Why was yesterday’s employment report, disappointing job creation and all, still strong and positive? What does the American Job Shortage Number or AJSN, showing we could quickly fill 15.5 million more positions, tell us about that? See http://worksnewage.blogspot.com/2018/12/neutral-jobs-data-no-novembers-was-good.html.
2
This fall in the market can squarely be blamed on Trump and his GOP cronies. Adding fiscal stimulus when the economy is already jacked up and increasing government deficits last year giving the markets an overdose. Then starting a trade war which is basically a tax on consumption (paid by consumers, not the other country). Trumponmics is definitely not Wharton material, probably not even Fordham where Trump went to for two years before his father's money got him into a two year real estate program at Wharton (this is not the B.S. in econ or the MBA which made Wharton famous). What a bunch of idiots we have in the executive branch most notably the President and Navarro.
46
Pretty good analysis, but it ignores many points of economic complexity and risk that make this period of extraordinarily high asset prices (fueled by excessive debt) exceptionally risky from just the economic factors alone. Add the extraordinary political risks of the possible collapse of the EU, the rise of nationalistic dictators and the US being run by the most incompetent gang of rouges ever (well, there have been several marginal Presidents but none as intellectually challenged as Trump), the risks of a global economic collapse are pretty high. If you pile the costs of global climate change (which could actually be positive if the world responded correctly by ushering in a period of global growth through investment funded in part by carbon taxes), the risks are overwhelming. The trigger to the upcoming financial collapse is unknown at this point, but is likely to be massive defaults on debt and related derivatives (Buffet's "toxic waste). The best investments I currently own are the Ben Franklins in my wallet.
28
Maybe we should consider communism Rev. 2. Most of the opportunity is in China. Pass right by socialism and put an end to capitalism. It's a question. I'm just saying. It's not like what we have is working so well.
Inequality is the problem and we have the most of that.
12
From the article: "First, why is this happening when the economy is so strong?" To paraphrase Mark Twain's famous observation, "It's not so much that Mr. Irwin is stupid, but that he knows so much that isn't true." E.g., if you can look at the American economy in its present shape and can with a straight face describe it as "strong," well you're going to be in for a whole lot of surprises. To me, most of Mr. Irwin's columns in the NYTs on the US economy are little more than the articulation of one more "surprise" after another.
23
Oh my, they didn't notice because they don't care. The post-WWII institutionalized corruption of American capitalism has been building and building for decades. This is "take the money and run capitalism" that operates with no vision beyond the next 90 days of earnings. Ably assisted by a corrupt Congress the Wall Street-Boardroom alliance has had its way. Penthouses in the sky, Robber Baron Mansions, Bigger Yachts and Jets have all been paid for by the Middle Class, which is in continuous decline. This is no surprise, it's by design.
42
Or, for that matter, what Mueller and the SDNY does wrt Trump and his presidency.
1
What took so long indeed, with Trump at the helm? Looks like trade wars are not so easy. This is not the time for trade wars, dum-dum.
7
Everybody has jobs, but nobody can afford anything. Even in Silicon Valley, where people have three-figured jobs, every penny goes to overpriced housing. Most of us don't have three-figured salaries and every penny goes to housing, utilities, food, and medicine. There's no money for gifts, no money for fun, no money for fashion.
40
First answer is stupid emotionalism, second is the same answer. The economy will continue to be strong, and perhaps even stronger when trade issues are improved and more opportunities exist. We will need to train more capable individuals and bring back many who are out of the job market for whatever reason. Plenty of retired people could work part time at appropriate jobs if there was real high demand. I am ready and willing.
3
@vulcanalex ha ha! Not me! And I only know one retired person who wants to go back to work...because he has no money. And no one will hire him because he's too old. In his 60's.
16
Sounds like a Trump believer.
14
Trump, who promised 4-5% growth is angry at the Fed for rate increases because they may bring down growth in the short-term. But to normalize this economy since the crash, rates need to increase so that there is room to cut them when the inevitable Trump recession hits. Ive said it before in these comments: Republicans since 2000 have become radicals. They don't believe in stability, they believe in experimentation: Conquoring Iraq to democratize the Middle East (nice going guys); Huge tax cuts in a thriving economy (where do we do from here guys?); starting a trade war with our allies and the most populous economy on earth (What's the goal guys?)----If only the democrats were a suitable alternative.
9
Democrats could be a suitable alternative to republicanism if they at long last adopt the liberal economic outlook that they have been accused of but never really done. Inequality is the problem in the U.S. which is the richest but nearly most unequal country in the world. (Also stuff more of it's citizens in jail than any other country including China. And, of course, also blows up the most wealth in unwise military endeavors.
What about the national debt?????
9
Companies will find "greater productivity from their..[ ]...work force" when they share the profits with labor. After a decade and more of increased (20%), and declining wages.
Revenue growth depends on finding consumers that can buy tour products. Consumer spending may be 70% of the past US economy, but with the highest level of income inequality in the developed world, "discretionary income" is available to only the top 15-20%.
My Silicon Valley company wants "more productivity" but will they invest in employee training? No. No discretionary time for self learning. No compensation for taking engineering classes at University extension courses (and certainly no "time off", from a 50 hour work week, to attend class).
26
@OSS Architect Productivity can come through automation, and just having more work for the same people to do. And who works 50 hours that gets overtime. Many starter jobs now come with college benefits. Engineering is not generally understood through extension classes, unless you are already an engineer.
1
Federal Reserve is causing panic in the financial markets with interest rate hikes. Property prices are falling. Stocks are declining. The Fed said they might raise rates three or four more times and the stock market collapsed. It is as if they do not want individuals to get a return of more then 1%to 7% a year. The market was doing really well until the Fed raised rates. So most likely even though the economy is slowing down they will raise rates again. Suburban real estate is way down in price as taxes are only deductible up to $10,000 a year as a mortgage deduction. The Fed May cause deflation with interest rate hikes.
6
The prospective slow down is, actually, a good thing. As the economist Shiller writes elsewhere in the paper, the housing field has had an amazing run up in prices, and is now rolling over. Similarly, the long boom in auto sales is fading. These trends, are, I think a 'rolling adjustment', where leading industries slow down, and others move ahead. For example, real wages are rising as the labor market has tightened, and with less income going to gas, cars and houses, sales of consumer goods probably will rise. Also, with labor costs trending up but demand strong, corporations probably will , at last, begin to invest. Finally, with the change in control of the House, and little else on which to agree, a large infrastructure spending bill is likely to be enacted, spurring much needed construction. The stock market , as usual, has overdone the correction, and after basing out in the next few weeks, most likely will find footing in areas of growth and new leadership will lift the averages higher. It was ever thus, sayeth the sage.
9
As Irwin says the gremlins lurking in the US economy have been increasingly evident for the last year. Rising rates; the wear off of the sugar high mainly corporate tax cut that didn't materially affect investment and added 150 billion to the deficit; the self inflicted wounds of Trump's trade war rhetoric although that war may turn into a damp squib; rising consumer debt; and some political instability surrounding the oafish and incompetent administration. Large parts of America have seen not insignificant parts of their IRA's and 401k's go up in smoke over the last few months as all 2018's gains have been erased and this combined with the household debt problem is probably going to crimp spending a bit. So yes the water is going to be a bit choppy next year.
7
"Growth will slow unless companies develop ways to extract greater productivity from their (increasingly hard to find) work force."
The way to do this is to invest in labor-saving machinery and other capital goods instead of buying back stock and paying executives more. Productivity is mainly a function of money invested, not anything that workers themselves do. Spurring investment is what not only the tax cut but the near-record low interest rates were supposed to do.
Cutting interest rates did not provide much of a boost (rates in Europe are still at absolute record lows with no particular effect), so raising them will not have much effect either. The problem is in the way that corporations are controlled for profit and high executive compensation and not either production or productivity. Supply-side economics has failed utterly - make more money available to CEO's and they will keep it, not invest it constructively.
9
I'm curious how labor-saving machinery, otherwise known as robots , will help the economy since they don't go out and buy groceries and cars.
10
Interest rates were too low for too long. Corporations have leverage their balance sheets with cheap money, and leveraged loans were used for overpriced buyouts.
With the Fed tightening, investors are looking at potential problems. Higher rates on corporate debt could cut into earnings, and cuts in bond ratings could put many companies into junk status, forcing institutional investors to sell their bonds.
When rates rise, the first thing that happens is that large institutional traders relying on borrowed money have to sell. That's what starts the selling, but it doesn't stop there.
What should investors do? My advice is to wait until the whole market goes down, and then by good companies with relatively little debt on their balance sheet. These are the ones that will bounce back.
7
Although people are encouraged to buy stocks when the rate of unemployment is low,
periods of extremely low rates of unemployment have actually not been good times to be holding stocks because the rate of unemployment has been cyclical.
In the classic iconic cycle 1929 was a year of unusually low unemployment, but by 1933 the rate of unemployment had risen very substantially.
As it turns out 1933 was a much better time to be invested in stocks than was 1929.
7
'Pummeled stock portfolios'? Compared to what?
I watch this see-saw roller-coaster and remember it is exactly as it always has been: sanctioned betting. Like being in Las Vegas with your nest egg, with very little control but zero entertainment.
I never thought the Dow could -- or should rise above 18,000. I mean, that seemed like a crazy number after the 2008-2009 meltdown and subsequent years.
That we're at 24k or 23,500 or something vs. 26,000? Big deal.
It's gambling, and 'the house' always -- always -- wins.
Find some middle of the road investment vehicles without all the drama if that is possible / if those exist -- and forget about 'the markets.' I think it's a happier life that way.
9
@jazz one. I find your comment to be kind of a strange one. Initially, it seems you're saying how great the stock market is (and I agree)... After the 2008-2009 meltdown, the Dow was at just about 6,500 in March 2009. Then, you say that you never thought it could rise above 18,000. Then, you point out that we went up much more than that... to 26,000 but then that it dipped, slightly, down to 24,000. Up to that point, it looks like you're saying the stock market did great these past 10 or so years. And I agree. Except for those people who were dumb enough to sell after the crash... Those who stayed in (and better yet, who bought more), enjoyed HUGE upside. But then you complain that the stock market is just "gambling" and that "only the house wins." The first part of your comment makes sense. The second part of your comment argues a completely opposite view.
3
The sky is not falling. During the NINE years prior to 2018, the S&P 500 experienced positive returns, as follows: 2009 +27%, 2010 +15%, 2011 +2%, 2012 +16%, 2013 +32%, 2014 +14%, 2015 +1%, 2016 +12%, 2017 +22%. (If you don’t believe me, look it up online). We haven’t had a year of negative returns in a very long time (2008 and then 2002 before that). Since 1928, when S&P started tracking the markets, there have been 90 years of tracked returns… 73% (66) of those years have had positive returns and 27% (24) of those years have had negative returns. On average, over periods of 15-20 or more years, the stock market has returned 8-12% per year for the buy and hold index fund investor (not gamblers day trading “flavor of the day” stocks). After 11 months of 2018… the year-to-date S&P 500 is at -2%. The news media and “financial industry” really does a huge disservice to the investing public by making people think the sky is falling. Ignore “the experts” on tv. They need viewers, so they can sell TV commercials. Keep your money in. At some point, the markets will go back up. Maybe in 2019. Maybe not in 2019. But… a year where the market is down a mere -2%, after 9 years of VERY positive returns, should be viewed as nothing more than a “small hiccup” … if even that. If you can’t handle that, you don’t belong in the stock market in the first place.
13
You're no better than the media and "financial industry" you impale. The fact of the matter is that neither you nor anyone else knows one way or the other whether the sky is falling. An intelligent observer need not be mesmerized by the media to discern good cause for worry. Each of us must make calculated investment decisions and it's simply foolish to assume, as you do, that markets will inevitably turn back up, supposedly in a time frame that works on a one size fits all time frame.
As for myself, I raised about 25% cash in April, 2017 and watched the market run away from me. But I'm comfortable with that decision given my personal investment goals. I plan to ride out the market from here. Meanwhile, I'll practice some deep breathing exercises to prepare my mind for the possibility of a bone-crushing market. Here's hoping I don't lose it all.
5
@ABC123
First, learn how % work. Yes there were "gains" most of those years as you point out (I have no idea what you mean by "returns" which is not how overall market performance is measured). But, when the bottom drops out as it did in 2008 ( S&P down 38.49% at close of year, https://www.macrotrends.net/2324/sp-500-historical-chart-data ), the market eventually has nowhere to go but up. More importantly, the gains are exaggerated as a % by the fact that the following year's close results in a very large looking percentage. The raw numbers don't look nearly as impressive.
Second, there is more to an economy than stock markets. If you can't handle that you don't belong on this message board.
5
@ABC123
thank you...whew
3
I've been buying 2 year notes since last spring and plan on continuing to do so over the next year. They should be reaching maturity in time for the recession when things tend to go on sale.
6
Wage growth is not reflecting the unemployment rate. More low paying jobs are created similar to those undocumented workers employed at Trump’s Golf club. The tax cuts really did very little to economic growth and jeopardized the future growth with the increased burden of national debt. The Republicans have tunnel vision when it comes to tax cuts to rich and corporations. Federal Reserve has no imagination except look at employment rate. A robot could probably do good job. Tough times for sure ahead.
16
Yes. Low interest rates and the tax cut have led to extraordinarily high private and public debt. When many of the start-ups fail, as is inevitable, the loans will be called in and the markets will crash. It will be a repeat of the dot.com crash or even worse of the mortgage debacle of the Great Recession. The present boom period should have been regulated by fiscal policy, but the tax cut did the opposite. This article is written as if we only need to worry about the stock market rather than the broader economy, but as one letter writer noted, the economy in 1929 likewise seemed to be strong — until it wasn’t.
11
@Kodali
The Fed seems not to want increasing wages at all. It views that as “over-heating” and tries to put the brakes on. The entire federal tax and monetary system is rigged against worker gains in the share of income and wealth. That’s before we get to oppressions like right-to-work laws and other Republican meanness and lies.
9
Whenever I read articles about the economy being strong and wondering when a recession is coming, I think of how parochial and provincial the thinking is of American economists.
All the predictions based on the Federal Reserve, employment, even Trump tariffs, simply don't account for what China will do. Or what Europe will do.
3
@Mimi China will be giving up some changes or else, Europe does not matter. If China does not tariffs will bring back jobs to the US or at least Mexico.
@Mimi. The article specifically addresses China. Read, then comment.
It is not hard to understand in the slightest. "Investors", as we generously call the sociopaths in the Wall Street Casino, are playing chicken. They are waiting for the last dollar, for the next guy to blink. When it happens, computers dump a ton of grease on the slippery slope and make it 5X worse.
I've been out since May, and am one happy camper.
12
I would very much like Mr. Irwin, even belatedly, to acknowledge that the economy's performance over the first year of the Trump administration was the doing of President Obama, and that the mess that is now becoming clear is due entirely to the incompetence, the reckless tax-cutting, skyrocketing deficits, and growing trade wars, all of which are the doing of the Trump administration.
Then we can all say, "what took you so long" to acknowledge those realities.
24
@Sean Not at all Obama, I remember several thinking Trump would destroy the economy. Obama made so many mistakes, cash for clunkers, bribes for his friends, shovel ready projects, time is the reason for the economy improving for him, the rest is the new policies.
2
I can think of several risks going forward:
Steel prices have soared because of tariffs. Some 2.5 million jobs involve manufacturing with steel and aluminum. Steel prices have risen 20% to 40% without slowing imports significantly. Automakers and others are considering or planning to move operations out of the US because of Tariff Man.
A strong US dollar is making US exports more expensive.
The predictable slowdown in the housing market affects not only construction, but also home improvement and new household purchases. And slowing home equity gains also slow cash out refinancing, HELOC and resulting consumer spending.
Retiring Boomers are slowing their spending, especially the significant costs of going to wirk, but also to conserve retirement savings during shaky stock markets.
Net social service transfers from rich to poor states are likely to take a hit because of the huge deficits caused by Trump's corporate tax cuts.
Agricultural exports are likely to face a prolonged slump due to targeted retaliatory tariffs by China and Europe, even if all trade disputes ended tomorrow.
None of these will necessarily push the economy into recession but will return us to slower growth, which translates directly into lower P/E ratios.
Many prudent investors shifted allocations months ago.
3
@Look Ahead And if they move them, the tariffs will be applied to there entire product, not just the steel.
One commenter, @David Doney, praised Mr. Irwin's "very thoughtful analysis". I disagree; I found it rather opaque. Mr. Irwin has made some vague warnings about economic dislocations in 2019 (or so), but he could have been much clearer in his exposition.
First, he says that the U.S. economy "has become heavily tilted toward industries that depend on low interest rates". How, pray tell, does this "tilting" manifest itself? Is it merely that the stock's of companies in said industries have become overvalued? If so, why doesn't he say that? There's nothing measurable about "tilting".
Second, he says "a potentially painful rebalancing is underway". How is this "rebalancing" manifesting? Are investors selling off stocks in vulnerable companies and buying shares of firms they see as less threatened? If so, that's what he should say. Is that how Mr. Irwin knows the "rebalancing" is under way? Something specific about measurable indicators would be useful here, too.
Finally, what is the "handoff" to which he refers later in the piece (about which he is concerned that it may not be "smooth")? Obviously it is related to the "rebalancing", but it's no less opaque.
Using imprecise, undefined terms does not lead to effective or persuasive communication.
12
@John Bassler As usual they only make conclusions, we are too stupid to understand anything else. Now I think conclusions without reasons means you are ignorant and arrogant, not to be believed. I doubt that any reduction in our real economy is coming during the next two years. Only time will tell.
Does anyone care any more about huge deficits in a strong economy? Keynes did. Deficits at full employment are supposed to create an excess of aggregate demand, overheating the economy, driving up prices irrespective of wages. Hence the concept of a full employment balanced budget, as occurred in the successful economy of the 90's. It's possible that deficits no longer matter even at relatively full employment, but this article does not even mention this as a risk factor , nor do many other economic commentaries. If the theory has changed, I'd like to know why and how.
14
Very thoughtful analysis, thanks. These are certainly important factors. But let's not underestimate the impact of people wondering what Trump is prepared to do to keep power, should the Mueller investigation results provide grounds for impeachment.
Further, the U.S. budget is clearly out of control and major tax hikes and spending cuts in defense will be required down the road; the lies about "tax cuts paying for themselves" were, well, lies. The budget deficit in 2018 was up 60% vs. the January 2017 CBO forecast (Obama policy baseline) and the 2018-2027 debt addition trajectory is up 45%.
Trump has mainly continued the Obama Boom, with job creation actually a bit faster in Obama's last 22 months than Trump's first 22 months. Further, the economy has historically performed better in terms of GDP, stock market, and job creation under Democratic Presidents, so fear that Trump's economic policies will be limited is not a real fear among the fact-based.
7
Good analysis, as usual, Neil. But please look at how housing has performed in various interest rate scenarios in the past. It looks to me like homebuilders rely on short-term rates to finance building but home buying can be robust, even when long-term rates are much higher than today (Greenspan's conundrum). Viz. 2003-2006. One can say that the strong housing market despite higher long-term interest rates was due to fraud and other shenanigans--of which there were plenty--but did that negate the rates? Look back at strong housing markets over the last half century. They flourished despite relatively high rates.
2
Most policy decisions, both domestic, and foreign, over the last 50 years were based on borrowed money, because Congress refused to tax for all the legislation they passed that needed funding, thus bypassing a voter who would of decided what war, how long, how much, etc. In 2001, when George W. Bush was sworn into office, the federal debt was at about $5.79 trillion, and now going into 2019, it will top $22 trillion, with a stock market, that has to endure 2 more years of this administration, and it will go nowhere but down, down, down.
9
Sounds like our friends in the red congressional districts will be trading their guns for groceries soon.
15
Donald has implemented the Kansas plan of economics; cut taxes to rich and businesses. We are in bigly trouble. Recession/Depression is coming. Thanks Donald/GOP. Ray Sipe
7
The biggest risk our economy faces is our inept President and the Republicans in Congress.
24
Employment data is meaningless.
3
You have to wait for developments.
....."Why are markets just now recognizing the risks the economy faces in 2019, which have been obvious for months to anyone paying attention? ".....
BC Trump's minions refuse to confront reality and assume responsibility for themselves.....the truth is v simple and available to those who want it.
3
As usual, the press is ignoring a critical issue when it comes to interpreting stock market volatility--valuations. The long and robust bull market has raised stock prices to excessive and unsustainable levels. A correction is long overdue, and apparent overreactions to minor events are to be expected since the higher the price the itchier investors trigger fingers become on the sell button.
3
Reading some 26 comments is not an insurmountable effort in which to invest a significant amount of time as is the case for some columns with a thousand or more contributors. In the present case, most subscribers provide personal experience that bely the “optimism” or “pessimism” of our recognized economic forecasters. While I am not an economist by any stretch of the imagination, my more enlightened friends trained in economics refer to the “art” as the “Dismal Science”. This resonates with me because of my own systems oriented background. In short, the economy prevalent in the US is akin to an “unstable control” system. Such systems typically “oscillate” between two extremes, both of which are undesirable. None the less, both extremes continue to produce inequality in the workforce which is an unintended consequence of the system despite our best efforts to attain some acceptable balance. It further prevents “class mobility” which we seek to attain as a “set point” (desirable goal) for the work force.
6
The Fed will take a measured approach to interest rate increases next year.
Trump takes a measured approach to nothing. He's the wild card in this. The more desperate he becomes, the more erratic his behavior as he seeks his next scapegoat. Look for more of the same until a full blown crisis forces his removal in 2020.
4
Trump was exactly right. Please Mr. President, we just can't take anymore of your winning ways.
2
The biggest threat to the economy is Trump and his incompetent backward looking administration. When we have a president who believes in coal but not climate change we are in trouble. When Trump destroys trade relationships with allies and adversaries with no visible end game, the economy is endangered. An unnecessary and unconscionable tax cut for the wealthiest will leave no room to deal with the next economic downturn which may come sooner than expected thanks to the uncertainty created by Trump's erratic policy shifts. The only potential upside to all of this is that it may serve to rid us of Trump and his republican enablers once and for all. Unfortunately there will be a lot of suffering first.
30
The same myopia that elects fast-talking politicians hawking simple solutions for everything is responsible for people ignoring economic warnings. Perhaps few of us understood the complexity of derivatives and other sham financing schemes back in 2008, but we all knew that excessive debt and speculation were not good. As we head for the next Great Comeuppance, you can count on political leaders saying “we didn’t see it coming,” and financial institutions again begging for bailouts. That will be followed by the oligarchs who now permeate our government snapping up assets at low prices at the expense of the people they claim to serve. History repeats itself; especially when we are willfully blind to its lessons.
15
Why now? Because, like Wile E. Coyote, we don’t realize that we ran off the cliff until Road Runner goes “meep meep”. Then we fall.
The tax cut was a one shot deal. Now we have deficits as far as the eye can see. The trade war with China, the Mueller investigation, etc. are all threats. So Acme Industries turned out to be another Trump University.
33
We need to add at least two more major risks. Brexit and the budget tensions between Italy and Brussels mean the EU/euro is far from out of the woods. Throw in the turmoil in France and Europe seems politically and economically fragile.
On top of that my understand there is a mountain of corporate debt that was taken out at low interest rates, and as interest rates rise there will be a reckoning - maybe next year, maybe 2020, who knows.
Add the fact that Trump is ignorant and uninterested in learning, with little understanding of the complexity of economics and a degree from the Roy Cohn School of Diplomacy (never admit error, hit back harder) I’m no expert but very dubious that our geniuses on Wall St. know what they are doing with prudent risk management.
22
@Doug Europe is irrelevant to our economy, it might effect the stock market but that is not the US economy.
The perfect time for companies to realize losses is coming up. No company wants to admit to less than stellar performance when it can be avoided, but they can get away with it when they can blame external forces. Such forces are around the corner. Hold on!
17
Excellent article.
Interest rates are too low. These raises will provide the necessary ballast to steady the economy in turbulent economic winds. Just like a keel in a sail boat and the rear wing in a F1 car, they provide the drag necessary to tack or to obtain a fast lap without careening out of control.
This is the crux of the article :"Part of the agita on financial markets in the last few weeks has come from fears that the Fed has been underestimating these risks, and is dead set on raising interest rate.." The Fed must raise the interest rate, the sooner the better.
And although I know free market principles will hold the economy, I want to see President Trump squirm a little.
PS. I like President Trump.
1
Always found Irwins article practical , jokingly, as a participant of a dismal science .A science based on charts and graphs of yesterdays stats. With that said, we should all remember. What goes up comes down. Greed is of course the great motivator, however constant growth and constant improved profits are rare. Corporations who last for several years are also rare.
4
Mr. Irwin, you don't mention the huge health and insurance sectors of our economy which are soon set for a reckoning. According to news in this paper today up to 17 million people could lose their health insurance within the next year, health insurance companies will not fare well with the administration's attempts at gutting the ACA. And who will be responsible for covering the cost of caring for sick people without insurance? Hospital emergency rooms with no hope of reimbursement from Medicaid. What will happen to the jobs of people who work in these sectors? This is going to drag our economy down big time, but hardly anyone is talking about it.
32
@EMiller
Well said. With that said, two circumstances seem firmly in place. The entire four pronged players , and their % of US GDP. Insurance companies , Drug companies , the AMA, and for profit Hospitals. Seems common knowledge Americans, like all other Democracies, would prefer Universal Healthcare. Those four players I mentioned, have no fit. Also seems clear at this stage, we cannot afford Universal healthcare.
4
@Dan Green
Who's the "we" who can't afford Universal Healthcare? Many people can't afford health care, period, and many of those who do have it are paying a large percentage of their income for it, which is a drag on the economy.
"Universal Healthcare" is currently just a slogan, with no actual plan to evaluate, but surely it ought to be possible to come up with a plan that benefits the economy as a whole in the longer term.
12
Until we get back to where we were in 2016, we have a problem.
Earth to humans: pay attention.
Juicing up an overheated economy was always going to end this way.
2006-2008
1987-1988
Democrats recover and restore the economy, Republicans spend down and take credit, and then blame Democrats.
Shameless, just like cheating in elections. Always claiming their misbehavior is being done by their opponents.
In their book, honesty is not the best policy, and the best defense is a good offense. The rest of us should not be so gullible!
71
Two problems that make this all worse:
Climate change/global warming is real, and it's here.
Income inequality - most of the profits go to the top, while wages at the bottom are just beginning to go up.
Grotesque!
37
Equities have been expensive for some time now. Historically, they are near their all-time highs, which means that investors are betting that corporate profits will continue to climb. This scenario is unlikely to happen.
The real question is: why did so much money pile into equities in the first place? With the Fed holding down interest rates, doing so likely pushed investors looking for yield into purchasing equities. We are now seeing a rebalancing of both corporate earning expectations and allocation of capital. The stock market's rebalance doesn't, by itself, signal a downturn, any more than a drop in the 10-year T-note signals a downturn vs. a changed outlook on future inflation. P/E ratios are currently unsustainable, and the market could be in bubble territory, even if the economy continues consistent, if tepid, growth.
Perhaps investors are waking up to the possibility that our current administration is completely incompetent and asleep at the wheel. One false move could trigger a massive trade war or other economic disaster. The administration is staffed by political hacks, not professionals, and the markets may be finally seeing the possibility that "not everything may work out in the end". Imagine if Trump had been elected in 2008; does anyone have confidence that we would have pulled out of the Great Recession? Those years were painful but could have been so much worse, had a crew of intellectual know-nothings been in charge.
54
@Johnny Gray well said, one of the few really good comments
3
The money crowd has been riding the no interest binge for some time now and have done quite well borrowing from the Feds at zero and lending at 4%.
Higher interest rates work for the savers who don't like handing their savings to speculators on Wall Street. We really need alternatives to gambling to save for our old age.
If housing and autos have problems selling with higher interest rates, those prices can come down as well.
If higher interest rates limit the amount of debt we carry, that's great.
Time to move back to pay as you go.
32
Perhaps a larger problem is that 90% of the US consumers have not shared in this prosperity.
157
@Steve
Globalization was well marketed, however it never included the 90% your refer to. It is hard to comprehend, the pool of slave labor that was made available , along with incorporating off shore, in a tax haven. How sweet is that ?
9
What took so long is no mystery. Wall Street knew that Trump would drop regulations, environmental protections, etc like a machete through grass, favor business over people at every turn, and favor the rich over the non-rich. Coal country votes over clean air, big insurance over healthy people. Today's GOP Congress has helped Trump destroy our protections at every turn. The turning point, not coincidentally, was the blue wave in congress, finally adding a check to the administration. The tariffs war by a president with so little understanding of how things work was match that lit the fuse.
63
P/E ratio mentioned but needs more insight, perhaps in another article.
P/E ratio?
One of the more interesting things is the effect of the tax cut in 2018. When I challenged analysts “specialists” on the price/earnings ratios being historically “reasonable”. Noting that tax cuts had raised earnings from 10 to 35% with voodoo simple accounting.
( they admitted they use unadjusted after tax profit, no adjustments from 2017 and rates)
As an accountant involved for 30 yrs in corporate taxes, 14 yrs publically traded, 16 yrs consolidated with a private group(s). Know full well the, let us say , interesting schenanigans involved in deferring income to avoid tax. Just the simple accounting, assuming rates down suddenly youfind income, WOW ? Hard to believe.
If I take P/E andadjust 20 to 25% for this suddenly ratios not so low.
5
Wallstreet said a few months ago Trump will see his big recession soon. I hope it is a long one. When the rich like him and his family pay no taxes then give themselves big tax breaks our country is in for a long rough ride. The son George Bush gave a trillion in tax breaks to the rich and corporations and we were in the worst ever recession. Kansas GOP gave their states rich and businesses all the money for years and it did not help them. Now Trump welfare to the rich is failing . I got an idea how about spreading out the wealth to the 99 percent instead of always the 1 percent.
22
The market could discount the president's ravings and inconsistencies while he was indiscriminately throwing money and favors at big business. Now that he's bled the coffers dry, and has nothing left to offer - except endangered land - reality must set in: the last two years of runaway growth have been artificially sustained by "economic policies" concocted to bolster Trump's continuously sagging popularity. The absurdities of tariffs and the like are finally creating the instability they warrant. It's all downhill from here until there are proper checks on this administration.
34
"bad luck or bad policy could easily create a major slowdown or recession."
This bodes well for our predictable, pragmatic, professional, rational, mature, and sensible president... um...yikes.
19
A meat grinder is strong, but like a strong stock market, it's not a sufficient tool for maintaining a civil society. This meat grinder economy lacks what is necessary to avoid destroying itself.
11
Trump rode the Obama economic recovery, but has made some very stupid mistakes. Tariffs, tax breaks for Billionaires, and capping popular tax deductions for upper-middle income earners (just to name a few).
The first 1- 1.5 years after an election, the economy is typically attributed to the previous administration. Then, as the new president's economic policies come to fruition, they own it. This will be the first tax cycle that some tax deductions will be capped under Trumps new tax plan - These caps could really slow the economy and housing values. Some estimates are that Trumps tax caps will directly depress home values by 11% or more in some markets. We are just starting to see the 'Trump effect' on the economy now.
102
@S B Home values have already gone down about 11% in Seattle this year, thanks for nothing Trump.
10
As the old saying goes, the end is near, repent ye sinners.
The market has already corrected app. 10% for a normal correction. The only question is when and how far down it will go.
The Great Recession of 2007 took many yrs. of bad fiscal mismanagement by both republicans and democrats, mainly Newt and slick Willie Clinton to come about. You have correctly pointed out the ominous signs but the timing of the end is hard to predict, it could be nearer or farther.
The case to make it nearer is the incompetent ego maniac demagogue in the WH, Trump. Demagogues from the first one Alcibiades in classical Greece to one of the last ones Chavez in Venz. always ruin their countries usually economically.
The only question is the time period.
11
And just wait for the government shutdown next week......
16
In May of 2007 (11.5 yrs. ago) two Morgan Stanley hedge funds "blew up" at a time when the economy was just as "strong" as it supposedly is today with very low unemployment. Housing in particular was extremely strong and Fed Chairman Ben Benrnanke opined that any "downturn" would be very short and confined to just a small segment of the economy. Well, what caused the hedge fund "blow up"? Extremely leverage in a rising interest rate environment. And where are we now? In another Fed ushered rising interest rate environment. Having set rates at near zero for over 7 years and with four rounds of QE, the Fed fostered an environment that essentially benefitted Wall St and allowed for a renewal of rampant speculation such as was seen in the early to mid 2000s. ZIRP and QE were always intended to benefit Wall St. (just ask former Fed gov. Richard Fisher) and prudent savers were cast aside. Now just as rates begin to inch up a bit (and 2- 2.25% is still remarkably low) and the 10-yr. bond is only at 2.87%, all the wheels are coming off the bus again? How will we ever get back to "normal" rates if Wall St. panics and throws tantrums at these still extremely low rates?
19
In California, where my millenial children are struggling, there is plenty of work if you have false ID, are willing to work with minimal pay and benefits, if any, and you are willing to have your children supported on MediCal. Otherwise, with a college education and higher expectations....your only options are a government job, medical, for the FIRE sector. Don't count on those hightech Facebook or Google jobs. The employers I work with uniformly avoid hiring domestics in preference to migrants. Domestics demand their rights and workers comp and litigate often frivolously with devastating results to the bottom line. I wonder if migrants working counts in the overall unemployment numbers. If it does it might be more interesting to see the unemployment numbers of "domestics" meaning US born workers legally here. If a company receives the political stability benefits of being in the US they ought to be forced to hire natives despite the fact that they may not be compliant and subservient enough. In Ca. there are plenty of domestic jobless who just won't take jobs that are not sufficient to support a family. Better to live at home with mom and pa.
6
@as I’ve worked in Silicon Valley my entire career, and while I highly respect my many H1B colleagues and have befriended many of them over the years, I have often felt that the employment of citizens vs. foreign-born workers is out of balance, as you suggest. We should certainly demand more from our corporations, and particularly the tech industry, when it comes to supporting not only the hiring of these more-demanding college graduates, but also their education and development long before they reach working age. I’d love to see an analysis comparing the dollars tech companies spend lobbying for more H1B visas to the dollars they save hiring these less expensive—and, as you say, less demanding—workers. It certainly isn’t anywhere near 1:1, but how about investing that money in STEM programs in East L.A. and Fresno, and hiring the citizens who are already here, which would almost certainly lead to a stronger social fabric and more economic stability in the long run. We’ve already got plenty of diversity in California; now let’s start making the most of the awesome potential we have right here.
46
These sound like reasonable explanations for the disconnection between the pessimism of the stock market on one hand and the rosy picture indicated by the GDP and unemployment figures. Of course, we increasingly recognize the limitations of GDP and unemployment as indicators of our economic health. After all, more and more people are employed at wages that don't support the American Dream, and some at wages that require the sacrifice of either medical care, education, housing, or even food.
But given that we're talking about an administration that doctored a WH Press Conference video to justify expelling a journalist--an administration with only a passing relationship to the truth--I'd love to see an article that reassures me that employment and wage figures cannot be doctored.
20
In my humble opinion, it's actually good news that we will face a significant correction in 2019 and even better news that we have gone this long without one. Both of those things are pretty strong indicators of a wildly resilient and robust US economy.
7
And then there are the jobs many of us work in where the raises are less than the rate of inflation. Robust economy? Really?
80
@Mrs. Cat I'm sorry you chose a company or industry that doesn't give raises that are consistent with the rate of inflation. I haven't had that problem.
@Jeffrey Gillespie ... You may not have experienced this, but it is a consistent problem in the economy at large, and has been for years: https://www.marketwatch.com/story/wages-arent-growing-when-adjusted-for-inflation-new-data-finds-2018-07-17
37
The biggest mistake that has been made each time the executive level employees were responsible for malfeasance, lies, and other scams has been not prosecuting them and throwing them in jail. What happens is worse. Average Americans lose their jobs, their homes, their savings, and their health. Most of what is done to "help" them fails because it's not enough or the retraining programs are run on the cheap for jobs that won't provide a real living. But the CEOs get their golden parachutes, write their books, and keep on living those rich lifestyles we read about.
Forget about unemployment being at its lowest rate in decades. Look at the jobs that are being created. Look at who is not being hired. Look at the hiring process, the application process, the pay being offered, etc. That would tell you more than all the columns about how low the unemployment rate is.
134
The "markets" had a little reprieve when The Con Don allowed BIG corporations to bring their inherited/stolen wealth back to the safety of OUR U.S. system with greatly reduced taxes and they BIG boys paid their shareholders, which kept share prices up. Now they don't have any new tricks and can't move money around fast enough to keep the whole thing afloat.
A major global stock market crash has been coming eve since Reagan gutted antitrust laws and he and Bush, Sr. defunded or destroyed regulatory agencies meant to protect us. Then Clinton did away with Glass Ste-gall and Alan Greenspan applied his Laissez-faire economics to OUR system, unleashing insatiable greed.
Now it's going to come down. No surprise to anyone who has been paying attention.
My heart cries for all the average Americans and people around the world who are going to lose their hard-earned savings and watch them go into the corrupt pockets of the 0.01% International Mafia Robber Baron/Radical religion Good Old Boys' pockets.
88
honest question: even though jobs are being added, are they enough to sustain an individual and or their family? or are these part time jobs suit for college students? basicslly are these new jobs meaningful growth?
80
@DJ
Great question DJ
Wealth discrepancy is at an all time high.
Many people work 2 full time jobs just to make it and pay for many people is stagnant, all while Billionaires wealth climbs exponentially.
Trump gave huge tax breaks to Billionaires, skyrocketing our national debt - Working people are expected to make up for the reduced tax revenue and pay off the debt.
I just can't see how this would lead to meaningful growth for most Americans.
56
@DJ No, that is truly the failure of our economy. There are barely any living wage jobs for those Americans with a high-school education and a big emerging contract jobs economy with low wages and no guaranteed pay or benefits. Nor are wages really going up substantially for college-educated workers. The American Dream has become a nightmare for many Americans.
24
@S B Thank you for responding honestly and with civility. I'm a millennial, myself struggling to find meaningful work yet I want to start a family of my own. I keep hearing all this news about a great economy and new jobs being added, but I look around and everyone is hurting. It's nice to know I'm not crazy, I just wish I could do more fix this. For my generation and those to come.
25