Apparently, You Do Need a Weatherman to Know Which Way the Wind Blows

By David Stockman  |  July 20, 2018

The glory which is built upon a lie soon becomes a most unpleasant incumbrance…. How easy it is to make people believe a lie, and hard it is to undo that work again!

– Mark Twain, Autobiography of Mark Twain, Volume 2 (2013)

Here’s what I mean when I say the “recovery” is both old and weak.

We’re less than a year from breaking the all-time record for most consecutive months of economic growth. We’re at 109 today; the record’s 119.

We’re no “ageists.” This is not just about the “chronological.”

Of course, there has to be quantity to it. But it’s about quality, too.

Let’s talk about both.

The current expansion peaked in September 2014. “Total nonfarm payrolls” were growing by about 3 million a year.

But the rate of “gain” is weakening. We added the annual equivalent of 2.37 million jobs in June.

This is proof the business cycle is steadily running out of energy.

Overall growth is weak, too.

Real final sales – a reliable short-term gauge of GDP growth – have grown an average of 2.2% a quarter since the fourth quarter of 2016.

That’s a slowdown from the five straight quarters above 3% straddling the back half of 2014 and the first half of 2015.

That’s not to say Barry was doing a better job than the Donald. Presidents have almost nothing to do with any given quarter’s gross domestic product metrics.

Indeed, the run of 3%-plus in 2014-15 reflected the cresting of a China-driven credit, commodity, production, and trade mini-boom.

That reversed sharply in 2016 but temporarily rebounded during the run-up to Xi Jinping’s coronation as the Middle Kingdom’s ruler for life in October 2017.

The Donald and all-weather GOP apologists like Newt Gingrich point to the Atlanta Fed’s GDPNow forecast tool.

Initial readings for the second quarter put growth well above 4%, even approaching 5%.

But recent data have the Atlanta Fed retreating.

But, like the 5% quarter back in 2014, even the current estimate is heavily flattered by non-sustainable gains in inventories and net exports.

Stripped of those elements, the outlook for the quarter is more like 3%.

And even that’s an “if it holds up.”

Indeed, the winds of trade war are blowing. And Corporate America is clearly turning cautious.

So, it’s doubtful either inventories or net exports will even hold at current levels.

Now, about that long-term weakness…

During the 1980s expansion, the job count grew by 2.05% per year. It grew by 1.75% per year during that all-time-best 119-month expansion in the 1990s.

Both phases included heavy quotients of “breadwinner” jobs created.

By contrast, total nonfarm payrolls have grown by only 0.69% per year during this expansion.

And the job mix is far inferior today.

The overwhelming share of gains since the November 2007 peak is part-time jobs.

It’s low-paying stuff in bars, restaurants, retail shops, temp agencies, and nonprofessional health care services. A lot of people have two or three “gigs.”

We’ve created only 1 million breadwinner jobs since Bill Clinton slipped out of the Oval Office in January 2001.

Indeed, at $383 per week (in constant 1982 dollars), real earnings are actually down slightly from a year ago.

They’re up the grand sum of $1 per week since the November 2016 election.

They’re also slightly below where they were in the first quarter of 2009 ($384) and the third quarter of 2001 ($386).

Here’s some “Reaganomics” for you…

Take-home pay is identical to what it was shortly after the Gipper rode out of Imperial Washington in 1989.

You know how U.S. households have maintained even the modest spending growth rates recorded during this recovery?

Well, we’ve taken on more debt. We’ve drawn down our savings down to rock-bottom.

And all of this will make the gathering headwinds feel that much stiffer.

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David Stockman

David Stockman is the ultimate Washington insider turned iconoclast. He began his career in Washington as a young man and quickly rose through the ranks of the Republican Party to become the Director of the Office of Management and Budget under President Ronald Reagan. After leaving the White House, Stockman had a 20-year career on Wall Street.MORE FROM AUTHOR