Economy

Restarting The Economy

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How do you restart the economy? The reality is that no one really knows. The mostly shutdown of most of the economy for a couple of months is unprecedented. Sure, some parts have shutdown for various reasons (usually natural disasters), but the whole U.S. basically turning off businesses at the same time has never really happened. What Is “The Economy?” Part of the trick to understanding reopening the economy is knowing what we are talking about. In a real way, the economy itself never shut down. Money still changed hands, bills were still paid — or unpaid — stocks still traded, shoppers still bought things online, and certain businesses, like grocery stores, never shut down at all. So, what are we talking about? Most states restricted various in-person businesses. The cliche is hairdressers and barbers. However, there were a lot of other, much bigger, sections of the economy that were shut down. Shopping malls, gyms, and perhaps most importantly, restaurants. Are Restaurants The Economy? Although we take them for granted, restaurants make up an enormous part of the economy, as well as the tax base for cities and states. Unlike a hair salon that employs a few people, restaurants can …

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The Not Quite Goldilocks Economy

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The Not Quite Goldilocks Economy 1

Everybody loves the idea of the Goldilocks Economy. Not too hot. Not too cold. Just right. The Fed is leaving interest rates unchanged, and telegraphing that is currently isn’t planning on making any changes next year either. Stock market pundits have given up on calling the impeding doom of a stock market crash (at least for this month). Job reports show job growth, but not too fast of job growth. And while wage are growing, they are doing so slowly. Not Goldilocks However, you won’t see a lot of articles on a Goldilocks Economy happening. While things are definitely not too hot and not too cold, there is a connotation with Goldilocks that things are inherently good. This economy seems more like the negative version of a Goldilocks situation. As in things aren’t too bad, as opposed to things are too good. In a way, this is better for investors and the economy in general. Too much optimism can turn a mild-mannered, almost Goldilocks economy into a runaway bubble and no one wants that. The next year will be very interesting. Once the holidays are past and the country stops paying attention to impeachment in Washington, the reality of just …

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Customer Spending Plus No Inflation is Best

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us wages economy

Interesting story today over on Market Watch. In the decade since the U.S. basically gave up on manufacturing to do it cheaper overseas while building a service economy at home, the only real driver of economic growth is customer spending. As long as customers are buying, American companies can keep importing goods from China and making a profit. Meanwhile, the service economy runs along in the background to give Americans the money to spend. Ironically, the only thing that moves slower than trying to adjust the economy with interest rates is trying to adjust the thinking of economists who insist on pretending that America has basically the same economic structure it did two or three decades ago. This disconnect is the root cause of much of America’s economic stress. Today’s super Goldilocks article notes that American consumer spending increased in July, with (still) no increase in inflation. In the reality of today’s U.S. economy this is literal perfection. Business can continue to grow, consumers can continue to spend, and companies can hire, all with no currency blow back issues. But, old school economists and the money shufflers on Wall Street can’t see this. All they remember are no longer accurate …

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Stock Market Is a Leading Indicator

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leading indicator dashboard

Remember, the stock market is a leading indicator. What Is a Leading Indicator? This should probably get its own post, along with what is a lagging indicator, but that isn’t the point of this article, so let’s hit the highlights. At the most basic level there are leading indicators and lagging indicators. A leading indicator is a measurement of what is to come. A lagging indicator is a measurement of what has already happened. At a metaphorical level, the display on your car that says you have 80% of the life of your oil left is a leading indicator. It is measuring the future. Note that it does NOT predict the future. It’s a best guess effort based on available data. Contrast that with a lagging indicator, which measures something in the past. Metaphorically, this might be the sticker on the windshield that says the mileage of the last oil change, or your maintenance log. In the world of economics, most lagging indicators are big data compiled by the government. You may have noticed that the June Labor Report comes out in July. That’s because you have to wait until the end of June for all the data to even …

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Colorado State Taxes and Finances

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Hey, guess what I found? It’s an economic document focused on Colorado! Whoop! Whoop! Finance Nerd Alert! The Colorado Legislature’s December 2018 Economic Forecast is out. There’s always plenty of good stuff in there for a finance geek to look at and see both how the Colorado economy is doing, and how the Colorado Legislature is managing it. I’ll dig in here in the next day or two, but here are some interesting tidbits so far. Marijuana Taxes Aren’t Everything Despite what the uninformed and misinformed might think, tax collections on marijuana just aren’t that big of a thing compared to the overall budget. If you thought pot taxes would solve all of the governments budgetary needs you were duped, or sorely mistaken. While December isn’t finished yet, it looks like Colorado’s pot tax revenue will come in at about $250 million. That is real money, but it isn’t difference making making. Colorado’s state budget is $29.9 BILLION. That means the $250 million from marijuana taxes doesn’t even make the budget figure unless you carry out more decimals. $250 million is just 0.08% of the State of Colorado’s overall budget. In other words, it’s a blip on the radar. It …

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Neutral Interest Rates

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on the edge

Fed Chairman Jerome Powell made some very interesting remarks where he said he thought that interest rates were “just below” neutral. This is bizarre on many levels. First and foremost, neutral interest rates are perfect interest rates unless your economy is in a recession in which case you want stimulating interest rates, or if you are trying to control inflation in which case you want interest rates that have a constricting effect on the economy to stop price increases. So, if interest rates were close to neutral, and inflation was not increasing, then wouldn’t you want to keep interest rates at neutral? Check out my notes about Ebates and holiday shopping. But, Powell and the rest of the Fed have been telegraphing a December rate increase as loudly as possible. In other words, event though interest rates are “just below” neutral, Powell and company want to raise them. Why? Economy is Teetering The other weird bit is that everyone can see the economy is slowing down, and quickly. Housing starts are way down. Housing sales are decreasing. Both are very much affected by higher rates. The stock market is falling, having erased the whole year’s gains. Also, in very large …

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Fed Raises Rates On Schedule

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The Fed has been telegraphing a September (2018) rate hike for quite some time now, and they followed though with another 0.25 increase today. They also anticipate a December rate hike still this year as well. I mentioned last time, this increase marks the end of the “free” rate increases that really didn’t do much to affect the economy as the rates were laughably low so much so that getting any commercially available rate meant a lot of “padding” in the rate from the Fed rates. This rate increase pretty much ends that. From here on out, ever quarter percent increase goes right into the economy as an increasing headwind. Between political uncertainty, a burgeoning trade war, and an economic expansion getting long in the tooth, it’s my opinion that the Federal Reserve is acting recklessly here pushing ahead with its rate increase timeline without any evidence of inflation, and no evidence of wage growth. In other words, the Fed is raising rates despite there being almost no inflation. Traditionally, this does not work out for the American economy. Every time the Fed starts raising rate for reasons OTHER than fighting inflation, the result is a recession, often a big one. …

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Interest Rates Rising Into the End of the Year

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defenses economy

The Federal Reserve did not increase interest rates at its August 1st (2018) meeting. That was widely expected after the increase from the pervious meeting. Traditionally, the Fed tries not to raise rates in back to back meetings unless it feels like the economy is getting away from them. It allows the markets, and just as importantly, the economic data The Fed relies on to adjust to the previous hike before implementing another one. Rate Hike In September The Federal Reserve Bank did try and telegraph that it is currently looking at another rate hike for September. While the Fed did not raise rates, it did repeatedly say how “strong” the economy was, and how strong all the economic data was. Check out our Digit App review. And, for the first time in a long while, inflation is actually running near the Fed’s so-called target rate of 2%. While the Fed’s actions seem much more like 2 percent is a ceiling, rather than a target, recent data does suggest that inflation is running solidly near the two percent mark, so action is likely warranted. Will Higher Rates Trigger the Recession? Here is where things get tricky. While the Federal Reserve …

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The Fed, Inflation, The Economy

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is recession coming soon

Here is where things start getting tricky. For the better part of the last decade, the U.S. economy has been on an expansion back from the Great Recession. Various measures of recovery show the economy having regained its footing and moving forward. That’s all well and good, but it puts us in a rather odd spot today. The Coming Recession Economies contract and expand. Period. End of discussion. There is no new normal, not this time, not the last time, not the time before that. Every economy eventually runs out of steam and pulls back. Sometimes it’s a brutal collapse. Sometimes, it’s a more gentle, pull back, but there will be a recession. On a strict time-basis, this economy’s expansion is now very old. The official start of this economic expansion is June 2009. That makes it the second-longest expansion in U.S. history. On the one hand, YEA!, on the other hand, it’s like your dog living to be 17-years old. It’s great, but you know there aren’t many years left. If this expansion makes it to mid-2019, it would be the longest in history. Before you break out the champagne, you probably want to know that the longest expansion …

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Is Inflation Real Finally?

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The Fed has been raising interest rates over the last few years based on fears of inflation that never seemed to come to pass. But, with monetary policy still very loose, and investors in a good mood pushing the stock market higher and higher (with a few days of correction last week), the rising rates seemed to have no real effect on the economy. Unfortunately, this is the way economic policy works. Nothing happens, until it does, and then you have to hope that you already got it right. Inflation in January The 12-month rate for wholesale inflation rose to 2.7% for January. That’s a pretty big number, and it’s the first one that actually suggests the Fed’s long feared inflation might actually be real. Before the data came out, the markets (and the Federal Reserve’s dot plot) anticipated three rates hikes in 2018. The current rate is 1.5%, and assuming the Fed follows it’s recent history by raising rates a quarter-percent (0.25%) each time, that means that interest rates would end the year at 2.25%. That’s hardly high, historically speaking, but definately higher than anything this market has seen in a long time. Add-in the fact that the Fed …

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