Tuesday, May 31, 2022

America's (Ongoing) Civil War

 Answering Kennedy’s Call

Why should it be a surprise that Americans are still fighting the Civil War? Though it is no longer Generals Ulysses S Grant vs. Robert E Lee, it is still being fought with guns, as the latest Uvalde and Buffalo Supermarket carnage with military style assault rifles makes plain.

This is while Canadian Prime Minister Justin Trudeau has just banned the sale of handguns because of rising run violence in Canada! He said, ‘There is no reason anyone in Canada should need guns in their everyday lives’.

The signs of a active civil war are everywhere; with red states wanting almost anyone over 18 years of age to own an assault rifle in the name of a well-armed militia (Florida is the exception at 21 years old after the Parkland, Marjory Stoneham Douglas High shooting); with most of the Republican Party, the party of Lincoln, fomenting theories that colored peoples are inferior in some way; and their denial of President Biden’s win.

And then we have the last President’s followers’ blatant attempt on January 6 to overturn the election results.

It has been states’ rights vs. the Federal government since our founding: with red states keeping most of its citizens poor by denying benefits such as expanded federal health care and union organizing efforts that would boost wages with right to work laws.

Nobel Prize-winner Paul Krugman once highlighted why the poorest states tend to elect conservative politicians, who have not enhanced the economic opportunities of their own constituents.

“And what these severe conservatives hate, above all, is reliance on government programs,” says Krugman. “Rick Santorum declares that President Obama is getting America hooked on “the narcotic of dependency.” Mr. Romney warns that government programs “foster passivity and sloth.” Representative Paul Ryan, the chairman of the House Budget Committee, requires that staffers read Ayn Rand’s “Atlas Shrugged,” in which heroic capitalists struggle against the “moochers” trying to steal their totally deserved wealth, a struggle the heroes win by withdrawing their productive effort and giving interminable speeches.”

But perhaps we have suffered the most casualties in our ongoing civil war from the COVID pandemic.

A NYTimes article by Damien Caves highlighted a study of how Australia, a country very similar to the U.S. in demographics, had a much better outcome from the COVID-19 pandemic. In Australia and in the United States, the median age is 38. Roughly 86 percent of Australians live in urban areas, compared with 83 percent of Americans.

It was as much about having a culture of trust, he said, a culture that recognizes caring for others is as important as caring for oneself because it saves more lives, especially during disasters.

“If the United States had the same Covid death rate as Australia,’ said Cave, “about 900,000 lives would have been saved (vs. one million American lives lost to date). The Texas grandmother who made the perfect pumpkin pie might still be baking. The Red Sox-loving husband who ran marathons before Covid might still be cheering at Fenway Park.”

Instead of trusting each other to do the right thing, many Americans, and past-President Trump as a matter of policy, chose to distrust science and advocate every kind of snake oil cure, as if we were still living in the 1800s.

“In global surveys, Australians were more likely than Americans to agree that “most people can be trusted” — a major factor, researchers found, in getting people to change their behavior for the common good to combat Covid, by reducing their movements, wearing masks and getting vaccinated. Partly because of that compliance, which kept the virus more in check, Australia’s economy has grown faster than America’s through the pandemic,” continued Cave.

Every country has probably had a civil war sometime in its past, as part of its growing pains. Europe has certainly had it share, such as The Hundred Years War. And civil wars have always pitted brothers and sisters against each other.

But why have an ongoing civil war that has lasted 157 years and made lives worse for everyone, since 1865 and the abolition  of slavery. Isn’t it time for US to put our guns away and make peace with each other?

Harlan Green © 2022

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Friday, May 27, 2022

Consumers Disregard Inflation Data

 Financial FAQs


The Federal Reserve’s Personal Consumption Expenditures Index (PCE), its preferred inflation indicator, rose just 0.2 percent in April to mark the smallest increase in a year and a half, aided by a decline in gas prices.

The rise in the so-called personal consumption price index was the smallest since November 2020 and is cheering the financial markets as a first sign that the inflation burden may be easing.

The rate of inflation over the past year, based on the PCE, slowed to 6.3 percent in April from a 40-year high of 6.6 percent in March. It was also the first decline in a year and a half.

This is while consumers’ personal consumption expenditures have risen 6 percent in a year—see the above FRED graph. This graph in one picture shows how much consumer spending has skyrocketed since the pandemic—after just 2 percent average annual growth rates since the Great Recession. It is the highest spending increases since 1980 caused by the record inflation of the 1970s.

But maybe inflation will not be such a problem this time? If inflation continues to moderate—despite the Ukraine war and China’s slowdown—consumers could continue to be the engine of growth without the sky-high inflation of the 1970s that plagued Americans, then. Most of the supply shortages are temporary shocks caused by the pandemic and above-mentioned issues. The U.S. now leads even China (temporarily) as the world’s fastest growing economy while China wrestles with its own COVID crisis.

That is the big question. Corporations have been reporting record profits, and able to pass most of their increased product costs onto consumers. Will they continue to hire more workers at the torrid pace since the pandemic recovery, which will keep consumers happy and continuing their spending ways?

The number of Americans filing new claims for unemployment benefits fell more than expected last week as the labor market remains tight amid strong demand for workers despite rising interest rates and tightening financial conditions.

And with a record 11.5 million job openings at the end of March, layoffs are likely to be minimal and people who lose a job can easily find another one.

The minutes of the Fed's May 3-4 meeting published on Wednesday showed officials commenting that "demand for labor continued to outstrip available supply across many parts of the economy and that their business contacts continued to report difficulties in hiring and retaining workers." Many expected the labor market to remain tight and wage pressures to stay elevated for some time.

We must now wait to see what the Fed’s push to raise interest rates will do to future growth. Will it slow consumers spending and help to slow the prices rises further, averting the re-occurrence of a 1970’s-style stagflation?

Harlan Green © 2022

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Thursday, May 26, 2022

U.S. Economy Resumes Growth In Q2

 Popular Economics Weekly

The panic selling in financial markets of late is in part because first quarter 2022 GDP growth contracted after last year’s huge 5.6 percent growth surge, triggering worries of an imminent recession.

The U.S. economy shrank by a 1.5 percent annual rate in Q1, new government figures show, largely because of a record trade deficit. And corporate profits fell for the first time in five quarters.

But corporate profits are still at record levels, up 12.5 percent YoY, and GDP is still growing 10.5 percent annually. So quarterly statistics that financial markets follow can fluctuate wildly, which isn’t very helpful in looking at longer term trends.


The BEA attributes the first quarter decline in GDP to temporary factors and most economists predict a second quarter resumption in economic activity.

“In the first quarter, an increase in COVID-19 cases related to the Omicron variant resulted in continued restrictions and disruptions in the operations of establishments in some parts of the country,” said the BEA. “Government assistance payments in the form of forgivable loans to businesses, grants to state and local governments, and social benefits to households all decreased as provisions of several federal programs expired or tapered off.”.

In fact, the non-partisan Congressional Budget Office (CBO) that ‘scores’ current legislation for its effect on economic activity said U.S. economic growth will exceed 3 percent in 2022, while “roaring inflation has topped and will cool each month to around 2 percent by some point in 2024,” according to a government forecast published Wednesday.

The CBO estimated that real gross domestic product, or GDP, will be driven by consumer spending and demand for services, according to the report. It revised its estimates for GDP growth in 2023 and 2024 upward to 2.2 percent and 1.5 percent, respectively.

“In CBO’s projections, the current economic expansion continues, and economic output grows rapidly over the next year,” the CBO said in its report. “To fulfill the elevated demand for goods and services, businesses increase both investment and hiring, although supply disruptions hinder that growth in 2022.”

One reason the CBO has become more optimistic about stronger growth—the shrinking budget deficit from increased activity.

The U.S. budget deficit will shrink dramatically to $1.036 trillion for fiscal 2022 from $2.775 trillion last year as a strong recovery prompts a surge in revenues and lower outlays, but slowing growth will start to reverse the trend due to higher inflation and rising interest rates, the Congressional Budget Office said.


U.S. corporations are making record profits as a percentage of GDP—in fact, the highest profits since World War Two, per the St Louis FRED historical graph from 1950 that I discussed in my last blog. During the pandemic it dropped briefly to 8 percent of GDP, but quickly rose to its current 11.2 percent, the best on record.

And consumers are still shopping as if there’s no tomorrow that make up some 70 percent of economic activity. So once again, why should investors be held hostage by shorter-term, quarterly projections that only become valid over the longer term, anyway?

Harlan Green © 2022

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Thursday, May 19, 2022


 Popular Economics Weekly


The Conference Board Leading Economic Index® (LEI) for the U.S. decreased by 0.3 percent in April to 119.2 (2016 = 100), following a 0.1 percent increase in March. (But) The LEI is now up 0.9 percent over the six-month period from October 2021 to April 2022.

Not many economists cite the Conference Board’s Index of Leading Economic Indicators (LEI) that are good at predicting future economic activity. It’s much better than the projected earnings estimates Wall Street traders tend to follow who are pressing the panic button that a recession in imminent.

So why the current doom and gloom with corporations still making record profits and unemployment at record lows?

The LEI is a good predictor of recessions as the above graph shows, with gray bars indicating past recessions and the LEI’s immediate up trend at the end of each recession.

“The US LEI declined in April largely due to weak consumer expectations and a drop in residential building permits,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board…A range of downside risks—including inflation, rising interest rates, supply chain disruptions, and pandemic-related shutdowns, particularly in China—continue to weigh on the outlook. Nevertheless…The Conference Board still projects 2.3 percent year-over-year US GDP growth in 2022.”


U.S. corporations are making record profits as a percentage of GDP—in fact, the highest profits since World War Two, as the St Louis FRED historical graph from 1950 shows. During the COVID pandemic it dropped briefly to 8 percent of GDP, but quickly rose to its current 11.2 percent, the best on record.

And because corporations made record profits over the past year due to the pandemic, earnings growth will slow to historical levels this year, as the law of averages requires. So rather than focus on quarterly trends (i.e., short-term profits), serious investors and fund managers need to focus on the long term, when their investors approach retirement age.

U.S. economic growth must also come down from its 5.6 percent high last year when consumers and businesses burst out of the pandemic; essentially starting from a ground zero of economic shutdowns during March-April 2020.

The flood of new money from the $trillions in aid and record rescue packages have goosed that growth, causing the current inflationary surge. But such spending and inflation will also slow for the same reason.

Prices had stalled at ground zero back then, even fallen into negative territory. So, the law of averages rules once again—demand will slow from its artificially boosted high, while supplies will catch up from their artificially-induced scarcities.

Fed Chair Powell has been attempting to tell us that in his latest press conferences, so why won’t the financial markets believe him? Settling for moderate growth means more sustainable, longer term growth.

Harlan Green © 2022

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Tuesday, May 17, 2022

Booming Retail Sales Belie Recession Worries

 Financial FAQs


The St Louis Federal Reserve graph of April retail sales tells us more than a thousand words that there is no imminent recession. Maybe not even next year, because consumers continue to shop, with auto sales up 2.2%, restaurants and bar sales up 2%.

Gas station sales were down -2.7% because gas prices eased during a war that is about energy supplies. Consumers are shopping as if there is no war or another COVID scare.

The gray bar in the graph is the very short March-April 2020 recession. Consumers have ignored the pundits and doom-sayers since then, and the inflation hawks that said they wouldn’t continue to boost economic growth, which now looks to be on the upswing after the Q1 plunge in Gross Domestic Product.

Sales at U.S. retailers rose a huge 0.9% in April. And the increase in sales in March, was raised to 1.4% from an original 0.7%, the government reported Tuesday.

What does the surge in auto sales and leisure activities tell us? There’s a lot of pent up demand from Americans that don’t want to stay at home any longer with jobs plentiful and salaries surging. Why should they?

Consumers also seem to be ignoring their own consumer confidence surveys, which say they are pessimistic about the future. Both the Conference Board and University of Michigan indexes have been trending downward, of late, because of the fears of rising inflation.

“Consumer sentiment declined by 9.4% from April, reversing gains realized that month,” said Richard Curtin, Director of the U. of Michigan survey. “These declines were broad based--for current economic conditions as well as consumer expectations, and visible across income, age, education, geography, and political affiliation--continuing the general downward trend in sentiment over the past year.”

The Conference Board’s was more in line with actual behaviors. ““Consumer confidence fell slightly in April, after a modest increase in March,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “The Present Situation Index declined, but remains quite high, suggesting the economy continued to expand in early Q2. Expectations, while still weak, did not deteriorate further amid high prices, especially at the gas pump, and the war in Ukraine.”

But both surveys don’t seem to reflect the ebullient behavior of actual consumers. So once again, we have to take any survey with that grain or two of salt by looking at actual behavior.

We are at a classic top of the business cycle when the demand for products and services is sky high and all the factors that restrict supply are causing red hot inflation numbers, as I said last week.

That hasn’t changed, but with summer and vacation travel looming, it doesn’t look like consumers are bothered by rising prices. That could change, of course, as the Fed begins to raise interest rates further.

So why are consumers misbehaving, ignoring their own sentiment surveys? The most obvious answer is we are at full employment and salaries are rising, as I said.

The unemployment rate remained unchanged at 3.6 percent and 428,000 more jobs were created in April, according to the US Labor Dept. so no real sign of weakening employment, one of the first signs of a recession. Industrial production and business investments are also high and show little signs of slowing.

Recessions take a long time to happen, I also said last week, so we need to read what consumers do, if we want to know more, rather than what they say.

Harlan Green © 2022

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Thursday, May 12, 2022

What Caused Such A Terrible Inflation?

Popular Economics Weekly


The St Louis Federal Reserve graph tells us what is going on with April’s plunge in the Consumer Price Index. It’s due to a moderation of soaring gas prices. But food, shelter, and supply shortages haven’t moderated that have also pushed prices higher. 

So, how long will such an inflation persist that is terrifying everyone?

The consumer price index rose just 0.3 percent last month, the government said Wednesday, matching the smallest increase in eight months. The yearly rate of U.S. inflation fell to 8.3 percent in April to mark the first decline in eight months.

Grocery prices have increased 10.8 percent in the past year, the biggest surge since 1981.The cost of rent and housing both rose sharply again in April and helped explain the big increase in the core rate of inflation.

Over the past year the cost of shelter has climbed 5.1 percent to mark the largest gain in 40 years. Shelter costs account for a third or more of a typical household budget. There are shortages everywhere, and such so-called ‘supply shocks’ are the cause of soaring inflation, mainly caused by the pandemic. Another ‘supply shock’ has been the reluctance of workers to return to work after the pandemic, causing a slowdown in production.

One year ago prices were at rock bottom, as were interest rates. Today, the demand by consumers and businesses (flush with cash and cheap loans) for goods and services has gotten ahead of supply chains, in other words. But sooner or later supply will catch up as businesses recover from the pandemic, and demand will slow because rising prices cause spending to slow.

So, is this panic time for the Fed to be jacking up interest rates drastically? No, as I said recently. The Ukraine war and China’s COVID are adding to the supply shocks as well, which is another temporary phenomenon.

Too much government aid that is putting too much money in consumers’ pockets is the conservative answer to bring down inflation, which means they really want to cut back on government spending, in spite of the voting for all the aid packages, including the latest infrastructure bill that will create more high wage jobs.

It is the wrong thing to do at this time, since more government spending is spurring higher production, as well. That’s why Fed Chair Powell said recently he was confident that just two rate hikes of 50 basis points each should be enough to slow inflation for the rest of this year. It should also tame fears about future rate increases, by assuring their predictability.

It also looks like the cost of wholesale goods and services has also peaked, as it rose a milder 0.5% in April vs the prior month. In March, wholesale prices had jumped 1.6% largely because of a surge in oil prices. The increase in wholesale prices over the past year, meanwhile, slowed to 11% from 11.5%, the government said Thursday.

So why the sudden recession fears? Such fears defy both logic and history. Serious recessions take a long time to manifest, as I also said recently.

It took two years under Chairman Greenspan to ring on a recession. The Fed raised its rates 16 times over that term after holding rates below the inflation rate for too long in early 2000, causing the Great Recession. The so-called stagflation wage-price spiral of the 1970s was 10-year period when energy prices soared. That took more years and multiple recessions before Fed Chair Volker brought down inflation by raising interest rates into the double digits.

No one wants that to happen now, of course. Even more important is the recovery from a lingering pandemic, and aiding Europeans in winning their war in Ukraine. Russia is in many ways a failed state with a steadily shrinking economy, a massive brain drain of its best and brightest, and a dictator who believes he is reviving a Czarist Empire from another century.

The world’s economies are still in rehabilitation, and the patient will require considerable longer-term care to bring it to a full recovery.

Harlan Green © 2022

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Friday, May 6, 2022

Why call A Recession Now??

 Popular Economics Weekly


We are at a classic top of the business cycle when the demand for products is sky high and all the factors that restrict supply are causing red hot inflation numbers. The Federal Reserve then must per its mandate to balance employment with price stability step in to restrict credit by raising short-term interest rates, among other measures.

What happens next will determine how high the Fed pushes interest rates to ‘tame’ the inflation tiger, and whether it causes another recession.

What the pundits who predict such things seem not to keep in mind is there are many parts that make a recession, which take a lot of time to happen (see wide spacing between gray bars that indicate recessions in NBER employment graph.).

For instance, there was no recession between 1983 to 1991, and the record 10-year expansion from 1991 to 2001. The expansion from 2009 to 2020 ended by the pandemic also lasted 10+ years.

The National Bureau of Economic (NBER) is the actual arbiter of recessions, and it says: “The determination of the months of peaks and troughs is based on a range of monthly measures of aggregate real economic activity published by the federal statistical agencies.”

And most of the indicators, including employment, consumer spending and industrial production, don’t indicate much of an impending slowdown.


The unemployment rate remained unchanged at 3.6 percent and 428,000 more jobs were created in April, according to the US Labor Dept., so no real sign of weakening employment, one of the first signs of a recession. Industrial production and business investments are also high and show little signs of slowing. Consumer spending is red hot and may suffer most from rising interest rates.

But the real test will be if many of the supply chain shortages can be circumvented, from chip makers who failed to predict the soaring demand for motor vehicles, to a war in Ukraine causing food shortages. And we still have the tail end of the coronavirus pandemic affecting China, a supplier of much of the world’s cheap products.

Under Chairman Greenspan, the Fed raised its rates 16 times over two years, after holding rates below the inflation rate for too long in early 2000, causing in part the housing bubble while allowing the negative interest ‘liar’ mortgages that brought down Lehman Brothers and caused the Great Recession.

And the number of job openings is at a series high of 11.5 million on the last business day of March, although little changed over the month, the U.S. Bureau of Labor Statistics reported on Tuesday. Hires, at 6.7 million, were also little changed while total separations edged up to 6.3 million.

So recessions take a long time to happen, in general, and there are much more important priorities now, including aiding Ukraine in its war with Russia and continuing to fight the pandemic.

Harlan Green © 2022

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen