

Latest numbers on inflation and job growth were pretty good. For election forecasters, these are the “pocketbook” factors, which generally make the electorate like or dislike the incumbent.

CBS News/ MoneyWatch

U.S. inflation continued to cool in September, latest CPI data shows

Pretty big topic. I start with a few truisms. We complain more than we praise. We use words like prices have soared, but rarely talk about prices plummeting. Increasing demand for many commodities, cause prices to go up, as it takes time for supply to catch up for demand.

During an election year, we attribute inflation more on who is president than anything else. We hate strong economies because prices go up, and poor economies, because unemployment goes up. And the last truism, is that good government policies take time to see the benefits, and someone else can be running the government by that time.

We also over-react to headlines. There always at least one commentator who has drastic remedies, which come from exaggerated claims. For example egg prices. We all survived the egg crisis.

Egg prices are now $3.82 a dozen. That’s down from nearly $5.00 a dozen, but nobody is going around and saying the Biden administration did a great job in bringing down the cost of eggs. In the US, we had the largest bird flu epidemic in our history and 101 million chickens were slaughtered. It takes time to replace the flock. Government does help with agricultural losses, something we had to learn the hard way during the depression. But farmers still are part of the solution. Plus a strong economy means that demand is still good, even at higher prices.

Of course, eggs are not the problem. I use it simply to illustrate that higher prices and a stable demand provides strong motivation of farmers to replace their flocks. During Covid, the cost of many goods and services plummeted and unemployment soared. So, be careful what you wish for. Covid wasn’t Trump’s fault, and egg prices were not Biden’s fault.

Economists are usually taking a much longer view. In March 2020, nobody really knew how long the epidemic was going to last. Many people in the hospitality and retail sector were losing their jobs. It was terrible for them, but the stimulus money helped some. Online courses allowed many to continue their education. It was mostly a case of adapting to a very different economy. We have since recovered.

The latest release of inflation index (Urban Consumer Price Index) shows a 2.3% increase in prices over last year. This increase doesn’t seem too bad. However, we are weeks away from the election so there is a lot of cherry picking of these numbers. Just for the record, unemployment and overall inflation has not skyrocketed this year. It has gone down.

Gasoline prices are down 10% and fuel oil down 7%, from last year. Average cost at the pump is $3.10/gal for regular gas. Many factors affect gas prices, but certainly high prices in 2022, gave homeowners a big incentive to consider energy saving measures like using LED lighting for their home and solar panels for both heating and power generation. Federal programs to provide incentives for electric vehicles purchases, also help in reducing the demand for gasoline.

Trump has an objective to cut people’s energy cost in half:

“If you make doughnuts, if you make cars – whatever you make, energy is a big deal, and we’re going to get that – it’s my ambition to get your energy bill within 12 months down 50%.”

Energy analyst Patrick De Haan, understood the mechanisms of supply and demand, in a recent NPR interview:

“It was President Biden that had eliminated leases in some areas on federal land. Now, keep in mind, federal land is a very small total of U.S. oil production on federal land, so it wouldn’t have a big impact, but ultimately, there are some things that the president can do to incentivize oil companies, but ultimately, it’s at oil companies’ whims if they’d like to increase production or not. And should oil prices decline to the point the president likes, it would be at a point where many oil companies are losing money on every barrel.”

Gas prices will not go to $1.50/gallon under Trump, unless the economy is really broken and unemployment is sky high. Gas prices in my area are 10% higher at around $3.30/gallon. New supply is directly related to new investments in exploration, which can take more than five years to bring onstream and many projects have taken over a decade, before production.

The cost of renting an apartment is in general higher on year-over-year basis. The average rent of an apartment in the US is about $2000/month. In Miami, it’s $1,000 more, around $3,000/month. According to Zillow, rents over the last year have been going down.

Zillow: https://www.zillow.com/rental-manager/market-trends/miami-fl/

Kamala Harris has a housing plan to help with rising prices. It’s focused on helping first time home buyers. For apartment renters, price fixing is real, and the intent is to stop free competition. So, while it didn’t make headline news, the Justice Department sued RealPages for using AI intelligence to set rental prices, in violation of antitrust laws.

I am certain Kamala Harris will give the Department of Justice all the support it needs, in pursuing antitrust lawsuits, like these to end price fixing of apartment rents. As a candidate collecting rents, rather than paying them, Donald Trump will likely be on the side of RealPages in fixing rents. Antitrust cases are not easily won.

Trump will install a business friendly Attorney General, and antitrust litigation will be history. He did his best to destroy the Consumer Finance Protection Agency, which intervened on the side of consumers in dishonest payday loan businesses, very similar to illegal loan sharking.

Link: The Harris-Walz housing plan – detailed, serious, and impactful

If the economy is doing well, it will take time for new apartments and houses to be built. So, the benefit to the housing plan will take time, if she can get it through the Republican controlled Congress.

So, Republicans are playing a very old game, and that is to attack the incumbent. Of course, the problem has been getting anything through the Republican led Congress which wants to make Biden look bad. Trump successfully killed the 2024 immigration bill, so he could tell the nation that our immigration policy was broken.

I’ll end this blog with a couple of links. One is a short video clip from Barrack Obama, with a very simple message. It can take years for bills to become law, and their impact can be in terms of decades. Trump cut taxes for the very wealthy, and our debt went up in the years that followed.

The second short link is about a totally false ad that Trump is using, that shows a video clip of Kamala Harris saying she will raise taxes. The video clip has been edited, and her comments were directed at the very wealthy. This is followed with another lie, that her tax policies will cost Americans $2580 per year. Actually, she has not proposed any such tax. Her tax increases are all focused on the wealthiest of Americans.

CNN Fact-Checker Says This Donald Trump Ad May Be ‘Most Deceptive’ Of 2024 Election

Of course, we have one candidate who gets his support from billionaires, like Elon Musk, who might be affected. Also, Donald Trump is able to show loses in his properties, so he pays nearly no tax.

So, yes the economy and tax policies are very hot issues in the election. I urge people not to vote for Trump and his doctored up video clips, and other dishonest actions. And the boast that he will drop the price of gas in half- are we that naive?

The economy may falter in the years ahead, but I feel she will continue to pursue good economic policies over politics.

Stay tuned,

Dave

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Debate on September 10, between Harris and Trump

by Dave

The debate will begin at 9 p.m. ET on Tuesday, Sept. 10. It is a very close race. Seven states are toss-ups as follows: WI, MI, PA, NC.GA, NV and AZ.

The debate prepping is beginning. They are preparing zingers.

The one I particularly like: Kamala Harris has a resume, Donald Trump has a rap sheet. (Rep Crockett, DNC Convention)

Hard adjectives: Trump’s favorite words are disgraceful, disastrous, despicable. Add “truly” or a sentence beginning with “I could believe how … ” Also Incompetence and low IQ. I don’t think he will go for crazy Kamala, but will refer to her as an ultra-left radical.

The Big They Conspiracy Argument: “Lock Them Up” (JD Vance)

(JD Vance) He [Trump] traded everything he had for unjust persecution, for slander and scorn from the fake news, all for this country, for you and me. They couldn’t beat him politically, so they tried to bankrupt him. They failed at that, so they tried to impeach him. They failed at that, so they tried to put him in prison. They even tried to kill him

Will Trump go this far as to blame the assassination attempt on the government? I think he will suggest that for reasons unknown, the normal security procedures on that day were absent, putting his life endanger. The conspiracy folks can take it from there.

Trump is generally favored over Harris on doing a good job with the economy and immigration. So, I expect, as usual, the problem will be greatly exaggerated, the past efforts dismissed so only Trump can solve it. That’s par for the course.

(JD Vance) You cannot let in 20 million illegal aliens to compete with Americans for scarce housing and then raise interest rates, which is exactly what Kamala Harris has done. As America’s border czar, Kamala Harris unleashed the worst border crisis in American history.

Harris was never the “border czar” and the 20 million immigrants number is highly exaggerated, as it includes people caught and sent back, and those from Afghanistan and Ukraine who applied for asylum.

Whatever the subject, particularly with respect for law and order, drug epidemic and the economy, it will come back to a flood of immigrants ruining our country. Trump and Vance will be playing the race card against Harris. At rallies, he calls her crazy Kamala, ultra left wing socialist. Here is a bit of Trump’s rants:

The suburbs will be overrun with violent crime and savage foreign gangs. That’s what they’re doing. They’re sending all their gangs into the United States, right?

I believe he will proclaim his innocence in the legal cases, and just something that the ultra-liberals in New York did to him in an act of desperation. It was truly despicable. Another words, play the victim of the legal system. With criminal convictions in New York City and indictments in Washington D.C. (January 6 election interference case), Florida (classified documents, case dismissed but this decision is under appeal), Georgia (Conspiracy election obstruction), this claim that Trump is a victim of “radical Democrats” gets old.

Who is best for the economy?

I find Goldman Sach’s analysis very compelling, which says Harris has the best plan for the economy.

https://www.editorji.com/business-news/kamala-harris-vs-donald-trump-who-will-be-better-for-the-us-economy-goldman-sachs-take-1725540999347

It’s all pretty nuanced, not really easy for the “zinger fest” tomorrow. Deficit hawks have a difficult time choosing between Trump and Harris. The legislature (particularly the House) is supposed to control spending, but Trump found ways to borrow funds from military budget to add more miles to his wall, which was more repair/enhancements than new construction. Trump’s tax cuts added to the deficit. Cutting government income and adding to its expense, results in more debt.

Project 2025

Harris will try to link the Trump campaign to the Heritage Foundation’s Project 2025, because many of the contributors, including JD Vance, work for his campaign. However, Trump has not endorsed the project’s long set of recommendations. So, she might say that Trump will likely raise taxes on the poorest individuals, while cutting them on the top wage earners, as proposed in Project 2025.

Trump will simply reply that Project 2025 is not his plan. Obviously, once elected, things are different.

I like the following from Pete Buttigieg, on debate prep.

https://www.cnn.com/2024/09/08/politics/video/pete-buttigieg-harris-trump-debate-sotu-digvid

Sometimes the Trump zingers can be overwhelming.

The debate will begin at 9 p.m. ET on Tuesday, Sept. 10.

Stay tuned,

Dave

US Jobs and Economic Growth – Cutting through the Trump BS

by Dave

The US economy was strong in 2017.  Trump’s claim that two million new jobs were added, is right.   Of course,  job growth was good leading up to his inauguration, so he shouldn’t be taking credit for the entire year.

What’s not right, is that the economy was terrible under Obama, and he somehow turned things around.  It was a terrible economy in the last year of Bush’s administration, and aggressive action by both Bush and Obama helped the recovery.  I just go by the Bureau of Labor Statistics, to make my point.

Trump’s monthly average gain of 171,250 new jobs doesn’t look too good, nor does the 2 million new jobs stand out against Obama’s administration’s numbers.   The housing bubble (2004 – 2006) produced some high gains, but it all came crashing down in 2008 to 2009.  The stock market made an all time low in March 2009.

It took time for our economy to recover, as there was only a 1 million job gain in 2010.   But,  our economy has proven to be much more resilient than economists were predicting in 2007 to 2009.   The December 2017 labor statistics just came out with 148,000 new jobs, well below the 190,000 estimate.  The stock market continued its rally, based on the concept of a slowing economy  discourages the Fed’s program of gradual rate hikes.  Or another words, some bad news is actually good news to the stock market, just so long as it isn’t terrible news.

I’ve included one link as posted in Yahoo – Finance, entitled “Challenge for Trump: Job Growth is Slowing”  which adds a bit of reality to the whole story.  We likely attributed too much to actions of an administration, as the factors influencing growth (good or bad) may take years to develop.  The housing bubble was at least seven years in the making (includes both the Clinton and Bush administrations).  Also, an unemployment of 4.1% is considered a good number, and attempts to stimulate the economy further puts pressure on wage growth.

So, the chief concern is that inflation will increase more rapidly than wages, so many workers will feel  their spending power reduced.  Not good for retail, and ultimately this could lead to a recession.   In this case, the reduced corporate tax rate will help in reducing debt, not expanding businesses.   So, Wall Street may prosper at least in the short term, as Main Street suffers.

See link:

Challenge for Trump: Job growth is slowing

Stay tuned,

Dave

 

A Crisis in the Debt Ceiling Limit Approval – Again!

by Dave

I know this isn’t headline news, yet.  But in two weeks, it will be.

I knew if Hillary Clinton was elected, this crisis would happen.  With Clinton as President,  I knew the House Republicans would use this opportunity to threaten  to wreck the economy unless a “dirty” approval was signed into law.  A dirty approval contains additional riders outside of increasing the debt ceiling which the President and the Democrats oppose and would under normal circumstances never pass.   The threat of sovereign default is used as leverage.   This makes most economists cringe.

But I thought it would be completely different with Trump in the White House and Republicans in control of both the House and the Senate.  Boy was I wrong!

Obama and Treasury Secretary Jack Lew went through sheer hell in getting the debt ceiling approved in 2011.   There was another crisis in 2013.    Treasury Secretary Steven Mnuchin asked Congress to approve a simple and clean bill to increase the debt ceiling limit.  He is 100% right.

As this issue got politicized,  somehow what the debt ceiling really was got twisted out of shape.  It absolutely is not analogous to the limits on credit cards, which we all know stops someone from racking up huge debts. The debt ceiling is not a mechanism to control spending.   This is done through the budget and appropriation requests.   This is stated on numerous website including Wikipedia as follows:

Because expenditures are authorized by separate legislation, the debt ceiling does not directly limit government deficits. In effect, it can only restrain the Treasury from paying for expenditures and other financial obligations after the limit has been reached, but which have already been approved (in the budget) and appropriated.

The difficulty in approving this increase, is that it says to conservative Republicans, that they somehow approved huge government deficits.

If not approved by late September, the US will be  in default.   The US stock market crashed in 2011, when it looked like there would be no approval. According to Wikipedia:

The GAO estimated that the delay in raising the debt ceiling during the debt ceiling crisis of 2011 raised borrowing costs for the government by $1.3 billion in fiscal year 2011 and noted that the delay would also raise costs in later years.[39] The Bipartisan Policy Center extended the GAO’s estimates and found that the delay raised borrowing costs by $18.9 billion over ten years.

We are back in the same situation, and this time it could be far worse because of the White House in-fighting.    Mike Mulvaney of the Office of Budget and Management undercut the Treasury Secretary’s position by suggesting something truly frightening-  using the crisis to force changes to Medicaid.

I like the way the LA Times presented the crisis:

The debt ceiling fight: This time it’s different–and much more dangerous

It is a time bomb.  There are  ways to kick it down the road, but that’s a horrible idea, as it starts discussion of all sorts of ways to frustrate a simple approval.  Democrats and moderate Republicans should unite and pass what Mnuchin asked for, ASAP.  Mulvaney should just keep quiet if he can.

Most economists believe the debt ceiling shouldn’t exist.  I agree, as explained in the link.

Stay tuned,

Dave

Link:  Wikipedia Debt Ceiling

 

Coal Companies and Jobs

by Dave

For those who watch Jim Cramer’s Mad Money show, one might thing the coal producers would be the perfect “Trump stock” as the EPA is set to reverse course on air pollution standard regulations, enacted during the Obama era.

But coal stocks are not doing well at least in the last 3 months.  Since the beginning of 2017, Arch Coal (ARCH) is down 16% and Cloud Peak Energy (CLD) is down 27%.

We have plenty of coal resources, but declining demand.  See prior post, “Coal Craziness” for more details with links.   The decline in employment over the last 70 years or so, is due to a high level of mechanization in the mines as well as less demand for coal.  The electric producers will use the lowest cost fuel, and natural gas is a very competitive alternative to coal.

I suggested in my last post, that coal miners might be able to retrain for the more lucrative area of the manufacturing of  solar energy photo-voltaic panels.  A recent university study suggests this is possible, and the benefits would be enormous:

Coal to solar transition

The coal industry is not disappearing (sorry Al Gore) but the solar energy industry is likely to be booming in the next 5 to 10 years.

Investing in solar energy has been a bumpy ride.   I would never think “green energy” and Trump policies go together.  But based on  year to date, investing in a solar power fund  (KWT)  would have made about 10%, better than the market average of 6%.    Pulling out the international agreements to reduce fossil fuel emissions, and subsidies for the solar industry are among the worst plans of the Trump administration.

Stay tuned,

Dave

 

 

 

Obama’s Legacy – Economics Part 2

by Dave

I only listened to part of Obama’s farewell address, then Sean Hannity came on, and started attacking Obama on economic policy.   It was way over the top.  In Part 1,  three graphs,  showing the Dow Jones Industrial Average, housing starts and unemployment show a very solid economic recovery trend from mid 2009 to 2016.

But, the US economy has been changing.  Workers with  an assembly line  job for a car manufacturer,  could count on steady employment so long as the cars sold.  Now, the big two challenges are whether the company wants to continue to manufacture the  cars in the US and whether the job can be replaced by computer controlled robots.

new-jobs

The above graph is from http://www.fivethirtyeight.com.  Job growth in manufacturing has increased beginning in mid 2009, but there has been a down trend in manufacturing since about year 2000. So,  Obama should be praised not blamed for help change the direction of the trend.    The profits of manufacturers have not declined, except during the last year of the Bush term and manufacturing output has increased.  So we make more with less workers.   The culprit is automation.

The housing ownership percentage was the highest around 2004 to 2006, during the housing bubble that finally burst in 2008.   Does anybody still remember how people the ninjas (no income, no jobs) could get high interest loans and then these toxic assets were bundled with other debts to somehow qualify as safe investments?

homeownership

Finally, and least important is the labor participation graph.  This shows over 24 year period, the percentage of the population working was increasing 5%, until it reach a maximum in 1997, and started to decline.

laborpat

This was a surprise to me.   It certainly does not correlate with recessions or other common measures of the economy, as shown below:

labpat-1

The shaded bars represent recessions. During recessions, generally unemployment goes up, so why is labor participation going up during all recessions except the two?    This downward trend is due in large part to the baby boomers retiring.   Overall employment during Obama’s term increased steadily.

https://qz.com/286213/the-chart-obama-haters-love-most-and-the-truth-behind-it/

I’ve seen a lot of booms and busts.    You can see a bust in the shopping centers.  New  car lots are going out of business. Foreclosures everywhere.  It didn’t happen on Obama’s watch.

I’ve shown three common measures of the economy:  stock market, unemployment and housing starts – all solid trends.

I’ve shown manufacturing employment is down from levels 25 years ago.  Profits are not.   The last two statistic, home ownership and labor participation have to do with demographics which I don’t think Trump will change.  Well, unless he wants to get the over 65 year old’s back on the assembly lines.

More later.

Stay tuned,

Dave

Obama Legacy – Economics, Part 1

by Dave

Worst economic conditions since 1973.  Labor participation has never been this low.  Percent of home ownership now at a 10 year low.  Deficits are sky rocketing.  Thank God we got rid of Obama and his screwed up economic plan.

Ok- this is from Fox news,  Sean Hannity, right after Obama’s farewell address.  I’ve embellished on a bit.  This kind of bashing of the economy used to come from financial advisors with doomsday prediction, and then either “Buy my book … ” or “Call me now at 800- ….”  so you will be protected.   Now, it’s all about ratings.

When things are bleak for large companies, the stock market crashes.  The stock market crashed in 2008 at the end of Bush’s term as the banking/financial crisis got red hot.

djia

Now, the first big infusion of government money came during Bush’s term.  Conservative Republicans hated this, and stated it was like throwing gasoline on a fire.  But no recovery goes straight up. I count 9 dips in the Dow.

As the economy recovered,  unemployment dropped from 10% to 4.6%.

unemployment

 

And the housing market recovered as well beginning in late 2009.

housing

Unemployment and housing starts are two of the most closely watched barometers of the US economy.

Average home prices have also increased, and bank requirements for new loans are more difficult than in the period of 2000 to 2008.   This is why, the percentage of home ownership  declined  during Obama’s administration.    Also labor participation declined as baby boomers retired.  Increase enrollment in colleges may also be a factor.

Has the election of Trump made a difference in the economy?  Certainly, the stock market has rallied since November, but it is far too early to tell.

I haven’t mentions the US debt and other important aspects of the economy. To be continued.

Stay tuned,

Dave

 

 

 

 

US Unemployment

by Dave

Donald Trump says we shouldn’t believe US unemployment rates  is 5%.  He says the unemployment rate is really  around 20%.  The average investor knows 20%  is very evident with massive foreclosures and businesses closing up. The stock market is destroyed by even 10% unemployment.

The highest level of unemployment in the last 67 years has been 10.8% during Reagan’s administration. Many economic events occurring during Nixon and Carter’s administrations, likely contributed to this high rate.  Oil prices tend to go down with unemployment.  In the last 4 months, oil prices have been slowly moving up even with an oversupply situation.

Trump is quoted as saying:

The official jobless figure is “statistically devised to make politicians — and in particular presidents — look good.”

Unemployment rates are determined by the Bureau of Labor Statistics. They have been estimating unemployment on a monthly basis since 1948.  Now, with the internet, you can get all the BLS   monthly estimates from 1948:

Unemployment Rates

The unemployment estimates are done by career government employees with the objective of obtaining the best estimate of unemployment in the country.  A 5% unemployment rate sounds good, unless you live in a neighborhood where most of your neighbors are unemployed.  The 5% unemployment is a nationwide value,  and there are large variations depending on age and trade or educational skills.

There are other measures of  unemployment statistics calculated by the BLS.  The BLS has a budget of 618 million dollars and has 2,500 employees.

The BLS data are used by economists and financial analysts around the world. In  addition to the unemployment rate, they provide estimates of the Payroll Employment,  Consumer Price Index (CPI), Producer Price Index (PPI),   Productivity,  US Import Index  and US Export Index.

Stay tuned,

Dave

 

Graham Ledger on the debt ceiling

by Dave

Graham Ledger of OANN (One American News Network)  said that congressmen should look up the word “ceiling”  because if they keep raising it, it isn’t a ceiling.   And I agree that it is a misnomer.   I will call it “Economic self destruct time bomb.”

There’s nothing constructive about the debt ceiling.   It doesn’t limit spending.  It doesn’t limit our debt.  It  empowers the government to pay its bills.  It doesn’t exist in other countries.  It is an anachronism.  It really  should be eliminated because it is being used by minority groups to try to extort from government what they couldn’t do by the democratic process in Congress- like defund Obamacare.

The day after Congress refuses to increase the debt ceiling,  the US debt will be just the same and  be over the debt ceiling limit.  Debt increases when spending exceeds revenue.  The cure to debt is to cut spending or increase revenue, not plunge the country into economic chaos.

If the President continues to pay bills after Nov 3,  he  and the Secretary of the Treasury are in defiance of Congress and subject to impeachment.  If he does not pay the bills, the US is in sovereign default.

What have other President’s done in similar situations?   Nothing, because Congress has always raised the debt ceiling. It used to be automatically attached to spending bills.

“Economic self destruct time bomb” is more appropriate.   It has been at the door of congress since March  together with the instructions to defuse this bomb – pass the clean debt ceiling increase.

Stay tuned,

David Lord