GDP, Global Growth & Household Borrowing


Inflation-adjusted GDP in 17Q4 grew at a realistic annualized rate of 2.6% after growing at slightly over 3% in 17Q3 and 17Q2. In 2017, GDP grew by 2.3%. While not sizzling growth, it’s pretty good given that this recovery will, in a few months, become the second longest ever. Better yet, due to tax cuts, GDP growth should reach a post-recession high of 2.8% in 2018 and 2.6% in 2019.


One key component of GDP is corporate investment in equipment and 2018 should be good. The combination of tax cuts, improved business confidence, strengthening global demand, high enough oil prices, a weaker US dollar, very low unemployment, and concomitantly rising worker wages, all point to strong growth. Corporate investment in plants should be close to 7.0% in 2018, up from 4.8% last year and -3.4% in 2016.


Outstanding household debt rose $193 billion in 17Q4 to a record $13.15 trillion, 67% of GDP, down from 87% of GDP at the peak in 2009. The delinquent share of total debt is 3.12%, down from 3.19% in 17Q3. Mortgage debt grew by $139 billion and now totals $8.88 trillion but remains 4.4% below the pre-recession high. Auto loan delinquencies are steadily rising; credit card delinquencies are starting to rise.


In 2017, the economies of the 45 largest democracies with market economies grew in unison. That was the first time this has occurred since the years 2004-2007. Looking back in history to 1979 and including the periods already mentioned, synchronized global growth of this sort has happened in just seven years, or 18% of the time. It is anticipated to occur again in 2018.


On the plus side, existing home sales in 2017 hit 5.51 million, their highest level since 6.478 million in 2006. But, existing sales are up trivially from 5.45 million in 2016, and 5.25 million in 2015. Why? A complete lack of inventory. It’s declined for 31 consecutive months Y-o-Y, and at the current sales pace the stock of homes for sale would be gone in 3.2 months, a record low.


While Bitcoin and other crypto-currencies are the rage for some, for others it’s Swiss National Bank shares! Shares are up 320% since 1/31/16 to 5,480 francs ($5,866). Sure, they print their own money, but private shareholders have limited voting rights, the dividend is fixed by law at 15 francs, yielding a paltry return of 0.3%, and have no claims on Bank assets of 760 billion francs! .

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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