Fitrst Quarter Economic Growth Improves

 Financial FAQs

Real gross domestic product (GDP) increased at an annual rate of 2.0 percent in the first quarter of 2026 (January, February, and March), according to the advance estimate released today by the U.S. Bureau of Economic Analysis. In the fourth quarter of 2025, real GDP increased 0.5 percent.

BEA.gov

“The U.S. economy has just powered through shock after shock,” was Fed Chair Powell’s summation of the state of the U.S. economy at his last press conference as Federal Reserve Chairmen.

First quarter 2026 real (inflation adjusted) GDP growth picked up +2.0% in the government’s first estimate, following +0.5% growth in Q4 2025, thanks to the $billions being spent in AI energy center build outs.

Kevin Warsh will take over as the new Fed Chairman in May, so there is speculation that he will push for easier monetary policy as President Trump’s pick for the new Fed Chairman by lowering the Fed’s interest rates and a more hands off management style.

Trump badly needs easy credit to maintain growth because of his economic mismanagement. A barely functioning government is either tied up in congress with the various shutdowns (last fall and current DHS funding), while illegal tariffs have choked supply chains.

Meanwhile, to Powell’s consternation, economic growth is picking up “through shock after shock”, from the Great Recession, COVID-19 pandemic, the 37-day fall government shutdown, tariffs, and the various wars that have caused energy prices to skyrocket.

The AI build out was predicted to boost growth, consumers continued to hold up their end, and government spent more on the Ukraine and Iran wars. The Defense Department reported the Iran war has already cost $25 billion in just the first two months.

And the financial markets continue to rally to new highs, so we are seeing some irrational exuberance, despite the game of chicken by Iran and Trump over the Hormuz Strait blockade. It’s obvious market investors continue to believe that Trump with his TACO policies will find a way to extricate American out of his latest war sooner rather than later.

But it also means $4 plus gas prices and soaring inflation for months to come. Even if the Iran war is settled sooner, predictions are that Middle East energy production won’t be restored to previous levels for at least one year.

The real problem is the Trump administration’s economic mistakes have taken us back to a Cold War economy—more military spending, fewer government social services, while endangering the good faith and credit of the U.S. federal government as the debt continues to balloon.

Something has to give, in other words. The financial markets won’t rally forever on the AI investment bubble, and consumers won’t keep shopping until they drop without an ensuing downturn.

The question is when on so many fronts. When will the wars end? When will enough consumers realize prices won’t come down and elect a congress that will control Trump’s extravagance and greed before he bankrupts the American economy?

When will it be one shock too many that drives us into another recession?

Harlan Green © 2026

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

How Do We Repair Our Economy?

Financial FAQs

“The time to repair the roof is when the sun is shining. [State of the Union Address January 11 1962]” President John F Kennedy

 

President Kennedy’s maxim at his 1962 State of the Union address—the almost universal truth that the time to ‘repair’ our economy is when times are good—may seem dated today. At one time it was possible, but not for everyone today.

We have record federal debt fueled by a succession of economic blows—sequential tax cuts that didn’t pay for themselves, recessions, the COVID-19 pandemic, high tariffs, and several wars over the past decades.

And foreign investors are fleeing U.S. government bond markets that literally finance one-quarter of our federal debt because of it, driving up interest rates. Our ballooning federal debt is fast crowding out other government spending; maybe even reducing social security benefits in about 10 years.

Now is the time to repair our economic ‘roof’ while times are good. We have soaring financial markets and 3% annual GDP growth rates that have powered economic growth of late to pay down the soaring federal debt that is already at World War II levels as a percentage of our Gross Domestic Product.

Alas, there is no agreement on how to repair our debt problem. This is while another war is creating a 1970’s-style stagflation that will add $trillions more to the deficit.

International Energy Agency (IEA) officials, such as Fatih Birol, say the current Iran crisis is more severe than the oil shocks of 1973 and 1979, and the 2022 Ukraine-war shock, combined.

And businesses are not hiring new workers because of the economic uncertainty. It is fostering what has been called “The Great Hesitation” by the Wall Street Journal.

The WSJ cited the Baker, Bloom and Davis Economic Policy Uncertainty Index, a widely watched measure of policy-related uncertainty, that has surged to levels “typically seen during situations like the 2008 financial crisis (i.e., Great Recession) and the early months of the Covid-19 pandemic.”

Republicans aren’t showing much concern about the expanded deficit on their watch. Firstly, the highest tariff taxes since 1930 at the onset of the Great Depression has sharply raised every day prices. And the Trump administration’s immigrant shutdown is depriving the U.S. economy of enough new workers to replenish our labor force.

This is in part because Trump and the Republican Party have been unable to rein in the blatant racism of its Christian Nationalists’ policy that has branded almost all immigrant as undesirables. It has brought immigration to a trickle that once averaged one million entrants per year.

Yet immigrants have literally been the life blood of our economy and seed of economic growth. Stanford Business School studies have shown that immigrants represent nearly a quarter of the U.S. workforce in science, technology, engineering, and mathematics and more than a quarter of the nation’s Nobel Prize winners.

President Clinton was able to create actual budget surpluses in his last four years—from 1996-2000—by negotiating with congress to limit government spending on the military as well, until GW Bush busted the federal budget once again with Republican tax cuts while borrowing $trillions more to fight his wars on terror after the 9/11 attack.

How naïve President Kennedy sounds today when he said in 1962, “Members of the Congress, the Constitution makes us not rivals for power but partners for progress. We are all trustees for the American people, custodians of the American heritage.”

We need to repair more than the roof to survive as a democracy. But we must first realize we live under the same roof.

Harlan Green © 2026

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

Why the Decline in Job Vacancies?

 Financial FAQs

“The number of job openings was little changed at 6.9 million in February, the U.S. Bureau of Labor Statistics reported today. Over the month, hires decreased to 4.8 million, and total separations changed little at 5.0 million.” BLS.gov

FREDjobopenings

The Labor Department’s Job Openings and Labor Turnover Survey (JOLTS) was bad news for workers, as per the slide in available jobs portrayed in the above graph of monthly job openings.

It has now fallen to just 6.9 million in February 2026, the total of available nonfarm payroll jobs tallied by the Labor Department. Actual job hires fell to 4.8 million while 5.0 million left the workforce, a net loss of 200,000 jobs.

The Iran War will add to the damage that has already been done to the U.S.—and maybe worldwide—economy from the single-minded focus on what is most important to President Trump and his Robber Barons; bringing back another Gilded Age with its ultra-consolidation of wealth that has caused record public debt that is being paid for by American taxpayers. 

Former Clinton Labor Secretary Robert Reich listed the economic damage from Trump’s first term alone. He (Trump) pledged to be “the greatest jobs president that God has ever created.”

He’s been the worst jobs president in American history. In his first term, Trump presided over a historic net loss of nearly 3 million jobs, the worst jobs numbers ever recorded under an American president, as tabulated by FactCheck.org.

FactCheck.org showed more the decline in Trump’s first term:

· The international trade deficit Trump promised to reduce went up. The U.S. trade deficit in goods and services in 2020 was the highest since 2008 and increased 36.3% from 2016.

· The number of people lacking health insurance rose by 3 million.

· The federal debt held by the public went up, from $14.4 trillion to $21.6 trillion.

And President Trump month-long war with Iran is adding to the damage with the blocked petroleum supply chain that provides so many necessary byproducts—such as fertilizer, natural gas and helium, for starters.

“After a month, your war has already cost 13 American lives, cost American taxpayers at least $30 billion, cost American consumers at least a dollar more per gallon of gas than they paid a month ago, pushed up food prices and mortgage rates, and pushed down the value of 401(k) retirement plans. It’s mangled supply chains for industries that rely on items such as fertilizer to grow food or helium to make computer chips,” said Professor Reich

So we shouldn’t be looking at the 1970’s era of stagflation for a result from the Iran War because of the damage already done in President Trump’s second term, whether the Strait is closed, or not. It may take longer to materialize but look more like another Great Recession, I said recently, that was caused by the economic mismanagement of another Republican administration involved in a Middle East war.

A key will be watching the employment picture this week, especially the Labor Department’s Friday unemployment report.

Harlan Green © 2026

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

Where is the Inflation?

 

Financial FAQs

“When I took office, inflation was the worst in 48 years, and some would say in the history of our country. President Donald Trump

FREDcpi

No, just a cursory look at the St. Louis Fed’s above graph of the Consumer Price Index dating from 1970 shows that 48 years ago the Arab oil embargo of the 1970s spawned the mother of all stagflations sending consumer inflation to 14 percent in 1980.

The Trump administration is crowing about the weaker November inflation numbers cited in the BLS graph, but who will believe the data when he fired the head of the Bureau of Labor Statistics (BLS) that produces the report because he didn’t like the unemployment revisions in September?

Certainly not consumers, as their sentiment index via the University of Washington sentiment survey has fallen steadily from its high of 74.0 last December to 52.9 this December.

The belief problem was most evident in Trump’s recent prime time, 20-minute Oval Office address quoted above, that showed the leader of our government no longer has any grasp on reality, only his lies and fantasies.

Whereas the Biden administration had brought it down to 3.0% last December. It only began to rise again since Trump’s April 2 retaliatory tariff announcements.

Perhaps Trump’s biggest lie was that “Much of this success has been accomplished by tariffs. My favorite word tariffs, which for many decades have been used successfully by other countries against us, but not anymore.” and that the tariffs are bringing “billions” back to the American economy.

No, tariffs are an import duty taking money out of the pockets of Americans from the higher prices that have resulted. Though, they could be refunded to the importers that paid the duties if most of the tariffs are repealed by the Supreme Court, as expected. But don’t count on prices coming down anytime soon that have become imbedded since then.

The inflation report was deceptive in that though the overall inflation rate fell to 2.7 percent from 3.0 percent most components rose over the year.

“In November, the Consumer Price Index for All Urban Consumers rose 2.7 percent over the last 12 months, not seasonally adjusted. The index for all items less food and energy increased 2.6 percent over the year (NSA).” BLS

The index for all items less food and energy rose 2.6 percent over the past 12 months. The shelter index increased 3.0 percent over the last year. Other indexes with notable increases over the last year include medical care (+2.9 percent), household furnishings and operations (+4.6 percent), recreation (+1.8 percent), and used cars and trucks (+3.6 percent).

The most harm to American pocketbooks will be skyrocketing energy prices as the massive build out of AI centers will need tremendous amounts of power. That’s why the energy index for electricity increased 6.9 percent over the last 12 months and the index for natural gas rose 9.1 percent.

Maybe the saddest part of Trump’s address was his nonsensical, desperate hyperbole: “We're doing what nobody thought was even possible, not even remotely possible. There has never, frankly, been anything like it. One year ago, our country was dead. We were absolutely dead.

Yet the U.S. had the fastest economic recovery in the developed world from the COVID-19 pandemic under Joe Biden with full employment and GDP growth in the 2-3 percent range.

No, we are not dead. And recent political surveys are showing that American voters in recent elections are waking up to the damage being done by Trump and his oligarchs to the many Americans in just one year who have lost jobs, and healthcare coverage, and protection from the worsening floods, wildfires, and hurricanes that Trump calls “a hoax”, all in the name of enriching themselves.

Harlan Green © 2025

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

Trump Imitates Putinism

Popular Economics Weekly

“Russian mathematician and Putin critic Andrey Piontkovsky characterized Putinism as "the highest and final stage of bandit capitalism in Russia; and also as a war, 'consolidation' of the nation on the ground of hatred against some ethnic group, attack on freedom of speech and information brainwashing, isolation from the outside world and further economic degradation". Wikipedia

Medium.com

The latest Ukrainian peace proposal was negotiated between President Trump and Vladimir Putin without Ukraine’s involvement. This is another example of Donald Trump’s attempt to curry favor with Vladimir Putin by literally allowing Putin to dictate the terms of the peace proposal.

Why has Trump turned into Putin’s messenger, whose policies mirror Putinism? Why has the oldest liberal democracy in the world, a nation of immigrants founded on the principle of every member’s inalienable right to be free become the “bandit capitalism” of Vladimir Putin, a dictator who allows no freedoms and kills his own people?

Late-stage capitalism doesn’t fully explain why Donald Trump, a real estate developer with no political experience, could convert a weakened American Democracy into a version of capitalism that concentrates power and wealth in the hands of his oligarchic supporters blatantly ignoring America’s founding principles and laws of the land.

But epidemiologic disease models studied by medical researchers can explain how capitalism could morph into Putinism and bandit capitalism. Such models have shown that there are predictable paths that all epidemics, pandemics, or other contagious disease outbreaks follow from beginning to end.

The body politic of countries and regions (i.e., “the people of a nation, state, or society considered collectively as an organized group of citizens) have endured political outbreaks with similar characteristics. Even civil wars fit this infectious disease model, because they originate internally—brother or sister against each other—and may last longer than years, and suddenly end in unexpected ways.

How do diseases infect? The Black Plague epidemics usually infected people that had been weakened by famines or dysfunctional governments, and the more recent Spanish Flu and COVID-19 pandemics as well that infected and killed millions.

When do such pandemics wane or disappear? They run a recognizable course from inception to a maximum infection rate, then subsided when disease-infected populations eventually found ways to cause their decline. It was quarantines in early times, and vaccines in modern times.

Trumpism, Putinism, and like autocracies or dictatorships have captured weakened political systems. In Russia it was breakup of communism and the Soviet Empire that fostered a Vladimir Putin. In Trump’s case, he took advantage of a democratizing order that had united to win World War II but no longer served many Americans.

Oligarchism, or the Gilded Age model has supported Trump’s version of bandit capitalism with his illegal tariffs that are creating the worst income inequality in the developed world. Trump is promoting a similar hatred of immigrants as Putin, also non-white ethnic and religious groups, attacks on freedom of speech in universities, and Depression-level tariffs that is isolating America from the “outer world”.

The AP just reported that President Donald Trump says he wants to “permanently pause migration” from poorer nations and is promising to seek to expel millions of immigrants from the United States by revoking their legal status. He is blaming immigrants for problems from crime to housing shortages as part of “social dysfunction” in America and demanding “REVERSE MIGRATION.”

He has also followed Putin’s strategy by weakening foreign alliances such as NATO, and breaking up long held foreign trade alliances, all to centralize his power.

But the MAGA movement itself may be in a late-stage decline, as it is slowly disintegrating from internal divisions, with the resignation of major leaders such as Marjorie Taylor Green, growing disputes over policies including tariffs and the treatment of immigrants.

And Donald Trump, its leader, is showing signs of declining health—with fewer public appearances (that also afflicted former president Biden), irrational outbursts and making sudden policy changes without explanation. The MAGA movement has blindly followed him, believing in totally irrational conspiracies until the conspiracies are debunked or and fade away (just as did the flu and COVID-19 pandemics).

The first Gilded Age was defeated by the election of President Teddy Roosevelt riding on the wave of a progressive movement that uncovered the corruption and concentrated wealth of the time.

Trump doesn’t even attempt to hide his blatant corruption nor his promotion of the disease of Putinism that is attempting to destroy American Democracy. So it will take constant vigilance to identify and combat such a widespread contagion, as we have defeated past diseases of the 'body politic', and bring Americans together once again in common purpose to preserve our democracy.

Harlan Green © 2025

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

 

Why Are Americans So Unhealthy?

 Financial FAQs

“Americans have just avoided another health care disaster in voting down the Senate’s ‘skinny’ Obamacare Repeal and Replace bill. Even though maintaining most of the taxes to pay for the Medicaid portion, it would have made insurance coverage prohibitively expensive for those older and sicker users with the removal of the private and employer mandate requirements that would cause younger and healthier people to leave the insurance markets.” Harlan Green Huffington Post

Graph: Last Tech Age

I wrote this in 2017 when Republicans had almost succeeded in repealing Obamacare, the Affordable Care Act (ACA) during President Trump’s first term.

And they are at it again by refusing to negotiate their continuing resolution (CR) with Democrats that has caused the latest government shutdown. The Democrats have been asking to keep the Obamacare subsidies in the CR that help to finance the Obamacare premiums for older and sicker folks. It’s 2017 all over again.

Republicans couldn’t repeal Obamacare then but they are about to succeed this time by allowing the Obamacare subsidies that keep premiums affordable for the 30 million users to lapse at the end of this year.

\Americans already have the worst health outcomes in the developed world, precisely because America is the only developed country—in fact, even of undeveloped countries—that doesn’t have universal coverage.

The result is one of the highest birth death rates, as well as diabetes, heart and other infectious disease rates—which are diseases usually associated with poorer, undeveloped countries and regions.

Why have Republicans been able to prevent a universal healthcare system that insures Americans that almost every other country in the world provides for their citizens?

I believe a major reason is because the U.S. has the highest income inequality in the developed world, as measured by the Gini Inequality Index that is accepted by economists. The U.S. is in 34th place of the 149 countries as ranked by the CIA’s World Factbook; with a Gini inequality index (41.8) like Bolivia and Djibouti. Whereas Denmark (29.3) and the European countries are at the top of equality rankings. The higher the index, the greater the gap between wealthy and poorer citizens of a country’s population.

Republicans have made more than 30 attempts to repeal President Obama signature achievement that required private health insurers to cover clients with existing illnesses for the first time.

A 2016 Commonwealth Club study listed Obamacare’s benefits. “…evidence indicates that the ACA has likely acted as an economic stimulus, in part by freeing up private and public resources for investment in jobs and production capacity. Moreover, the law’s payment and other cost-related reforms appear to have contributed to the marked slowdown in health spending growth seen in recent years.” Health care spending growth per person—both public and private—has slowed for five years.

· A number of ACA reforms, particularly related to Medicare, have likely contributed to the slowdown in health care spending growth by tightening provider payment rates and introducing incentives to reduce excess costs.

· Faster-than-expected economic growth and slower-than-expected health care spending have led to multiple downward revisions of the federal deficit and projected deficits.

· These trends have also been a boon to state and local government budgets, as job growth has improved state tax revenues while cost growth in health care programs has slowed. At the same time, expanding insurance to millions of poeople who were previously uninsured has supported local health systems and enhanced families’ ability to pay for necessities, including health care.

The benefits of Obamacare have become blindingly obvious since it was enacted in 2014, which for the first time required private health insurers to cover people with existing illnesses. So why have Republicans continued to oppose it?

Combined with RFK, Jr.’s cuts to the Department of Health and Human Services, Americans’ health outcomes will get even worse, making working Americans less productive.

Why shouldn’t affordable healthcare be a right for the poorest, as well as the wealthiest? Maybe even Republicans might begin to ask why?

Harlan Green © 2025

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

We Can Fix the Housing Shortage

 The Mortgage Corner

“Privately-owned housing starts in July were at a seasonally adjusted annual rate of 1,428,000. This is 5.2 percent above the revised June estimate of 1,358,000 and is 12.9 percent above the July 2024 rate of 1,265,000. Single-family housing starts in July were at a rate of 939,000; this is 2.8 percent above the revised June figure of 913,000.” US Census Bureau

FREDconstruction

The housing shortage is something most of us worry about but are helpless to fix, it seems. There are many culprits—the NIMBY crowd that won’t allow more affordable housing near their single-family homes in cities, too high mortgage rates, but most of all the seeming inability of builders to supply enough new homes due to the shortage of construction workers.

First some history. Originally, much of it was due to the busted housing bubble that led to the Great Recession in 2008. More than one million new homes were built than could be sold, a classic example of oversupply. This resulted in just 600,000 new homes being constructed annually until 2012 when the Fed began its quantitative easing policies under Fed Chair Ben Bernanke that dropped 30-year fixed mortgage rates below 5% for the first time since the 1970s.

This is why I’m using residential housing construction as a good way to measure housing supply in the above FRED graph of housing construction. Starts have hovered around 1.4 million units since 2022 and the end of the COVID-19 pandemic (gray bar).

Construction had soared immediately after the pandemic due to the rock-bottom 30-year fixed mortgage rates, then plateaued to the current 1.4 million. But the Fed raised the rock-bottom rates to combat surging inflation and fixed mortgage rates soared to 7%, making housing purchases almost unaffordable to first-time, entry level buyers.

So, we know high mortgage rates are a major component of the housing shortage. But we can also answer maybe the largest part of the problem, the lack of new homes as highlighted in a recent Forbes Magazine article. Trump’s immigrant sweeps are not only hurting housing construction, but the job market in general.

“Immigrants make up 34% of the construction workforce, according to the Associated General Contractors of America. In states like California, Texas, New Jersey, Florida, Georgia and New York, they account for about half. Construction drives 4.5% of U.S. gross domestic product, making it the country’s tenth largest industry.

“Broaden the view and the impact grows. Residential housing, once you include rent and utility payments, fuels 15 to 18% of GDP, according to the National Association of Home Builders. Add commercial building to the mix and construction rises to the top of the chart.”

The good news what may come out of the housing shortage and homeless scourge. The highly unpopular immigrant sweeps of ICE agents invading homes, public streets, and workplaces.

The sharp drop in nonfarm payrolls in the last three unemployment reports is being blamed on the loss of possibly one million immigrants from our labor force, according to labor economists. This will hurt economic growth, because immigrants have traditionally supplied one million new Americans each year to our rapidly declining population growth rate.

Forbes cites a working paper published this month from the American Enterprise Institute (AEI), a conservative economics policy center, that found the Trump administration’s immigration policy will “likely result in a negative net migration in 2025—something the U.S. has not experienced in decades”—that would shrink labor participation and “put significant downward pressure on growth in the labor force and employment.”

It's a very sad tale. Trump’s Republicans have turned their backs on what has been the life blood of American Democracy that we can do little about without  without recognizing that we can't do it without immigrants.

Harlan Green © 2025

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

Stagflation Vs. Recession?

 Popular Economics Weekly

Total nonfarm payroll employment rose by 228,000 in March, and the unemployment rate changed little at 4.2 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in health care, in social assistance, and in transportation and warehousing. BLS.gov

FREDunemployment

Is the good March unemployment report a sign of stagflation or recession? The 228,000 jobs created and unemployment rate just up to 4.2 percent may not mean much with Trump’s declared trade war on the rest of the world. It could be the calm before the storm.

President Trump’s completely insane “Liberation Day” announcement of tariffs on 180 countries including uninhabited islands could be creating a worldwide depression as countries decide whether to do business with US or go elsewhere.s It could slow down foreign trade to a trickle with the product shortages that will ensue, as happened with the COVID-19 induced supply shortages.

Looking at past history in the FRED graph of the unemployment rate to predict what will happen next, with the six gray bars indicating recessions since 1980, won’t help much. The unemployment rate rose sharply after the last recessions began.

Only someone as crazy as Trump believes he can take on the whole world and they won’t retaliate. It also makes no economic sense to base the tariffs on the budget imbalances of goods but not services. We export more services, such as software, than we receive from the EU, for instance, says Nobel laureate Paul Krugman, which brings the actual trade deficit with the EU close to zero. Was this dreamt up by Musk’s DOGE teenagers, I wonder?

There are many other factors that determine the start of a recession, such as economic growth. We already have predictions that Q1 GDP could shrink for the first time since the COVID-19 recession.

Chief economist Torsten Slok of Apollo Global says a recession can happen if the tariff hikes are not negotiated down in the next couple of months.

Fed Chair Powell believes a stagflationary period is more likely in his latest remarks. “While uncertainty remains elevated, it is now becoming clear that the tariff increases will be significantly larger than expected,” he said at a business journalism conference in Virginia. “The same is likely to be true of the economic effects which will include higher inflation and slower growth (which is the definition of stagflation).”

The 228,000 new jobs created in March didn’t prevent the continuing financial market meltdown, as investors are waiting to hear who will retaliate against Trump’s “Liberation Day” tariff hikes. The DOW Jones lost more than -$2200 points on Friday.

China was the first to respond with retaliatory tariffs, announcing that 34 percent. Trump’s 34 percent levy means the total of all tariffs on Chinese imports now totals 54 percent.

“China urges the United States to immediately cancel its unilateral tariff measures and resolve trade differences through consultation in an equal, respectful and mutually beneficial manner,” the ministry said, according to a Google translation.

Vietnam is also offering to negotiate, but it wants zero reciprocal tariffs, whereas Trump is saying that a bottom-line 10 percent tariff rate will remain on all imports.

I also see a period of stagflation with the strong employment data. The 228,000 nonfarm payroll increase was slightly higher than the average monthly gain of 158,000 over the prior 12 months, which is why I see slower growth rather than a recession this year. But all bets are off if the tariffs aren’t negotiated down.

Interest rates are plunging as fears of a recession mount and Realtors are already reacting. Lawrence Yun, the NAR’s chief economist says, “The future direction of the economy remains uncertain due to tariff wars and potential negotiations. In the meantime, interest rates on FHA and VA loans could soon drop below 6% in a matter of days. Rates on conventional and jumbo loans are also declining as money shifts from stocks to bonds. The current job additions and decreasing rates are likely to lead to more home sales…Be prepared.

$Trillions have already been lost because of Trump choosing to be the bully and fight with congress and the courts rather than negotiate the tariff hikes and DOGE job cuts up front. And Americans, as well as much of the world, will be paying for it.

Harlan Green © 2025

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

Fewer Jobs Available

 Financial FAQs

“It’s gotten harder for the unemployed to find work: Job openings in the U.S. fell at the end of 2024 to the second lowest level since the end of the pandemic.” MarketWatch

FREDjobopenings

Job vacancies reported by the Bureau of Labor Statistics have dropped from 8.2 million to 7.6 million openings in just one month. And this is becoming worrisome with the financial markets’ uncertainty over the effects of the federal government efficiency drive that President Trump is promising.

“It’s also taking people who lose a job a lot longer to find one. The number of people collecting unemployment benefits has risen to the highest level since 2018 if the pandemic years are omitted,” said Marketwatch.

This is having an impact on consumer confidence, needless to say, since consumers tend to become more cautious in their spending ways at such times. The Conference Board survey wasn’t upbeat.

“All five components of the Index deteriorated but consumers’ assessments of the present situation experienced the largest decline. Notably, views of current labor market conditions fell for the first time since September, while assessments of business conditions weakened for the second month in a row,” said its Chief Economist, Dana Peterson.

Why the doubts when the just elected Republicans are touting they can cure the budget deficit with a tariff war, which the Wall Street Journal just headlined was “The Dumbest Trade War in History.”

None of this is supposed to happen under the U.S.-Mexico-Canada trade agreement that Mr. Trump negotiated and signed in his first term, according to WSJ’s Editorial Board.

“The U.S. willingness to ignore its treaty obligations, even with friends, won’t make other countries eager to do deals. Maybe Mr. Trump will claim victory and pull back if he wins some token concessions. But if a North American trade war persists, it will qualify as one of the dumbest in history,” says the WSJ.

Then there are the ongoing deportations which will hurt service industries like leisure, transportation, healthcare, and construction which employ a majority of immigrants, especially in the smaller businesses.

The number of job vacancies reported by companies was lowest after the 2008 Great Recession and began the steady climb to 7 million just before the COVID-19 pandemic 7.6 million job openings has stabilized over the past several months, indicating that the job market and so the unemployment report hasn’t changed. There were 5.5 million hires and 5.3 million separations (i.e., left their jobs), indicating that some 200,000 new jobs were created, which will be confirmed in Friday’s official unemployment report.

All three major stock market indexes have been seesawing since Trump enacted, then suspended the Mexican and Canadian tariffs, but not the Chinese 10% tariff. So, it is really up to the new administration to calm the markets, if they don’t want more investors to head for the exits.

And how will the threatened firing of FBI agents calm the waters? Who will then protect us from domestic and foreign terrorists?

Harlan Green © 2025

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

Trump, the Lucky Loser

 Answering Kennedy’s Call

“Born to a rich father who made him the beneficiary of his own highly lucrative investments, Trump received the equivalent of more than $500 million today via means that required no business expertise whatsoever.”

Random House

In just Donald Trump’s first week in office, it’s becoming obvious that the illusions he lives under will be no different than during his first term as president. He is counting on the American electorate to not believe what they are seeing.

For instance:

Climate change—"drill baby drill” for more fossil fuels when we are experiencing the worst climate disasters in history due to global warming—e.g., horrific wildfires, tornadoes and hurricanes.

Healthcare—Leaving WHOrg that monitors worldwide pandemics, and censoring the CDC and other government healthcare watchdogs’ research while releasing their results only after they have been vetted by his political appointees.

Military preparedness—now allowing military service members not to be vaccinated for COVID-19 and reinstating service members with full pay who were discharged for refusing vaccines.

Immigration—Saying he will deport millions of undocumented immigrants, when it will reduce badly needed workers in low-paying jobs that American citizens aren’t taking.

Tariffs—Asserting he would raise tariffs as high as 50 percent on nations with huge trade imbalances viz the U.S., when economists are saying it will be inflationary, and in Nobel Laureate Paul Krugman’s words, “make us poorer.”

Public education—Wants to abolish Department of Education that supports the 80 percent of students in public schools.

Tax cuts—Just extending his first term tax cut beyond 2025 when it is scheduled to expire and could add as much as $5trillion to the already bloated federal budget deficit, which could cause investors to lose faith in the US Dollar.

President Trump’s real intentions are already becoming clear in his second presidential term in office. He and his Oligarchs want to steal the US Government blind, as I said last week, by keeping Americans and the media as blind as possible to what he intends.

Why does Trump continue policies that will only harm more Americans while enriching himself and his oligarch supporters?

This was highlighted in Pulitzer Prize-winners Russ Buettner and Susanne Craig’s just released book, Lucky Loser that raises a bigger question in a Washington Post review by Bethany McLean about the ‘fake it ‘til you make it’ ethos of modern America. In a world that conflates the ‘trappings of wealth with expertise and ability,’ where ‘fame, detached from any other marketable talent or skill,’ is ‘a highly compensated vocation,’ does it even matter if you never actually make it?”

The outright distrust of truth is a propaganda tool used by autocrats that public media has normalized. This probably tells us best why he was able to take over the Republican Party that has drifted so far from conservative values and was once the environmental party when Republican President Nixon signed the U.S. Environmental Protection Agency into law in 1970.

So will he be more successful in passing his promises in his second term? We should ignore some of his most nonsensical executive orders, such as attempting to amend the 14^th Amendment by decree that guarantees citizenship for anyone born in the U.S. 50 states and territories, which he knows can’t be done by decree or executive order.

But the furor that it and the immediate release of 1500 January 6 Capital attackers from prison, mostly convicted felons, will generate enough attention that it will cloak his real intention; reduce or eliminate as many government programs as possible that make life better for ordinary Americans, such as Medicaid, in order to fund more tax cuts.

He has already rescinded the Biden executive order to cap Medicaid spending on drugs that would save Medicaid $billions in costs.

“In reversing the executive order Biden signed in 2022, Trump halted an effort to cap the copayment for generic medications at $2 for Medicare beneficiaries, along with another program that would see Medicare pay less for drugs that receive accelerated approval from the Food and Drug Administration,” according to MarketWatch’s Jessica Hall.

And there is also the question of what Trump will do with regard to the prescription-drug provisions in the Inflation Reduction Act, which would be substantially more consequential. Under the Inflation Reduction Act, Medicare can negotiate the prices of certain prescription drugs with the aim of making drugs more affordable for older adults and people with disabilities.

He continues to throw bombs at the public media by announcing he will seek retribution from those prosecutors that sought his indictment for the various crimes he committed during his first term, such as January 6, withholding Top Secret documents at Mar-a-Lago and elsewhere, while hoping to erase the Grand Jury indictments in some way.

And he will eventually have to settle the $500 million in awards won by women he defamed. So it’s no wonder that he will use his immense power that is meant to protect U.S. citizens to protect himself instead, at their expense?

Harlan Green © 2025

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

How Much Do We Care?

 ANSWERING KENNEDY’S CALL

“Robert F. Kennedy, Jr., the proposed secretary of the Department of Health and Human Services, would undo all of this.  On his watch, were his ideas implemented, millions of us would die.  Knowing that our lives will be shorter, we become nasty and brutish.”

NPR.org

This is a question I asked in 2017. What country had the second-highest mortality from noncommunicable conditions — like diabetes, heart disease or violence — and the fourth highest from infectious disease? Also, from adolescence to adulthood to old age, what country has the highest chance of dying an early death?

The answer is the United States of America. Where else, since the U.S. is the only developed country in the world without universal health care? Then why would Donald Trump nominate RFK, Jr., an anti-vaxxer and conspiracy follower with no medical background who is the least qualified person for guarding the health of Americans as Secretary of Health and Human Services?

Timothy Snyder said it best in looking at Trump’s cabinet picks to date:

“Taken together, Trump’s candidates constitute an attempt to wreck the American government.

“The foundation of modern democratic state is a healthy, long-lived population.  We lived longer in the twentieth century because of hygiene and vaccinations, pioneered by scientists and physicians and then institutionalized by governments.  We treat one another better when we know we have longer lives to lose.  Health is not only the central human good; it enables the peaceful interactions we associate with the rule of law and democracy. 

“Robert F. Kennedy, Jr., the proposed secretary of the Department of Health and Human Services, would undo all of this.  On his watch, were his ideas implemented, millions of us would die.  Knowing that our lives will be shorter, we become nasty and brutish.”

The Republican Party itself has been on the same path with their efforts to dismantle healthcare legislation such as Obamacare in the name of downsizing government.

A recent New York Times Business Insider article by Eduardo Porter highlighted a recent study by the Institute of Medicine and the National Research Council of 16 of the richest countries in the world that set out to assess our nation’s health.

The results are devastating and show how far America has fallen behind in caring for its citizens.

This problem should have nothing to do with ideology, and whether access to affordable health care should be a privilege or a right. Too many Americans are dying of drug overdose and violence. Too many Americans suffer from depression, a major cause of drug abuse.

And too many Americans are obese, making them less productive and more prone to accidents in the workplace. “The United States ranks in the bottom fourth among the 30 industrialized nations in the Organization for Economic Cooperation and Development in terms of days lost to disability,” says Porter. “Women will lose 362 days between birth and their 60th birthday: men about 336. Mental health problems like depression will account for most.”

But these statistics hide the real problem—rampant income inequality that has caused many of these unhealthy ouitcomes.

The U.S. ranks 106th of the 149 countries in income inequality as ranked by the CIA’s World Factbook; with a Gini inequality index of developing countries like Peru and Cameroon. Finland and the Scandinavian countries are at the top of equality, Germany and France are 12th and 20th, respectively. The higher the index, the greater the gap between wealthy and poorer citizens of a country’s population.

And the poorer the person, family, or community, the more prone to illness and drug use is that person, or family, or community. This is where the just defeated Senate version of repeal and replace Obamacare bill would have hurt the most—in the poorer red states that voted for President Trump.

“What’s more, the United States’ higher tolerance of poverty undoubtedly contributes to higher rates of sickness and death,” says Porter. “Americans at all socioeconomic levels are less healthy than people in some other rich countries. But the disparity is greatest among low-income groups.”

Finally contributing to our health crisis is the incredible amount of violence—both due to guns (33,000 per year killed by guns), workplace accidents, and drug abuse, that a universal health care system would treat via mental health coverages as well.

In other words, there are much higher costs because we don’t have a healthy healthcare system and we the citizens are paying those costs.

Harlan Green © 2024

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

Inflation Not the Problem

 Financial FAQs

Inflation is close to its long-term 2 percent range, so the Federal Reserve has accomplished its goal of stabilizing prices. Yet the election results show that rising prices since the COVID-19 pandemic most panicked voters; even more than the border crossings, or abortion restrictions, and jobs.

Reuters

So it’s difficult to say whether voters ignored basic economic principles, or ideologies triumphed common sense, so that many voters needed to blame someone for their anxieties and wanted to “throw out the bums” they believed caused it.

It is how democracies work. This reaction happened in most of the developed world where ruling majorities were blamed for the effects of the pandemic that damaged their economies.

But in the U.S. it was too much prosperity, not too little. The Bidenomics’ bills pumped an enormous amount of investments into our economy to build a larger industrial base, modernize our infrastructure and moderate the global warming.

And many voters didn’t seem to understand how it affected the most basic law of economics: the Law of Supply and Demand. It postulates that prices rise when there isn’t enough of something consumers want, and they fall when there is a surplus.

Only now has the supply of goods and services caught up with demand, which is why consumers continued to buy as prices rose, because the U.S. economy is fully employed and consumers weren’t worried about losing their jobs. The historically low number of workers applying for jobless benefits confirms this.

Yet voters were still unhappy. Everyone had a job that wanted one, yet wages for many weren’t rising as fast as the cost of everything since the pandemic.

Why? Because it took several years for the supply chains to recover, which meant the Federal Reserve had to raise interest rates to stabilize prices, making things even more expensive.

What can’t happen, however is for most prices to return to levels before the pandemic unless there is another recession—except for energy prices (gas, natural gas, electricity) because they can fluctuate wildly even in normal times. So energy prices have returned to more normal levels. Average gas prices, for instance, have returned to pre-pandemic levels.

Consumer prices rose enough in October to keep the rate of inflation slightly above the Federal Reserve’s 2 percent goal, The consumer price index (CPI) climbed 0.2 percent for the fourth month in a row, the government said Wednesday, matching economists’ forecast. It rose 2.6 percent in a year from September’s 2.4 percent inflation rate, marking the first upturn in seven months.

This could be problem, especially if some Republican priorities are enacted, such a more tax cuts, which might cause the Fed to hold off cutting interest rates further. It would probably hurt both stock and bond prices, for starters, and slow growth further in what is already a slowing economy.

On a more cheerful note, now that prices stabilized, the natural rise of wages will catch up with those newly stabilized prices and most of us will feel reassured—unless there’s another economic shock.

That could be a larger war, or a climate disaster. Americans are already experiencing a greater frequency of such shocks with more tornadoes, hurricanes, wildfires and floods. So newly elected congress men and women, please, please, don’t cut the funding of the Environmental Protection Agency, or FEMA!

Harlan Green © 2024

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

Where's the Recession--Part II?

 Financial FAQs

The unemployment report for May had little weakness, further evidence that the recent Harris poll results—in which 55 percent of those surveyed believed the US is in a recession—didn’t reflect reality.

In fact, total nonfarm payroll employment increased by 272,000 in May, higher than the average monthly gain of 232,000 over the prior 12 months. The unemployment rate rose to 4.0 percent from 3.9 percent, slightly higher than the pre-pandemic levels of 3.5 percent when the average inflation rate was under 2 percent, as portrayed in the truncated FRED graph below (gray line is 2020 pandemic recession) that many seem to remember so fondly .

More jobs were added to payrolls in almost all sectors. Health-care providers added 68,000 jobs last month, hotel, restaurants and other leisure companies hired 42,00 new workers, and government employment rose by 42,000.

It’s more evidence, in my opinion, of a collective amnesia that several historians have maintained. Many Americans don’t want to remember the horrors of one million dead from COVID-19; and haven’t been able to move on in one of the greatest economic recoveries since the Great Depression.

It’s the main reason government employment has risen for state and local jurisdictions as well where most of the infrastructure modernization is taking place.

FREDunemployment

There were some signs of a weakening labor market. A survey of households showed a 408,000 decline in the number of people who said they were employed, the biggest drop since the end of 2023. The size of the labor force also shrank by 250,000 for the first time in four months. That explains why the jobless rate hit 4 percent after 27 straight months below that number.

But that doesn’t explain the Harris results, whereas prices remaining high and inflation still hovering in the 3 percent might. No one likes rising prices that boost the cost of everything, and the shock of the sudden rise in prices after the pandemic had to be almost as traumatic as the pandemic itself.

But it was mostly due to the worldwide shutdown of supply chains. Long Beach, California once had more than 50 container ships waiting offshore to unload their cargo that totaled as much as $2 trillion in value during the shutdown. That’s a lot of goods that couldn’t get to markets, a supply shortage that is the major reason for the price shocks. So the Harris poll may be measuring the effects of that emotional shock.

What else can explain its divergence from how the US economy is behaving in the post pandemic recovery with its record job creation? More Americans are working than ever.

Professional, scientific, and technical services added 32,000 jobs in May, higher than the average monthly gain of 19,000 over the prior 12 months, said the report. Employment increased in management, scientific, and technical consulting services (+14,000) and in architectural, engineering, and related services (+10,000). Specialized design services lost 3,000 jobs.

To repeat, the Harris poll said:

· 55% believe the economy is shrinking, and 56% think the US is experiencing a recession, though the broadest measure of the economy, gross domestic product (GDP), has been growing.

· 49% believe the S&P 500 stock market index is down for the year, though the index went up about 24% in 2023 and is up more than 12% this year.

· 49% believe that unemployment is at a 50-year high, though the unemployment rate has been under 4%, a near 50-year low.

"What Americans are saying in this data is: ‘Economists may say things are getting better, but we're not feeling it where I live,'” said John Gerzema, CEO of the Harris Poll. “Unwinding four years of uncertainty takes time. Leaders have to understand this and bring the public along.”

What will it take for more Americans to accept the fact that the US economy is doing very well and more Americans are working then ever? It probably doesn’t help that this very divisive presidential campaign is just now heating up.

Harlan Green © 2024

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

Where's the Recession?

 Financial FAQs

The most recent Harris-Guardian poll found 56 percent of those surveyed thought the US was in a recession. And 49 percent believed unemployment was at a 50-year high.

How is that possible when the economic facts are exactly the opposite? Unemployment is at a 50-year low, and there hasn’t been a recession since the short-lived 2-month COVID-19 recession in March-April 2020.

The Harris poll said:

· 55% believe the economy is shrinking, and 56% think the US is experiencing a recession, though the broadest measure of the economy, gross domestic product (GDP), has been growing.

· 49% believe the S&P 500 stock market index is down for the year, though the index went up about 24% in 2023 and is up more than 12% this year.

· 49% believe that unemployment is at a 50-year high, though the unemployment rate has been under 4%, a near 50-year low.

"What Americans are saying in this data is: ‘Economists may say things are getting better, but we're not feeling it where I live,'” said John Gerzema, CEO of the Harris Poll. “Unwinding four years of uncertainty takes time. Leaders have to understand this and bring the public along.”

There may be a lot of confusion over what exactly defines a recession, but I believe there’s a better explanation for the pervading pessimism among those surveyed. Many polls have found that most Americans do in fact feel good about their own financial circumstances, but not so good about where the US economy is heading.

Then what must those surveyed compare today’s economy to, since public news reports document that the US has recovered the quickest from the pandemic with the fastest growing economy among developed countries in the world?

FREDcpi

Maybe they remember the pre-pandemic economy of the prior decade when both the unemployment and inflation rates (see cpi graph) were at or below 3 percent. It was a goldilocks time, while choosing to forget the severe trauma from two years of lockdowns that began in 2020 with images of refrigerator trucks lined up in the larger cities to hold many of the one million dead that mortuaries couldn’t hold.

Such a collective amnesia has happened before, more than 100 years ago during the Spanish flu pandemic. The Roaring Twenties excess that followed may have helped to erase those horrific memories when more than 675,000 died, say historians.

A Smithsonian Magazine article highlights some of the Roaring Twenties’ history of the 1920s that could confirm my thesis.

The Smithsonian article mentions Harper’s editor Frederick Lewis Allen’s 1931 account of the previous decade, Only Yesterday. Allen labels the Twenties as the “post-war decade” (of World War One) and mentions the pandemic a grand total of once.

“My guess is it did not sit with the story that Americans tell about themselves in public. It’s not the story that they want to put in fifth-grade U.S. history textbooks, which is about us being born perfect and always getting better,” says Bristow, who wrote American Pandemic: The Lost Worlds of the 1918 Influenza Epidemic.

“Americans believed themselves “on the verge of putting infections disease to rest forever,” she explains, and instead, “We couldn’t do anything more about it than anybody else.” Indeed, President Woodrow Wilson, who held the office throughout the multi-year pandemic, never once mentioned it in his public comments,” said Allen.

The Smithsonian also cites Yale sociologist and physician Nicholas Christakis who hypothesizes that the 1918 pandemic falls into an ages-old pandemic pattern, one that our Covid-19 present may mimic, too.

In his 2020 book, Apollo’s Arrow: The Profound and Enduring Impact of Coronavirus on the Way We Live, he argues that increasing religiosity, risk aversion and financial saving characterize times of widespread illness. Christakis expects the Covid-19 crisis to have a long tail, in terms of case numbers and social and economic impacts.

“People are going to want to make sense of what happened,” he says, positing that “we’ll likely see an efflorescence of the arts” post-pandemic. That’s not to say our A.C. (After Covid-19) reality will be all rosy. “We’ll be living in a changed world.”

A majority of Americans polled also believe Republicans are better stewards of their wealth. Yet the COVID-19 pandemic occurred during the Trump administration, and its one million death toll might have been lower if Trump hadn’t denigrated scientists and encouraged anti-mask and anti-vaccine doubts among his followers.

Certainly many Republicans might then want to dwell on the years just before the pandemic and erase their memories of the ineptness of the Trump administration when their President suggested injecting chlorine into their veins as a cure.

My thesis is up for discussion as are all theses, of course. I welcome comments on what is still a puzzle to most economists. How can opinions differ so much from public facts? Maybe lasting memories of a more peaceful decade still dominate over our vastly changed, post-pandemic world?

Harlan Green © 2024

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

Why Not a Return to the 'Roaring Twenties'?

 The Mortgage Corner

“The Roaring Twenties was a decade of economic growth and widespread prosperity, driven by recovery from wartime devastation and deferred spending, a boom in construction, and the rapid growth of consumer goods such as automobiles and electricity in North America and Europe and a few other developed countries such as Australia.”

Does this sound familiar to history buffs? It’s Wikipedia’s take on the ‘Roaring 1920s’, the era of widespread prosperity and women’s rights as the US recovered from World War One and the Spanish Flu pandemic, in which some 650,000 Americans died.

I know I may be way out on a limb but there could be a repeat in this decade, which I’ve been calling the ‘Roaring Twenty-Twenties.’

There are similarities today. We are still recovering from the COVID pandemic that killed one million Americans, for starters. And consumers are spending like there’s no tomorrow.

The Trump and Biden administrations have passed spending bills of more than $6 trillion to aid the recovery and modernize the American economy, which will boost growth and household incomes for the rest of this decade.

And while we’re not fighting a world war, spending has picked up because of the Middle East and Ukrainian conflicts, just as it did fighting world wars.

Such unprecedented spending is producing results. Third quarter US economic growth has soared to 4.9 percent after just 2 percent real growth in the first two quarters of 2023.

Predictions of Q4 growth are all over the map, in part because few believe that consumers can keep shopping at the current rate. Maybe not, but does that mean massive layoffs and an abrupt halt to the huge construction boom in infrastructure, the environment and expansion of the social safety net going forward?

No, because the Biden administration has focused on infrastructure, clean energy and semiconductor manufacturing, sectors that produce more high paying jobs, Lael Brainard, director of the National Economic Council, said at a White House press briefing.

“Despite repeated forecasts that recession is just around the corner, the U.S. recovery is solid, and inflation is down. Unemployment has fluctuated in a narrow band below 4 percent for 17 months in a row—the longest stretch in 50 years (my emphasis),” said Brainard.

And since Biden took office in 2021 it has already spurred nearly $500 billion in private-sector commitments, she stated.

Critics, mostly conservatives that want smaller government say, however, that it is the major reason inflation isn’t coming down faster. But Brainard counters that annual core CPI inflation has now fallen and is projected to decline further as rents decelerate.

The closely watched category of core non-housing services CPI that Fed Chair Powell has said is most important has run at annualized rate of 3.3 percent over the last six months, close to the 3.2 percent average from the three decades before the pandemic and excluding the financial crisis.

FREDpceinflation

The more general Personal Consumption Expenditure (PCE) inflation indicator, another favored Fed price index, is running at 3.4 percent annually per above FRED graph .

The latest economic data confirm the good news. Labor productivity in Q3 jumped to 4.9 percent, the highest in three years, according to the Bureau of Labor Statistics, in part because of more investment in new technologies such as AI, which means an increased supply of things. Production output in the third quarter rose 5.9 percent, hours worked rose just 1.1 percent.

This is while unit-labor costs, a key measure of wage growth, fell 0.8 percent in the third quarter, the first decline since the fourth quarter of last year, which is another sign of falling inflation since labor costs make up two-thirds of production costs.

So why all the public pessimism that seems to prevail? Economics is a very opaque window to look through in understanding the American economy. The public looks at the cost of everything, and the Fed has posted interest rates at a record pace to slow inflation.

That’s why most Americans are focused on the past and present rather than the future, but this decade has just begun. The Roaring 20’s was a wild ride then, and it will be a wild ride again to a prosperous future.

Harlan Green © 2023

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

Why the Inflation Confusion--Part II

 Financial FAQs

FREDcpi

Americans want to blame someone for the post-pandemic inflation surge, according to most polls. Yet when in our history has it been a real problem affecting serious economic growth?

Consumer prices rose again in August to reach a 3.7% yearly rate, based on Wednesday’s release of the monthly consumer-price index. That marked its biggest jump in 14 months and a higher reading than the recent 3% low set in June (see chart) as the toll of the Fed’s rate hikes kicked in.

Horrors, according to some pundits! But it hasn’t affected economic growth which is again surging after the pandemic—up 2.1 percent in Q2. And just last week S&P Global Market Intelligence raised its third-quarter GDP estimate by nearly two percentage points to an annualized rate of 4%, citing strong retail sales data. It moved its annual estimate up slightly to a historically strong 2.3 percent.

What makes the above FRED consumer price index (CPI) chart more interesting is that I have dated it to World War I; yes, pre-1920 and World War I; to give inflation the proper historical perspective. It shows that inflation, in fact, has rarely been a problem in our up-and-down consumer-driven capitalist economy.

Why? We have seldom had a supply problem—i.e., not enough goods and services to balance out and keep inflation in check—because the US economy is very productive and able to quickly meet surging demand.

The 1970’s stagflation era when the CPI topped out at 14 percent in 1980 was an exception because we didn’t yet have the means to produce enough oil, and OPEC did, so they embargoed the supply to US because of our support of the Arab-Israeli War, which sent oil prices skyrocketing that we depended on.

The other major peak was 1947 when post-WWII consumers demanded more while our WWII economy was just beginning to shift out of war-mode and produce autos instead of tanks.

(The earlier 1917 to 1920 spikes were for the same reason—a WWI economy shifting back to a peacetime economy.)

Looking at the graph again, moderate inflation has been the norm—averaging around 2.5 percent and never more than 5 percent since 1980—until the post-pandemic spike, which again was mainly caused by another war, the war against the COVID-19 pandemic that paralyzed the world economy for a time, until supply chains began to catch up.

It is difficult to imagine another time when wild animals wandered in the empty streets of major cities under lockdown.

In the words of CNN senior business reporter Alison Morrow, “Demand went from zero to 100, but supplies couldn’t bounce back so easily. Factories were on lockdown or navigating Covid-19 restrictions, and raw materials were harder to get because of the sudden swell in demand. Shortages of just about everything cropped up, especially workers to unload goods and drive them to their destination. We’re still untangling the mess at ports around the world.”

And there is another war going on, the Ukraine-Russia war, which is affecting the current spike in energy prices, and is the main reason for this month’s uptick in inflation.

West Texas Intermediate Crude, the U.S. benchmark, was near $88.58 a barrel on Wednesday, with traders focused on supply concerns following decisions by Saudi Arabia and Russia to cut crude supplies through year-end. WTI was trading at a low for the year below $65 a barrel in May.

So we shouldn’t forget such historical events do occur, but also that they have never lasted for long.

Harlan Green © 2023

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

Third Quarter U.S. Growth Turns Positive

 Popular Economics Weekly

BEA.gov

The U.S. economy grew 2.6 percent in the third quarter due to exploding exports, declining imports after two quarters of negative growth from the aftereffects of the pandemic, and record GDP growth in 2021.

‘The increase in exports reflected increases in both goods and services,” said the Bureau of Economic Activity (BEA). “Within exports of goods, the leading contributors to the increase were industrial supplies and materials (notably petroleum and products as well as other nondurable goods), and nonautomotive capital goods. Within exports of services, the increase was led by travel and "other" business services (mainly financial services). Within consumer spending, an increase in services (led by health care and "other" services) was partly offset by a decrease in goods (led by motor vehicles and parts as well as food and beverages).”

Travel and leisure activities jumped because Americans fled their homes after two years of pandemic restrictions. Consumer spending held up and spending on capital goods, a good sign of future growth prospects, increased at a 10.8 percent pace, but investment in structures and new housing sank as soaring mortgage rates choked off home sales.

Housing remains the worm in the apple of future growth, and a reason there are predictions of some level of recession next year, because housing construction and sales feed so many other sectors, such as insurance, banking and other professional services, as well as causing homeowners to feel less wealthy, the so-called wealth effect that can imduce consumers to spend less.

For instance, sales of new single‐family houses in September 2022 were at a seasonally adjusted annual rate of 603,000. This is 10.9 percent below the revised August rate of 677,000 and is 17.6 percent below the September 2021 estimate of 732,000, said the Census Bureau.

More importantly, the inflation rate has already declined. The price index for gross domestic purchases increased 4.6 percent in the third quarter, compared with an increase of 8.5 percent in the second quarter. The decline mostly stemmed from a sharp drop in gasoline prices, said the BEA.

This is the disinflation we have been speaking of where the rate of inflation is declining, but it’s not outright deflation when overall prices are actually falling, a sign of recession. It is indicative of a soft landing, a desirable outcome the Fed and economists are looking for.

Inflation fell even more for consumers as the Personal Consumption Expenditure (PCE) Index that measures consumer spending increased 4.2 percent, compared with an increase of 7.3 percent in Q2. Excluding food and energy prices, the PCE price index increased 4.5 percent, compared with an increase of 4.7 percent.

Inflation would decline more quickly if not for the tight labor market. Weekly initial jobless claims rose slightly to 220,000 in the week ended October 22, with companies reluctant to lay off workers. The consensus among economists is that corporate record profits are enabling companies to retain workers, despite their higher costs.   

In fact, their record profits may be a sign of profit-taking, companies (like the oil giants) making excessive profits on the rising demand for their products.

It is not yet a given that growth will remain positive in the fourth quarter, or that inflation will continue to decline in the face of product shortages (like oil and food), but I am banking on the holidays to bring out shoppers and keep growth positive for the rest of this year.

Harlan Green © 2022

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