It's Still the Economy, Stupid

Real Clear Markets ^ | February 4, 2016 | Robert Samuelson

[expat_panama]

In 1992, James Carville popularized the adage "It's the economy, stupid." If the economy is ailing, people tend to vote against the party in the White House. That happened in the 1992 election. A recession that started in 1990 was officially over, but it didn't seem over to millions of Americans. They sent President George H.W. Bush into retirement. The question now is whether something similar will happen in 2016.

All eyes are on New Hampshire, but maybe we should be paying more attention to the economy. Along with the volatile stock market, recent indicators hint at a slowdown or recession. This could change the campaign's complexion once nominees are picked. Democrats could be thrown on the defensive. Their pitch to the middle class might be blunted, as Republicans blamed President Obama for the slump. Without a recession, it would be harder to attack Obama's policies.

Indisputably, recent economic releases have been downbeat. Consider: In the fourth quarter, the economy grew at a paltry annual rate of 0.7 percent. Personal spending in December was flat, as Americans saved more of their incomes. The manufacturing sector is weak, hurt by a strong dollar - which makes U.S. exports more expensive - and less oil exploration. Individually, none of these indicators is conclusive, but they are of a piece.

The good news for Democrats is that many economists (possibly most) don't yet forecast a recession. At worst, they see a temporary pause in the expansion.

Here's a report from economists Beth Ann Bovino and Satyam Panday of Standard & Poor's. There have been, they say, 11 economic expansions - periods when production and employment are generally increasing - since World War II, averaging just over 58 months, or nearly five years each. By this measure, the present expansion - which started in the third quarter of 2009 and has lasted 78 months - is past its prime and could be near its end.

But the S&P economists doubt that. Indeed, they argue just the opposite. "We may be, more or less, at midcycle," they write, "with room to grow and the underlying momentum to do so." Translation: With a little luck, the expansion could run another five or six years.

What has killed most post-World War II expansions, they argue, is the Federal Reserve raising interest rates to quash inflation. But there's no evidence of runaway inflation now, they say. Indeed, they estimate that the economy is operating well below its potential output, and this limits the power of companies to raise prices. If firms raise prices too much, other suppliers will undercut them and steal market share. (Bovino and Panday estimate the "output gap" - the difference between actual and potential production - at about 3 percent of gross domestic product, worth more than $500 billion in added goodsand services.)

To be sure, the labor market - with the unemployment rate at 5 percent - seems near "full employment." Superficially, this indicates that a tight job market could drive up wages and lead to an inflationary wage-price spiral. But this danger is minimized, say the S&P economists, because broader unemployment measures suggest the labor market is not so tight. They cite the so-called "U-6" measure, which includes the official unemployed, discouraged workers and part-timers who'd like full-time jobs. U-6 is now 9.9 percent; its pre-recession low was 8.4 percent in 2007.

The political implications are self-evident. If the S&P economists and other forecasters are correct - there is no recession - it will be easier for the Democratic nominee to run on Obama's record and to credit his policies with reducing the distress of the Great Recession, which (of course) will be blamed on George W. Bush and Republicans. But if a conspicuous slowdown or recession materializes, the opposite will be true. Republicans will be better able to peddle their narrative of businesses being over-regulated, over-taxed and harassed.

[1rudeboy]

Thanks for posting. Thankfully, someone can get away from the Trump vs. Cruz “my ‘belt’ is bigger than yours” threads and post something of consequence.

[ealgeone]

That and the breaking of this promise....”read my lips, no new taxes” was the deal breaker.

[expat_panama]

My article didn’t meantion Trump? Huh! [finding different article...]

[cicero2k]

OK Carville, then how do you explain 2012?

Lowered household income for several years then.

[expat_panama]

Happy Thursday morning and while other threads may be saying stocks are up (Dow jumps 150 as oil surges 8 pct) they must not have seen how the NASDAQ fell 0.3% and hit a new low in rising trade.  Even while the S&P may have climbed a half % it too had earlier sunk to a 5-day low in heavy trade.

Metals (now seen by futures going up today +2.65%) continue their climb w/ gold and silver right now at $1,145.10 and $14.78.

Y'all can enjoy the flood--

7:30 AM Challenger Job Cuts
8:30 AM Initial Claims
8:30 AM Continuing Claims
8:30 AM Productivity-Prel
8:30 AM Unit Labor Costs-Prel
10:00 AM Factory Orders
10:30 AM Natural Gas Inventories

--but I'll be cruisin' the econ threads:

• Federal Debt Just Exceeded $19 Trillion: $58,000 for Each Person in U.S.
• Here's Why You Should Buy Gold Ahead Of The 2016 Election
• Ted Cruz on what the Iowa victory means to him (and how absolutely EVIL Washington has become)
• Column - Norma White: You want change? Try these ideas

[norwaypinesavage]

"A recession that started in 1990 was officially over, but it didn't seem over to millions of Americans. They sent President George H.W. Bush into retirement."

It's the MEDIA, stupid.

The economy came roaring back after the 1990 recession, certainly by the standards of the Obama 'recovery'. In order to help Clinton win the election, though, the media simply portrayed it as weak. Now the media is trying to portray a dismal economy as good. We can expect the attempt will strengthen in the next eight months. We have to hope they will not be so successful.

[Lurkinanloomin]

I’s the invasion, stupid.

If we don’t stop it, nothing else matters

[tbpiper]

The Fed's having a hell of a time trying to get the S&P back up past its 200 day moving average. I'm guessing the best they will do is to bump along sideways in the low 190's for a while before heading for the 180's.

I miss having a real economy.

[expat_panama]

Fed's having a hell of a time trying to get the S&P back up

Yeah, the Fed always funds the stock market, just look at the way the fed raised rates in Dec to make the market go up---

Huh, that doesn't quite make any sense...

[DaveA37]

“......recent indicators hint at a slowdown or recession.”....

Guess Mr. Samuelson hasn’t been out shopping lately when he “hints of a slowdown or recession”. He completely missed the word “inflation”.

[tbpiper]

Guess Mr. Samuelson hasn’t been out shopping lately

I have a 'bacon index'. Generally, the price of bacon stays the same, but the package has less bacon. Right now, most bacon in 12 oz packages instead of 16 oz. Perhaps at some point it will sell by the slice with financing options available.

[tbpiper]

It's not the rates it's the printing of money and loaning it to the big banks and corporations at zero percent. How that money is used is the problem. How can we have a stock market this high with a GDP this low?

I am no expert, but the whole thing looks fishy.

[Toddsterpatriot]

It's not the rates it's the printing of money and loaning it to the big banks and corporations at zero percent.

Banks can borrow from the Fed, today, at 1%, not zero.

How much do you think they're currently borrowing from the Fed?

[Buckeye McFrog]

TPP is about to jump to the forefront as a hot economic issue.

[expat_panama]

...printing of money and loaning it to the big banks and corporations at zero percent...

--and don't forget all the secret deals the Fed's made w/ the Planet Bizaro too!

[expat_panama]

TPP is about to jump to the forefront as a hot economic issue.

That's going to be a hoot.  At first Hillary was bragging about TPP as being her big accomplishment but Crazy Bernie's attacks maneuvered her into alleging she had nothing to do w/ it.

[blam]

"But if a conspicuous slowdown or recession materializes, the opposite will be true. Republicans will be better able to peddle their narrative of businesses being over-regulated, over-taxed and harassed."

There's A Big Sign That We 'Could Enter Recession The Second Half Of The Year'

[tbpiper]

Glad you enjoyed the humor.

[Grampa Dave]

I have posted before about the lack of traffic during the week and customers in stores since last November.

Yesterday, we did our weekly library run and mid week shopping runs.

The only full parking lot was the library lot. I had to park two blocks away. The library was packed with people. When we left after my wife checked out a new bag of books, the library parking lot was still full.

My wife had a couple of downtown stops, and I was able to park by the stores. Then, I parked by the downtown ATM we use, and no line to use it or as I left.

Our next two stops had minimal traffic to the grocery stores, and there were parking places everywhere. At both stores, we saw few customers and were able to walk up to checkout stands to be checked out. The parking lots were still basically empty.

On our drive home, there was minimal traffic during the lunch hour.

We are supposedly in a good economy area, and we are not seeing the signs of a good economy.

It will be interesting to see the sales tax collections in our area for a better measurement of the economy for January.