Is the U.S. Economy Peaking and Heading for a Fall?

Is the U.S. Economy Peaking and Heading for a Fall?

The market giveth and the market taketh away.

A day after posting the biggest gain on the Entrepreneur Index™, TripAdvisor Inc. was down 5.42 percent today. The online travel website posted strong earnings yesterday and saw a 16 percent jump in its stock.

TripAdvisor wasn’t the only stock giving back gains. Ralph Lauren Corp. up 3.78 percent yesterday, fell 6.26 percent today, the biggest decline on the Entrepreneur Index™.

The market as a whole was down, with the Entrepreneur Index™ falling 1.2 percent. While a late afternoon rally pared losses, share price declines on the index outpaced gains by a margin of 41 to 19.

The stock market had one of its best days of the year on Wednesday following the mid-term elections, but has been skittish for the last two trading sessions. Conflicting economic indicators may be the reason. On the one hand, the U.S. economy remains strong and a 0.6 percent jump in the producer price index (PPI) reported today suggests that the Fed will keep to its plans to raise rates again in December and next year.

On the other hand, the rest of the world — particularly China, the second largest global economy — is clearly slowing down. The price of oil, one of the better barometers of global growth, had its tenth straight daily decline today and is down more than 20 percent in the last month. Is the U.S. economy peaking and headed for a fall?

The bond market appeared to think so today. Despite the higher than expected PPI reading this morning, the 10-year Treasury bond yield was down 4.5 points to 3.19 percent.

All the uncertainty is hitting high growth technology stocks hardest. The Nasdaq composite index was down 1.65 percent today and most tech stocks on the Entrepreneur Index™ were in the red. Netflix (-4.55 percent), (-3.49 percent) and Analog Devices (-2.6 percent) had the biggest declines in the sector.

Biotech stocks have also been under pressure. Alexion Pharmaceuticals and Regeneron Pharmaceuticals declined 2.94 percent and 1.84 percent respectively today. Both were down more than 15 percent last month.

Truck manufacturer PACCAR Inc. fell 2.98 percent on the day. With worries about global growth and the demand for automobiles and trucks, the company’s stock also fell more than 15 percent in October.

Other stocks on the index with significant declines today included the two asset managers BlackRock and Franklin Resources, down 1.77 percent and 2.43 percent respectively. Shipping company Fedex was also off 2.18 percent.

The biggest gain on the Entrepreneur Index™ was registered by Chipotle Mexican Grill, which was up 2.61 percent, followed by food-maker J.M. Smucker Company, up 1.77 percent. No other stock on the index had a gain of more than 1 percent.

The Entrepreneur Index™ collects the top 60 publicly traded companies founded and run by entrepreneurs. The entrepreneurial spirit is a valuable asset for any business, and this index recognizes its importance, no matter how much a company has grown. These inspirational businesses can be tracked in real time on


Why a Great U.S. Economy Doesn’t Feel So Great

John Williams, president of the Federal Reserve Bank of New York, describes the economy “strong.” CNN says it’s “soaring.” Vice calls it “great,” and the Washington Post labels it “good.” I myself have referred to it as a “boom.”

But others wonder how this strong, great economy can be soaring when wages aren’t rising very quickly:

Meanwhile, my Bloomberg Opinion colleague Stephen Gandel notes that most Americans’ wealth hasn’t gone up during this boom. Most middle-class Americans keep their wealth in their houses, while the rich tend to put more in the stock market. But stocks have seen the bulk of the gains since President Donald Trump took office:

Even real estate isn’t doing so well for ordinary Americans these days, since the foreclosures of the housing bust and tighter lending standards have shifted housing wealth from the middle class to the rich.

And that’s just what’s happening recently. Over the longer term, Americans have been suffering from steadily falling mobility. Only about half of 30-year-olds now make more money than their parents did at a similar age:

How can things be booming when average Americans are treading water? The answer has to do with the way economists think about the economy. In both their formal models and their mental ones, economic performance is divided into two very different components — macro and micro. That divide has seeped into popular language and punditry, occasionally causing unnecessary confusion.

In simple terms, the basic story economists tell goes something like this: Over the long run, economic prosperity is determined by the march of technology and the quality of human institutions. These combine to drive the growth in productivity, which measures how much output the economy can create for a given set of inputs. They also determine how what the economy produces gets distributed — technology can reward some skills and devalue others, while the government can redistribute wealth and privilege certain occupations over others.

Various subfields of economics deal with the gritty details of things that are thought to affect productivity — taxes, public goods, economic development, education, health, research and development, financial markets, etc. Increasingly, these fields — which comprise a majority of what economists study — are grouped together under the name of microeconomics.

In the short term, economists believe, the business cycle can cause fluctuations around the long-term trend. When a financial crisis, tight monetary policy or some other shock causes aggregate demand for goods and services to fall, businesses stop investing and lay off workers. The ensuing recession causes a mismatch — offices and factories sit empty, while workers who could fill those offices and factories stay at home playing video games. The downturn doesn’t last forever, but in the most severe situations it can persist for as long as a decade. The branch of economics which deals with this sort of temporary phenomenon is called macroeconomics.

Since the Great Depression, economists have gotten used to referring to macroeconomic conditions as “the economy.” Recessions and booms dominate the public discussion. When a large share of workforce is employed — as the chart below shows — people say “the economy” is good, even if productivity is slow, mobility is stagnant and inequality is increasing.

The job market is so strong that even people on Social Security Disability are re-entering the workforce.

But this labor market upswing is relative to a long-term productivity trend that looks increasingly gloomy:

That stagnant productivity is probably a major reason wages are rising so slowly — though workers don’t always capture the gains from productivity growth, it definitely helps. Lower productivity also means less wealth available for the government to redistribute.

In other words, economists and commentators are calling the economy “great” because that’s what they’re used to doing. They just mean that most people have jobs. This standard terminology ignores the question of how much those jobs pay, or which classes of society reap the gains.

Of course, the macroeconomy and the microeconomy aren’t completely disconnected. An extended macroeconomic boom will tend to push up wages. It can even raise productivity, since it prompts companies to invest in the latest technological advances. So it’s good to keep aggregate demand strong, by not tightening monetary and fiscal policy unnecessarily.

But a good macroeconomy isn’t enough. The long-term trends of low productivity and high inequality have to be addressed. Microeconomic policy is much harder than macro, since it requires digging deep into the guts of institutions and industries, and fixing a million little things such as regulations, infrastructure, research, taxes, education and trade policy. There are rarely any big, quick, simple solutions. But the job must be tackled nonetheless, or Americans will eventually realize that a great economy isn’t so great after all.


US trade deficit increases more than expected in October and is now up 10% for 2018

A container ship at the Port of Oakland in Oakland, California.

Getty Images
A container ship at the Port of Oakland in Oakland, California.

The U.S. goods and services deficit increased more than expected in September amid escalating tensions with its global trading partners.

The shortfall rose to $54 billion for the month, a 1.3 percent increase, or $700 million, from August and reflective of a 10.1 percent increase year to date, according to government numbers released Friday. Economists surveyed by Refinitiv had been looking for a gain of $53.6 billion.

The goods deficit stood at $76.3 billion, the highest on record on a seasonally adjusted basis.

Exports increased to $212.6 billion, a $3.1 billion gain from August, while imports rose $3.8 billion to $266.6 billion.

Those numbers come as the Trump administration moved forward with a plan to tax $200 billion worth of Chinese imports and as China countered. In recent days, President Donald Trump has expressed hope that upcoming talks with Chinese President Xi Jinping can yield fruits on the impasse between the two nations.

Trump has expressed disdain for trade imbalances and has vowed to use tariffs as a way to reduce deficits and get agreements that are fairer to the U.S.

For all of 2018, the global trade deficit has increased $40.7 billion, a result of a $143.8 billion increase in imports and a $184.5 gain in imports.

On a three-month average, the goods and services shortfall rose 5.6 percent from the same period a year ago.

In China’s case, the goods and services deficit increased to $40.2 billion, the highest on record on a non-seasonally adjusted basis Year to date, the U.S. is running a $301.4 billion deficit with China. The closely watched soybean trade was reflective of the trade tensions, with the decline in September exports at $744 million from the previous month.

The goods and services deficit with Russia rose to $1.7 billion, the highest since May 2013.

The goods deficit with Mexico showed a sharp decline, falling $1.1 billion to $7.6 billion, a 12.6 percent slide. The move came almost entirely due to exports, which rose $1.1 billion to $22.5 billion. Imports were little changed, falling less than $100 million to $30.1 billion.


Fed Chairman Powell’s view of immigration and its effect on the economy differs from Trump’s

Federal Reserve Chairman Jerome Powell testifies before a House Financial Services Committee hearing on the “Semiannual Monetary Policy Report to Congress," at the Rayburn House Office Building in Washington, U.S., July 18, 2018. 

Mary F. Calvert | Reuters
Federal Reserve Chairman Jerome Powell testifies before a House Financial Services Committee hearing on the “Semiannual Monetary Policy Report to Congress,” at the Rayburn House Office Building in Washington, U.S., July 18, 2018.

The head of the U.S. central bank has some concerns about reducing immigration to the U.S.

Doing so could stunt growth the labor force and therefore hurt the U.S. economy long term, Fed Chairman Jay Powell said in a letter to a Democratic senator, seen by Bloomberg News.

Sen. Catherine Cortez, D-Nev., asked if Powell agreed with his colleague, Minneapolis Fed President Neel Kashkari, on the topic. Kashkari wrote in a January Wall Street Journal column that immigration is “as close to a free lunch as there is” for the U.S. economy. Kashkari’s parents came from India and his wife is from the Philippines.

“From an economic growth standpoint, reduced immigration would result in lower population growth and thus, all else equal, slower trend economic growth,” Powell wrote in the letter, according to Bloomberg.

The comments are a stark contrast from President Donald Trump’s take on immigration, a divisive issue ahead of midterm elections next week. Since campaigning in 2016 to build a wall with Mexico, the president has categorized immigration as a threat and a burden to taxpayers.

His latest hard-line proposal was a plan this week to do away with birthright citizenship for children born to noncitizens and undocumented immigrants. The White House deployed U.S. troops to the border to support Customs and Border Protection agents preparing for the arrival of a caravan of an estimated 4,000 migrants. Trump said the total U.S. troops could reach 15,000 — roughly double the number the Pentagon said it currently plans for a mission.


Jobs smash estimates with gain of 250,000, wage gains pass 3% for first time since recession

Job growth blew past expectations in October and year-over-year wage gains jumped past 3 percent for the first time since the Great Recession, the Labor Department reported Friday.

Nonfarm payrolls powered up by 250,000 for the month, well ahead of Refinitiv estimates of 190,000. The unemployment rate stayed at 3.7 percent, the lowest since December 1969.

“The job market is doing remarkably well, particularly this late in the expansion,” said Jim Baird, partner and chief investment officer for Plante Moran Financial Advisors. “This report adds yet another data point to a narrative that has been positive for the labor market this year. Little seems to stand in the way of the economy finishing 2018 out on solid footing.”

Economist says productivity ticking higher will offset fears of rising wage costs

Economist says productivity ticking higher will offset fears of rising wage costs   1:31 PM ET Fri, 2 Nov 2018 | 03:19

The ranks of the employed rose to a fresh record 156.6 million and the employment-to-population ratio increased to 60.6 percent, the highest level since December 2008, according to the department’s household survey. That headline jobless number stayed level even amid a two-tenths of a percentage point rise in the labor force participation rate to 62.9 percent.

Those counted as outside the labor force tumbled by 487,000 to 95.9 million.

But the bigger story may be wage growth, which has been the missing piece of the economic recovery. Average hourly earnings increased by 5 cents an hour for the month and 83 cents year over year, representing a 3.1 percent gain. The annual increase in wages was the best since 2009.

That number is being watched closely by Federal Reserve, which has increased its benchmark interest rate three times this year and is on track for a fourth quarter-point hike in December. Higher wage growth feeds into the central bank’s desire to raise rates to keep inflation under control.


October’s jobs report was perfect for everyone, except Wall Street

Job growth powers aheadOn Friday, the government delivered a nearly perfect jobs report.

More than 200,000 Americans a month on net are finding jobs.

The 3.1 percent year-over-year increase in wages is the best since April 2009, just a few month before the U.S. escaped the throes of the Great Recession.

While that’s a victory for workers, whether it indicates something bigger about inflation is what has Wall Street unnerved.

Wage gains don’t generally cause inflation, but they could be symptoms that pressure is brewing.

“At some point the market has to accept that what is good for Main Street is also good for Wall Street,” said Quincy Krosby, chief market strategist at Prudential Financial. “But that mantra changes if it puts too much pressure on margins and at the same time forces the Fed to see galloping inflation on the horizon. That makes for a much more aggressive Fed.”

Indications that the central bank might be more hawkish than Wall Street thought helped ignite an October sell-off that pushed the S&P 500 down nearly 7 percent for the month.

The market took Friday’s news about wages fairly well initially. However, premaket gains quickly evaporated in good part due to negative sentiment off Apple’s earnings after the close Thursday.

Government bond yields did rise in a move that would be consistent with higher inflation expectations.

The connection between rising wages and inflation and the Fed’s response was noted around Wall Street.

“Federal Reserve concerns about inflation will only grow as a result of labor market news this week,” said Gad Levanon, chief economist for North America at The Conference Board. “They will be more determined to continue raising rates to slow down growth and prevent labor market conditions from causing the economy to overheat and inflation from exceeding the bank’s target.”

As things stand, the Fed expects to back up December’s rate hike with three more in 2019 and another increase or two in 2020. While traders in the fed funds futures market have largely priced in the December increase, the market is implying just two moves next year with the central bank pausing after that.

President Donald Trump has criticized the Fed and its Chairman Jerome Powell multiple times in recent months, insisting that interest rate hikes are the biggest threat to U.S. economic growth. GDP rose 3.5 percent in the third quarter, and the Atlanta Fed expects another 3 percent quarter to close the year.

The Fed has no interest in pushing the economy into a slowdown, but members have been vocal that they don’t want to get behind the curve and have to tighten too quickly. They’ve also stressed that policy could change as conditions evolve in a different direction than the current path.

“The economy remains healthy as Chairman Powell pointed out and won’t buckle under despite President Trump’s criticisms. However, there are clouds on the horizon including home sales and capital spending,” said Sung Won Sohn, president at SS Economics. “The global economy, both Europe and Emerging markets, is slowing. The strong dollar is playing havoc with their external debt-service burden. The policy is data driven and the course could change.”