Definite Deficit, Recession Speculation & Total Texting – OMG!


The FY2018 deficit totaled $779 billion or 3.9% of GDP, up 17% from the FY2017 deficit of $666; 3.5% of GDP. While that doesn’t look bad, the details are troubling. Outlays as a percentage of GDP declined from 20.7% to 20.3%, which is good as unemployment is super low. But receipts, which should be jumping given the strong economy, plummeted from 17.2% of GDP in FY2017 to 16.5% in FY2018.


While many things might cause the next recession, including geopolitical problems, struggling emerging markets due to the rising dollar, and growing non-financial corporate debt levels (to name a few), one that is more insidious is complacency. Good times lead to overly optimistic forecasts and loosening of credit standards, which leads to risk mispricing. And that leads to increasingly risky financial behavior, which sets the stage for the next recession.


While predicting the cause of the next recession is impossible, here are probabilities based on all recessions in the seven largest democracies since 1960. Twenty-six percent of the time it was monetary policy, next came bursting of a credit bubble at 17%. Third was an oil price shock or the bursting of a housing bubble, each at 12%, and banking crises was next at 10%.


While September employment growth of 134,000 new jobs was slightly disappointing and probably due to Hurricane Florence, the report was otherwise excellent. Upward revisions to July and August totaling 87,000 were spectacular, and the unemployment rate hit 3.7%, lowest level since 1969! Y-o-Y wage growth for the bottom 10% of workers rose 5.1%, topping average hourly earnings growth of 2.8%. Regrettably, the labor force participation rate remains stuck at 62.7%.


A key reason wages for low-skilled jobs are now rising faster than for the rest of the labor force is scarcity. Since 1/1/10, there’s been a 25% rise in the number of persons with a bachelor’s degree or higher in the labor force. However, there’s been a 5% decrease in the number with a high school diploma and a near 15% decline among those with less than a HS diploma.


The most used social media site by teens today is Snapchat at 41%, followed by Instagram at 22%; just 15% say it’s Facebook. The craziest data: back in 2012, the last time this survey was administered, 49% of teens preferred communicating with friends face-to-face, while texting was preferred by 32%. Now, texting is the preferred method of 35% of teens; in-person communication is next at 32%! OMG!

Source: Elliot Eisenberg, PhD., Chief Economist for GraphsandLaughs, LLC, an economic consulting firm serving a variety of clients across the United States. All rights reserved.

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