While the election and covid19’s resolutions are going to take a while, I thought I might take a week to get back into some macro.
Below is a table I hijacked and made
some modifications of some data from the US Bureau of Economic Analysis (www.bea.gov).
The table shows us almost two years
of data relating to Real Gross Domestic Product for the US.
The numbers are all percentage
changes. The first column shows you how much real GDP rose from 2018 to 2019, 2.2%. The next three columns have the same information
for each of the three quarters of 2020. The quarterly percentage changes have
been seasonally adjusted and annualized so we can compare each quarter to the
first column.
The first thing to notice is that after
rising by a modest but fairly normal rate of 2.2% in 2019, RGDP fell for two
quarters and then snapped back in the third quarter of 2020. The -31.4% followed by +33.1%
is just crazy. It is hard to find such huge swings in US history. That, in a
nutshell, is the source of a lot of uncertainty right now. How does one think
about the future when the economy looks more like kamikaze pilot than an Alaska
Air flight to Minneapolis?
We all know that most of that
variability came from Covid 19 and its lockdowns – but that doesn’t help us much
in making choices about working and spending in the future. How many waves of Covid
are coming? How much of the economy will be locked down?
The rest of the table shows us
similar information for the parts or components of RGDP. The largest sector of
RGDP is spending by households on goods and services. While the goods line
shows some ups and downs – the services spending fell by 42% only to recover by
38%. Farther down in the table you see spending on residential housing. Those swings
are even larger – a decline of 36% followed by an increase of 59%. That 59%
increase in Q3 of 2020 was impressive but not the biggest in the table.
Business spending on equipment recovered
by 70% in Q3. In contrast, business spending on structures fell in all three
quarters of 2020 after declining somewhat in 2019.
International trade was wackier yet.
Exports of US goods and services to the world increased by 60% in the
third quarter; our imports of goods more than doubled (108%).
That leaves us with the final part
of the table labelled Government Spending. That’s a bit of a misnomer since it
only includes purchases of goods and
services by the government (tanks, paper clips etc) and does not include payments
to individuals like welfare, Medicare, and Social Security. So much of what has transpired this year as
government payments to individuals and companies does not show up in this table.
The table shows that Federal government spending for non-defense items rose by almost 38% in the second quarter. Defense spending by the Feds and state and local spending show no major changes.
What is the upshot? Trump brags about the third quarter rebound without noting that we are not back to where we ended in 2019. Of course, a Q3 rebound is better than no rebound. Moreover, all that volatility creates a muddy crystal ball. If the table was affected by a virus and we can't be sure about the future of the virus -- then surely we know almost nothing of value to help us know the future economy.
Here is how I see it. The economy grew in 2017 on to the second quarter 2020 where it fell. However, everything has a base to grow or fall from. Even if I do not care for President Obama he took the economy from a deep recession to what it was in 2017. Pretty good base to build on. Secondly, all Trump did was to keep the motor on, cancel a bunch of good regulations, go to China(nothing there), North Korea ( same) Iran (same)....same for all of the dictator countries. Meanwhile the US service market place boomed and there has been a general housing boom in the burbs and other quieter places to live ( check the actual growth in sales and construction.) Then a 49% fall in all of the markets that "SERVE" the public. During this time efficient businesses were able to survive. Even the air lines became more efficient. So, personally all the economy has done is make a positive move to get out of the whole and one person cannot make claim that they were the hero.
ReplyDeleteNice Hoot. In chess, what matters is the next move. Match is not over yet.
DeleteNot trying to defend Trump's administration spending but assuming Biden prevails I have to think the Biden administration spending will make Trump seem like a cheapskate. I have seen several realistic reports that Biden can, and will, use EOs to basically forgive student debt. The amount of student debt is not only shocking and growing; it is a massive drag on borrowers ability to get out of debt and contributes to slowing the economy. Combined with what will likely be a massive increase in the defaults on real estate loans due to COVID-19 and the elimination of huge numbers of small businesses like eateries there will likely be more hits to the economy.
ReplyDeleteTo me it looks like COVID-19 has caused a sea change in how the economy can work. Much less eating out, both international and intra state travel, no more cruise ships, movies and sporting events (even before COVID-19 the NFL was losing eyeballs likely due to the political messages it was trying to send and the increasing knowledge of how dangerous it was long term to play football), and some other stuff I probably missed.
But what worries me most is the pseudo boycotts by dem consumers of pub sellers and pub consumers of dem sellers. Lots of peeps are making economic decisions not based on economic factors but on political factors.
Bottom line for me is there are too many bad signs and too few good signs to think there will not be a lot of economic dis allocation; and at my age likely for the rest of my life.
Thanks Rage. Lots to worry about for sure. Biden's folks will now have a chance to work their magic. At this point there is not much we can do except hope it works out a little better. Scary times for sure.
DeleteDear LSD. Me thinkz your metaphor of a roller coaster is good . . . r-coasters go up/down, all ‘round ‘n zig ‘n zag. But therez a big difference betwixt a r-coaster and the economy. With a r-coaster the riderz know where/when the fun stopz; with the economy we riderz don’t\won't know. Me thinkz thatz yer point.
ReplyDeleteYepper, king Donald bragged about Q3—like all pols do. Hoot toots a good point that a baseline is needed and that Obummer benefited from a verw-w-e-e-y low one com’n out’a ’07-’08 and that king Donnie only kept Obummerz motor runn’n. But . . . there are significant differences betwixt Obummerz economy/policies and the king’s . . . But to avoid walk’n in the weedz I’ll offer these data pointz. GDP start of Obummerz administration 1/’09 = $14,713B; at end 12/’16 = $18,745; avg. annual % increase = 3.07%; 8 yr. $ increase $4,032B = $504 avg. annual increase. GDP start of king Donnie’s administration 1/’17 = $18,745B; at end 12/’19 = $21,430; avg. annual % increase = 4.56%; 3 yr. increase $2,685B = $895 avg. annual increase; $895/$504 = 78% higher. Yeah, while the king kept the engine on he apparently also pushed down the accelerator and created 21% more avg. annual wealth per year with free market/capitalist-oriented/less regulation policies.
We’ll never know what the king’s economy would have been had not CV-19 occurred to allow apples-apples comparisons to past administrations, but I’ll take a 4.56% avg. annual growth and $895B over $504B any day. Unfortunately, the roller coast’r isn’t gunna stop any time soon = stalemate! Cheerz!
Dearest chicken of the sea, yes, my point is that the economy is like a roller coaster except that in the economy we don't know when the next dip is going to hit. I agree with you that when all is said and done and we have some years to reflect, Trump's impact on the economy will be beneficial. I personally never liked comparing one President's economy to another's because congress and so many other things can whack the economy plus or minus. But in the case of Trump v Obama my personal preference is for the policies of Trump. As a moderate economist, I think Obama put the economy in the back seat, preferring other goals. I prefer the economy to be in the front seat.
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