Slower Economic Growth Ahead?

Popular Economics Weekly

Second-Quarter GDP Growth Estimate Increased
“On July 7, the GDPNow model estimate for real GDP growth in the second quarter of 2026 is 1.4 percent, up from 1.2 percent on July 1.”

AtlantaFed

What is happening to U.S. economic growth in 2026? The Atlanta Federal Reserve is one of the few organizations brave enough to attempt to predict future growth in constantly updated forecasts. And the news is not good for most Americans.

The culprit for the volatility in GDP second quarter economic growth predictions by the Atlanta Fed’s GDPNow estimate that had dipped as low as 1.2 percent and is still a mere 1.4 percent (in the above GDP graph), is the large increase in our trade deficit.

And this was the gap that President Trump wanted to shrink with his new tariffs. It has worsened largely because Trump and his advisors don’t know what they are doing; i.e., haven’t taken the time to make the tariffs legal by negotiating with trade partners after doing the required research and then getting congressional approvals, rather than via his illegal executive orders.

The GDPNow model was predicting 3-4 percent Q2 GDP growth until last June as per the graph. But the trade gap has suddenly jumped 42.2% to $77.6 billion, the highest level since March 2025, said the Commerce Department's Bureau of Economic Analysis and Census Bureau.

The most hurt is being done to American workers, since the enlarged trade deficit mirrors the production that had shifted overseas. So many of the components that go into the surging AI build-out are now being imported--especially computers and computer chips—which means an increasing share of the buildout is benefiting foreign workers.

This is a main reason for the alarming drop in June job numbers to a mere 57,000 workers, most of them in healthcare. Some 755,000 workers dropped out of the labor force in June because “jobs are hard to get,” said the Conference Board’s latest consumer Confidence Survey.

What's more, job gains in May and April were revised down to a combined 277,000 from a previous 351,000 - 74,000 fewer than previously reported.

Trump’s Iran War disaster is another reason for the hiring slowdown because higher energy prices from the Middle East is elevating inflation. Wall Street is hoping the A.I. revolution will boost labor productivity to such an extent that it will tame inflation, but without creating many new jobs.

The trade gap jumped 42.2% to $77.6 billion, the highest level since March 2025.

The major culprit; capital goods imports soared $1.1 billion to a record high $128.0 billion that subtract from GDP growth, which calculates just what is produced domestically.

We could be producing more of those imports domestically. But that hasn’t happened so exports dropped 3.2% to $317.7 billion in the latest report.

The shrinking labor force will also shrink GDP growth since fewer workers plus higher inflation means less will be produced domestically because of the higher costs, unless A.I. delivers on its promises of higher productivity. And that will take years, experts have been saying.

All this means fewer Americans will benefit for some time. The International Monetary fund predicts prices won’t come back down until the end of 2027, and only if the Iran war ends.

The official scorecard of the U.S. economy was updated to show the economy grew at a 2.1% annual pace in the first three months of the year, faster than the previously reported 1.6%.

Is that good news? Maybe, but Q1 consumer spending was the weakest in four years.

There will be more robots, Claude, ChatGPT, Open AI, etc., etc. but a shrinking workforce pays less taxes to support public policies, social security, Medicare. And don’t forget the public debt, which is soaring.

Harlan Green © 2026

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What About Another 'Roaring Twenties'?

 Financial FAQs

IMF

Could we be returning to the Roaring 20’s; I mean a Roaring 2020’s as the coronavirus pandemic winds down this summer, leading to an explosion of growth after the worst recession since the Great Depression and worst pandemic since the Spanish Flu pandemic of 1918-19?

The International Monetary Fund is hinting at such with its latest forecast. The IMF World Economic Outlook projects global growth at 5.5 percent, which is higher than their previous forecast in October. Global growth will moderate to 4.2 percent growth in 2022, said the IMF in its latest blog post.

“In our latest World Economic Outlook forecast we project global growth for 2021 at 5.5 percent, 0.3 percentage point higher than our October forecast, moderating to 4.2 percent in 2022. The upgrade for 2021 reflects the positive effects of the onset of vaccinations in some countries, additional policy support at the end of 2020 in economies such as the United States and Japan and an expected increase in contact-intensive activities as the health crisis wanes. However, the positive effects are partially offset by a somewhat worse outlook for the very near term as measures to contain the spread of the virus dampen activity.”

The economy grew 42 percent during the 1920s, and the United States produced almost half the world's output because World War I destroyed most of Europe, say the historians. New construction almost doubled, from $6.7 billion to $10.1 billion. Aside from the economic recession of 1920-21, when by some estimates unemployment rose to 11.7 percent (due to the Spanish flu pandemic lockdowns), unemployment in the 1920s never rose above the natural rate of around 4 percent.

We should see a similar rebound from the damage done by COVID-19. The global economy contracted by 3.5 percent in 2020, the worst peacetime contraction since the Great Depression of the 1930s. But it was a short-lived recession, since the economy was at full employment last February at the onset of the pandemic that has killed 2,143,861 worldwide and 421,670 in the U.S., according to the John Hopkins coronavirus tracking center.

“Much now depends on the outcome of this race between a mutating virus and vaccines to end the pandemic, and on the ability of policies to provide effective support until that happens,” said IMF chief economist Gita Gopinath, in a blog post accompanying the updated forecast.

The Biden administration is making a good start with its program to vaccinate 100 million in the first 100 days by opening mass vaccination sites and mandating the increased production of PPE and vaccines with the Defense Production Act.

But the IMF emphasizes this must be a global effort, as poorer countries don’t have as ready access to the PPE supplies and vaccines, which means they will continue to harbor virus outbreaks that could prolong the pandemic.

“The international community must act swiftly to ensure rapid and broad global access to vaccinations and therapeutics,” says the IMF, “to correct the deep inequity in access that currently exists…The health and economic arguments for this are overwhelming. The new virus strains are a reminder that the pandemic is not over until it is over everywhere, and we estimate that faster progress on ending the health crisis will raise global income cumulatively by $9 trillion over 2020–25, with benefits for all countries, including around $4 trillion for advanced economies.”

Need we say more on what is needed to bring us a  new 'Roaring Twenties’?  Let us hope we can keep the peace as well, since the Great Depression and a second World War followed the original Roaring Twenties.

Harlan Green © 2020

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

Job Losses Still Too High

Popular Economics Weekly

St.LouisFRED

The U.S. economy is recovering very slowly, in part because the number filing for first-time unemployment benefits is still too high (see above graph). Why? Businesses are now shedding workers because the COVID-19 pandemic is not under control in the U.S. Total infections are now surpassing April highs, which means some states will have to slow down their re-openings as well as the rehiring of workers.

CDC and NIH experts Drs. Redfield and Fauci testified Tuesday to congress that COVID-19 is surging rather than fading, as President Trump has asserted in recent speeches. In fact, Dr. Fauci said they won’t even have reliable diagnostic tests that will tell them how patients are infected until this fall.

Dr. Fauci said the U.S. is still in the middle of the first wave and the imperative is to “get this outbreak under control over the next couple of months," in his testimony.

It is also affecting world-wide growth. economist Mohamed El-Erian writes in Project-Syndicate: “

The world’s leading international economic institutions – the International Monetary Fund, the OECD, and the World Bank – now warn that it may take at least two years for the global economy to regain what has been lost to COVID-19. If the major economies face additional waves of infections, recovery would take even longer.”

According to World Bank forecasts, the global economy will shrink by 5.2 percent this year. That would represent the deepest recession since the Second World War, with the largest fraction of economies experiencing declines in per capita output since 1870, the World Bank says in its June 2020 Global Economic Prospects.

This in fact mirrors what happened after the world’s last worst pandemic—the 1918-20 Spanish flu outbreak from which the U.S. economy didn’t recover until 1922.

 And growth in the developed countries will be worse where the pandemic has been the most severe and where there is heavy reliance on global trade, tourism, commodity exports, and external financing, says the World Bank.

Guess which country has the worst death toll and infection rates? It is the U.S., which means U.S. GDP growth in predicted to shrink by 5-6 percent this year say all three of the international economic institutions El-Erian highlighted.

In the week ending June 20, the advance figure for seasonally adjusted initial jobless claims was 1,480,000, a decrease of 60,000 from the previous week's revised level. The Labor Department said the advance seasonally adjusted insured unemployment rate was 13.4 percent for the week ending June 13, a decrease of 0.5 percentage point from the previous week's revised rate. The advance number for seasonally adjusted insured unemployment during the week ending June 13 was 19,522,000, a decrease of 767,000 from the previous week's revised level.

And WHO also warned of a new and dangerous phase of the pandemic. Eighty-one nations have seen a growth in new cases over the past two weeks. Only 36 have seen declines.

“Many people are understandably fed up with being at home,” Dr. Tedros Adhanom Ghebreyesus, director general of the WHO, said in a news conference in which he described the new phase of the virus. “Countries are understandably eager to open up their societies and their economies. But the virus is still spreading fast. It is still deadly and most people are still susceptible.”

We said last week that many employers, the including auto and airline sectors, had been hiring back their employees over the past month, hence a surprise jump in employment with the 2.5 million jobs increase in May.

Now both consumer sentiment and retail sales are beginning to recover, but only in those states and counties that listen to the experts, which means this recovery will be uneven at best.

Harlan Green © 2020

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

Very Strong January Employment

Popular Economics Weekly

MarketWatch.com

Total nonfarm payroll employment increased by 304,000 in January, and the unemployment rate edged up to 4.0 percent, the Bureau of Labor Statistics reported today. Job gains occurred in several industries, including leisure and hospitality, construction, health care, and transportation and warehousing.

This is an unusually high jobs number for January, especially after the robust December payroll numbers, which were downgraded to 222,000 private payroll jobs from the original 312,000 jobs total.

The big mystery is with average hourly wages rising at 3.2 percent, there are still no signs of inflation. And that is keeping both short and long term interest rates extremely low. The 10-year Treasury yield has now sunk to 2.65 percent; very unusual for this late in a recovery cycle. It means mortgage rates for a 30-year conforming fixed rate are now 3.75 percent with a one point origination fee for the most credit-worthy borrowers, which is a rate last seen during the Fed’s Quantitative Easing cycles that pushed down long term rates to near post-WWII lows.

And it is keeping the Fed from raising short term rates further, as well, which is boosting consumers’ spending, who are fully-employed and flush with cash from the best wage and benefit increases in 11 years.

The Labor Department said the impact of the partial federal government shutdown contributed to the uptick in both the unemployment rate, at 4.0 percent, and the number of unemployed persons, at 6.5 million. Among the unemployed, the number who reported being on temporary layoff increased by 175,000. This figure includes furloughed federal employees who were classified as unemployed on temporary layoff under the definitions used in the household survey.

Companies that provide leisure and hospitality — hotels, restaurants, gambling, recreation — added 74,000 jobs in a surprisingly strong gain, reports the BLS. Construction firms took on 52,000 new workers, particularly in fields geared toward commercial building. Health-care providers hired 42,000 workers. Transportation and delivery companies beefed up payrolls by 27,000. And retailers increased staffing by 21,000.

Why such low inflation and interest rate numbers? Macro-economists are saying there is a huge amount of liquid assets sloshing around the world from extremely high savings rates by individuals and central banks. Central banks have not really begun to tighten their purse strings, even 10 years into the recovery from the Great Recession. The EU is worried about slowing economic growth, for one, while China is also showing signs of lower growth.

So the American Fed cannot afford to be in a crediting tightening mode, which would put a damper on U.S. growth. Multi-national U.S. corporations aren’t repatriating much of the $2.4 trillion in overseas profits, either, which means most of their profits aren’t being put to work to improve American productivity or future growth.

In fact, even the 2017 Republicans’ Tax Cut and Jobs Act hasn’t helped, as I said yesterday, which MarketWatch’s Howard Gold has labeled the “Shareholder and CEO Enrichment Act of 2017.”

The bottom line seems to be the U.S. is back in the goldilocks growth mode; growth is neither too hot (because of low inflation), nor too cold (with full employment), which is a conundrum of sorts, as former Fed Chair Alan Greenspan was wont to say. It doesn’t fit some economic models.

But many major economists—such as Harvard economist Larry Summers, IMF’s Olivier Blanchard, Nobelists Paul Krugman and Joe Stiglitz—believe it’s a perfect time to put some of that excess cash to better use than boosting stockholder and CEO incomes. Why not use it to begin to build for future growth in all the sectors that would secure a better future—education, infrastructure, R&D, healthcare? All that’s lacking is the political will.

Harlan Green © 2019

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What Happened to Consumers' Confidence?

Financial FAQs

http://www.sca.isr.umich.edu/

Consumer sentiment declined in early January to its lowest level since Trump was elected, reported the December U. of Michigan sentiment survey. It’s down for a number of reasons—too many reasons, and economists are consequently beginning to predict GDP growth will be reduced to the 2 percent annual growth average that has prevailed since the end of the Great Recession.

“The decline was primarily focused on prospects for the domestic economy, with the year-ahead outlook for the national economy judged the worst since mid-2014. The loss was due to a host of issues including the partial government shutdown, the impact of tariffs, instabilities in financial markets, the global slowdown, and the lack of clarity about monetary policies. Aside from the direct economic impact from these various issues on the economy, the indirect effect meant that half of all consumers believed that these events would have a negative impact on Trump's ability to focus on economic growth.”

How serious are the present crises? It depends on their duration. The shutdown is easiest to solve, if the parties can unite in agreement on what exactly constitutes a border ‘wall’—would a digital wall suffice, along with better-funded courts and more Border agents?

“While the January falloff in optimism is certainly consistent with a slowdown in the pace of growth,” said U of Michigan chief economist Richard Curtin, “it does not yet indicate the start of a sustained downturn in economic activity. It is the strength in personal finances that will continue to support consumption expenditures at favorable levels in 2019. Nonetheless, consumers now sense a need to buttress their precautionary savings, which is typically done by reducing their discretionary spending. Evolving job and wage prospects, which were slightly weaker in early January, are critical to extending the current expansion.”

Consumer confidence is based on other factors, as well, such as the job market. The other confidence index, the Conference Board’s Consumer Confidence Index showed lower future job expectations.

“Consumer Confidence decreased in December, following a moderate decline in November,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “Expectations regarding job prospects and business conditions weakened, but still suggest that the economy will continue expanding at a solid pace in the short-term. While consumers are ending 2018 on a strong note, back-to-back declines in Expectations are reflective of an increasing concern that the pace of economic growth will begin moderating in the first half of 2019.”

As has been mentioned by many commentators and economists, the Trump administration isn’t equipped or staffed to handle multiple crises, much less a serious single one. Michael Lewis’ The Fifth Risk was the latest warning of what might happen with an administration that didn’t want the federal government to function well, and appointed administration officials—mainly lobbyists of industries that it regulated—whose mandate was to make sure it increased the profits of their industries rather than the welfare of the American public. That meant it would have a difficult time handling any major crisis, such as the ongoing government shutdown.

So it’s easy to see why consumers are feeling queasy and want to save more of their rising incomes, rather than spend them. Other factors that might be scaring consumers are the ongoing tariff wars, and the IMF prediction of slower worldwide growth.

Maybe doing nothing, other than re-opening the federal government for business, is the better choice for maintaining healthy growth. A revised NAFTA agreement has yet to be ratified by the Senate to take effect. And a “lack of clarity about monetary policies” probably means the Federal Reserve will stop raising short term rates for a while, which will hearten the financial markets, as well.

Harlan Green © 2019

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