Good GDP, Tariff Talk & Recession Reticence


The US economy grew 4.1% in 18Q2, its fastest pace since 14Q3. Better yet, excluding volatile exports, inventories and government purchases, growth was a stellar 4.3%, and Q3 growth is on track to come in at a strong 3%. Important to note: In the two quarters following President George W. Bush’s 2003 tax cuts, GDP hit 6% but then steadily declined, averaging 2.5% the rest of his presidency, excluding the recession.


CY2018 US GDP growth should average 3.1%, led by rising employment, strong income gains, tax cuts, increased defense spending and very strong consumer and small business confidence. During CY2019, growth is likely to steadily slow, yet still average a solid 2.6% as tax cut impacts fade, trade wars heat up, adversely impacting large business confidence, employment growth weakens due to a lack of workers, and interest rates slowly rise.


An inverted yield curve – a situation where short-term rates are higher than long-term rates – has preceded each of the past seven recessions by 8 to 23 months. At present, the yield curve is very close to inverting. But, we are experiencing rare, massive fiscal stimulus late in a cycle along with a central bank with vast holdings of long-term bonds. So, it’s not necessarily time for a recession watch.


In 2017, federal government revenues were $3.316 trillion, of which 1%, or $34.6 billion, came from tariffs. While more money will come from tariffs, how much is unknown. Firms may import non-tariffed substitutes, they may buy the product from a US producer, or sales may be lost due to higher prices. Either way, tariffs are collected by the Bureau of Customs and Border Protection and go straight to the Treasury.


While the percentage of Americans who say that they are either doing OK or living comfortably is 74%, up from 63% in 2013, the first year for which data are available, many Americans struggle financially. Fully 40% of Americans say they cannot come up with just $400 in an emergency without selling something or borrowing, down from 50% in 2013. Also, 25% of Americans have no retirement savings whatsoever.


Last year, US airlines carried 849 million passengers, up 3.1% versus 2016. That’s not where the growth is. In 2017, the number of pets carried by US carriers reached 784,000, up 11%. Pets are generally transported for a fee ($125 each way) in the cabin or cargo hold. The same airlines also carried 281,000 service animals, up 24%, and another 751,000 emotional-support animals, up a staggering 56%!

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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