Sunday, March 12, 2017

A thought for Sunday: for now the economy remains on automatic pilot --and that's good

 - by New Deal democrat

How much, if any, of the economy, has been influenced by the Trump/Ryan GOP government in Washington to date?  With one exception, not much I think.

First of all, while the jobs report was certainly good, was no better than the average report from 2014 or 2015 -- or 4 of the last 8 months, for that matter:

And it wasn't just foreseeable, it was forecast.  For the last 10 years, the nonpartisan Conference Board has published a monthly "Employment Trends Index," an index of leading indicators for jobs.  Here's what it looked like as of Friday:

Notice that there was a jump in the leading index beginning last summer. In the last few months we have seen those leading components feed through into actual job creation.

You know, the leading indicators really do lead, and I've been writing about the economy entering a period of "Indian Summer" for about half a year now.

Secondly, now that the Trump/Ryan regime is halfway through their "first 100 days," what economic policies of any significance have been enacted?  The answer is, none.  All of the Executive Orders have primarily impacted immigration and border controls. No legislation of note has landed on Trump's desk.

The ACA funding repeal hasn't been enacted yet, and may not ever make it through Congress, in particular, the Senate.  Even if it does, while the consequences will be enormous over the next few years, there won't be any immediate economic impact, as increased premiums for older citizens counterbalance the end of the individual mandate, and the unraveling of the marketplace will not only take time, but it won't be until the millions more uninsured start showing up in emergency rooms of  hospitals that the effects are really felt.

So, for now the economy remains on automatic pilot, just as it has been at least since the end of 2014.  And the underlying conditions remain favorable for the next 6 - 12 months.

Finally, there is one exception, where the election appears to have made a difference.  Here is a graph from Bloomberg that confirms what Gallup has been showing since November: while Democrats' economic confidence has declined somewhat -- but only back to it lows for the last couple of years -- GOPers' confidence has surged higher:

That continues to translate into very good readings -- over 10% higher YoY -- in Gallup's daily consumer spending metric (yes, correlation is not causation, but I am unable to think of any other cause):

Given the propensity to save vs. spend, I do not believe that redistribution of income and wealth higher is going to have anything other than bad effects over the longer term as measured by the next few years.  Thousands of people will needlessly die because of the implosion of the health care marketplace. When the next downturn inevitably comes, the Trump/Ryan regime will have no effective palliatives, and no desire to alleviate suffering in any event. And all hell is likely to break loose when the US debt ceiling needs to be raised in a few months.  There are no signs that the House extreme right-wing "Freedom Caucus" is going to change their implacable opposition, and there is no incentive whatsoever for the Democrats to bail the GOP out. 

But that is over the next 2 - 4 years.  For now, automatic pilot means continued job gains and nominal wage growth.