Archive for August 2018

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“How Did You Go Bankrupt?”

August 13, 2018

“How did you go bankrupt?” Bill asked. “Two ways,” Mike said. “Gradually and then suddenly.”   Ernest Hemingway, The Sun Also Rises

This is the literary version of a concern issued many times by the noted economist Rudiger Dornbusch, who liked to say: “The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought.”

Last Friday’s release of the U.S. “Monthly Treasury Report” shows a continuation of the twin trends of declining revenue and increasing expenditures.

corp taxes and deficit

This is the sort of fiscal stimulus that so many lawmakers argued against as the economy was being pummeled during the “great recession.”  Why is this pro-cyclical rather than counter-cyclical policy now a good idea for those same lawmakers?  Historically the U.S. fills its coffers during good times so we are better able to deal with bad times.  Rising deficits in a strong economy should be more upsetting than the latest presidential tweet. What makes the current situation so unusual and more worrying is the low short-term interest rates and the high (and rising) level of federal debt.  As interest rates rise the high levels of federal government, corporate and household debt will reveal the folly of credit-inflated growth.

July 2018 Deficit

Categories: Debt, Federal Deficit, Federal Spending, Fiscal Policy, Tax Revenue, Uncategorized
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Price Pressures are Building in the U.S. Economy

August 10, 2018

There is disagreement among economists over how big a threat is rising inflation. A tame consumer price index and modest U.S. wage growth have many economists arguing against further interest rate increases in 2018. But there are signs that higher prices are working their way into the economy. The most obvious example is in goods that are affected by the trade war (skirmish?) between the U.S. and just about every other nation on earth.  Steel, aluminum, lumber, and washing machines are examples that have increased the price of building materials for new homes, laundry equipment, beverages in cans, and some other consumer goods. Even if the self-inflicted harm of a trade war disappears, however, consumers are likely to begin feeling price hikes. So much of what consumers purchase is transported via truck that recent increases in transportation costs (see graphic), unless abated, will soon affect consumer prices.

Truck Transportation Prices

We see this with gasoline price spikes and their resulting impact on grocery prices. Today, strong demand and worker shortages in the trucking industry are dramatically raising the cost of truck transportation services that will eventually work their way into consumer prices.

Categories: consumers, Interest Rates, prices, U,S, Economy, Uncategorized
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More Workers are Quitting Their Jobs and Getting Better Pay

August 7, 2018

U.S. job growth remains strong while real wage growth remains tepid despite a 3.9 percent unemployment rate nationally, but things may be changing. It is unlikely that companies can hold the line on wages – and depress real wage growth – when low unemployment encourages workers to quit their jobs in search of a higher salary. The rate at which workers are voluntarily leaving their jobs (the “quit rate”) is as high as it has been in 17 years (see graphic) as measured by the U.S. Bureau of Labor Statistics  “Job Openings and Labor Turnover Survey” (JOLTS).Quit Rate

This indicates a strong labor market where workers are confident that if they leave their job they can easily find another. The prospect for higher wages is a big reason. The Federal Reserve Bank of Atlanta’s wage measure for job switchers — people who leave one employer for another — reached 4.4% in March and is at 3.9% in June, well above wage growth for workers overall. It is a good environment for workers facing stagnating real wage growth to start looking for better pay, forcing firms to boost compensation to attract and retain employees. Although this is good for consumer spending, corporate profit margins may get pinched unless employers can cut costs elsewhere.

Categories: job growth, Uncategorized, Unemployment, wages
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