Seymour Lipkin, the pianist/composer who left this world recently, was once asked if he had always wanted to pursue a career in music. "I never considered anything else," he said. "There was never any … thought that I would be, say, an economist, God forbid." At times like this I can't help feeling that I should not have rejected my mother's insistence that I learn to play the piano. It's somewhere between difficult and impossible to figure out where the U.S. economy is headed.
Those who should know are not of much help. Jamie Dimon says more people are working, wages are up, consumers are spending home sales are up, people are buying cars, "That's pretty good." The Federal Reserve Bank of Kansas reports that "economic activity expanded in most [Federal Reserve] Districts … consumer spending increased in the majority of Districts … residential and real estate sales rose in most Districts … labor market conditions continued to improve." President Obama says "the United States of America has … emerged as the strongest, most durable economy in the world …". Of course he would say that, in response to Republican wannabees who are campaigning on platforms that contend that the nation is in deep trouble and, in one case, that we need a caudillo to make America great again. But Obama has support from the Sage of Omaha, Warren Buffett, who says the Republican critics are "dead wrong … The babies being born in America today are the luckiest crop in history…. Today's politicians need not shed tears for tomorrow's children." Investors have been responding to these bits of cheer of late, sending share prices up for the past three weeks.
They are apparently unimpressed by the fact that the US economy managed to eke out GDP growth of only 0.7 percent in the final quarter of 2015. Or the warning of Lord Mervyn King, former governor of the Bank of England, who warns that serious imbalances in the world economy "make it likely that it [another crisis] will come sooner rather than later." That crisis will be "painful" warns Neel Kashkari, newly installed president of the Federal Reserve Bank of Minneapolis and formerly the Treasury Department's man in charge of bank bailouts triggered by the financial crisis of 2008. The G-20 finance ministers emerged from last month's meeting in Shanghai to announce that although they foresee moderate growth, "Downside risks and vulnerabilities have risen, against the backdrop of volatile capital flows, a large drop of commodity prices, escalated geopolitical tensions, the shock of a potential UK exit from the European Union …".
There are three ways to sort through these conflicting opinions. The first is to take a look at Friday's jobs report. The economy continues to create jobs at a relatively rapid pace – 242,000 in February, keeping the headline unemployment rate at 4.9 percent (4.6 percent for adults, 15.6 percent for teenagers), and bringing the so-called U-6 rate, which includes workers too discouraged to look for work or involuntarily working part time, down to 9.7 percent, its lowest level since December 2014. The underlying data also support Federal Reserve Board chairwoman Janet Yellen's contention that despite good job growth – but note that many new ones are part-time – there is slack in the labor market. Some 500,000 workers in what Karl Marx called the reserve army of labor are coming off the couch every month and entering the jobs market. There are now two million more workers in the work force than there were a year ago. That is one reason that average hourly earnings ticked down by 0.1 percent in February despite healthy job growth. And there are more troops in reserve.
The second fact to consider is the coincidence of relatively rapid growth in job creation and a sluggish economy, predicted to grow at around 2 percent by optimists and 1 percent by the gloomy. More jobs, but not much more output of goods and services means that productivity – what is being turned out by an hour of work – is somewhere between stagnant and declining. And that means that more and more workers will be sharing a pie that is not growing.
Finally, all of these data must be viewed against a background that is, to put it mildly, troubling. Banks around the world are adopting policies designed to drive down their currencies and, therefore, drive up the dollar. That is cutting into global markets for made-in-America products, and shrinking profits of multinationals, who can buy fewer dollars with their overseas earnings. Thomson Reuters estimates that profits of S&P 500 companies fell 3.5 percent in the final quarter of last year compared with 2014, and are expected to come in this year 5.7 percent below 2015, much lower if companies' adjustments to generally accepted accounting principles are ignored.
In addition to the negative effect on U.S. growth of super-loose monetary policy by its trading partners, we have to reckon with some worrying anecdotal data. Car sales remain on target to hit or beat last year's record, but dealers tell me that they are being forced to offer larger and larger "incentives", better called discounts, to "move the metal". Banks are denying that defaults by shale oil companies drowning in the flood of Saudi Arabia's oil production that is succeeding in its stated goal of driving them out of business, but they are also increasing the reserves they are setting aside to cover those defaults. For JPMorgan reserve additions I this quarter will total $600 million, $500 million related to potential energy losses and another $100 million related to metals and mining. Finally, business leaders are unnerved by protectionist positions being taken by Donald Trump and Hillary Clinton, and the wild tax-cutting promises by Republicans and spending promises by Democrats, either of which if redeemed would add to the $19 trillion-and-growing debt.
Still, all is not gloom. Secretary of Labor Tom Perez, a cheerleader for the Obama administration, urges everyone to ignore the "Eeyore caucus", advice probably to be discounted as his specialty is civil rights and he has never held a private sector job. But Jamie Dimon, who should know what is going on among his bank's many customers, on Thursday reeled off the impressive list of the economy's many strengths cited above. Oh yes, the following day his economists cut their GDP growth forecast for the first quarter from 2.5 percent to 1.4 percent, and for the second quarter from 3.5 percent to 3.0 percent. If you can't forecast well, forecast often, say those of us doomed by an absence of Seymour Lipkin's talent to ply the economist's trade.