I'm not trying to be the bearer of bad news, but it strikes me that several economic indicators are blinking red right now. The yield curve has been negative for a while and has just turned upward. GDP growth has been above potential for several quarters in a row. Job growth has been slowing down for a long time and is now close to zero. The Fed has kept interest rates high too long. And there's this:
The Sahm Rule is triggered when the unemployment rate increases by 0.5 percentage points relative to its low in the previous 12 months. The low point of the past 12 months is 3.7% and unemployment hit 4.3% a couple of months ago. That's 0.6 percentage points. Unemployment has gone down a bit since then and we're now slightly below Sahm territory.
But even at that we're well above the level that signaled the last four recessions. In fact, if the Sahm Rule holds up, it suggests we're already in a recession.
I sort of doubt that, and the post-pandemic era has always been economically weird. If there's ever been a time for the usual rules to break down, this is it. Still, unless they all break down we're probably not too far away from a recession.
Trump Recession.
This a million times. If every dem talking head does not say this till they are blue in the face, then we want to live in a fascist dystopia.
That would be very convenient politically. And should it happen, I expect it to be used against Trump, and Republicans.
Still, A) I don't think it's likely in the next year anyway, and B) I don't want to be in the position of wishing that bad things will happen to other people because it would be good for me.
Sure, lots of people do that. It still don't make it right. I am definitely willing to be an outlier on this.
Don't worry so much. Il Duce's across the board tariffs will fix us up just fine, especially with those impacted countries paying for them as promised. Won't cost the American public a dime!
No offense to Dr Sahm but has this rule ever actually spotted a recession in real time or is this a curve-fitting exercise that might or might not be useful once it moves off the training data?
They published the rule in 2019 so maybe it can be applied to the 2020 recession but I think Covid-19 allows an argument to be made that the recession was atypical. [If a "typical" recession is even a thing]
There is a old confidence game that works like this:
1. Advertise a sure-fire method for predicting the outcome of a first sporting event to a large group of people. Predict a different winner for each half of the group.
2. Repeat your advertisement for a second sporting event with the half of the group for whom you picked the winner of the first sporting event. Again, predict a different winner for each half of this remaining group.
Repeat these steps until you have a small number of people for whom you have successfully predicted a large number of events. Charge them for your next pick.
Start over with a new group of suckers.
We live in a batshit world where four or five percent is considered high.
A world where the median voter is "Inflation is out of control! And the Fed has to do something to bring these interest rates down!"
Actually they expected Biden to wave a magic wand and end world wide inflation.
In 1973, just out of college with an entry-level job, I bought a run-down shack with a mortgage at 10% interest. Which was typical. Somehow, I survived.
It's a miracle!
When I bought my first house in the early 90s my interest rate was 8.9% which people were thrilled about since rates had finally gotten below 10
I bought my current house in 1985. The going rate was 14.5%, but I got a buydown to 12%. I refinanced 3 times before finally paying it off at 5%.
Well, there you have it.
It was doable in 1973 so it must be today.
Yup. some chuds believe we're going back to 2.5-3% mortgage rates
There a bunch of things all coming together, which may hit at different times and might have enough distance between them for recovery before the next wave.
Housing prices are unsustainable. The only thing propping them up for the past year or two has been the value of short term rentals, which have been a means to keep cash flowing while investors rode up the price gains. Prices are dropping nearly everywhere and the STR boom is cooling, which means more inventory coming onto the market. What's on the market is not not selling at the prices being asked, so markdowns are more and more common. Savvy buyers are still sitting on the sidelines waiting for more price reductions. The NAR can blame it on interest rates all they want, but it's the prices, stupid.
Stock market is overpriced. There's still a lot of expectations around the AI boom which has yet to materialize. There is also a lot of jubilation for upcoming tax breaks and headcount reductions that likely will be offset by economic damage from tariffs and deporting a bunch of people who get food to our tables and build stuff for us.
All those together suggest that dark times are ahead and prudent people are positioning themselves for them.
Not until summer or fall, if it must be, pretty please-- let the stable genius own it.
If a market crash happens tomorrow we need to call it the Trump crash and blame it on him.
Agree completely! But if it doesn't come until the second half of 2025, then all the little lickspittles who try to blame it on Biden-- and there will be legions of them all over CNBC and Fox Business and the White House comms office-- will look so ridiculous even they won't be able to take themselves seriously.
The shape of the 2021+ upward slope is very different from the shapes of the prior upward slopes, no? I don't think that's something that can be discounted.
The different shape would probably reflect the waves of pandemic relief responses. Job growth is about to start dropping, nothing the Trump team is proposing adds jobs (at least not for a very long time, factories take time to build). All the benefits of tax cuts and regulation reduction will go right into the pockets of investors and others who are already wealthy.
"nothing the Trump team is proposing adds jobs (at least not for a very long time, factories take time to build)"
Whe did the Trump team start proposing to build factories? I see them proposing to build concentration camps (which would siphon off a lot of labor and materials into something economically useless), and proposing to force importers to source things from India instead of China, but it was Biden that spearheaded legislation to invest in US industry, not the Trump folks.
Concentration camps that will not just be economically useless, but actually economically damaging, as many of those confined will have been gainfully employed. Maybe we can make them into forced laborers. Must be some ‘Arbeit Macht Frei’ signs rusting away somewhere …
The point of tariffs is to force manufacturing back onto US shores and create jobs.
Which, in practice, they never do. Just the opposite.
We need to stop imputing "points" to Trump. Trump blathers about tariffs being used to tax foreigners to raise revenue for the government. It's plain he doesn't understand what a tariff is, much less what the impacts are. His economic policies (and it pains me to even use the word "policies") are, in essence, pointless.
Further, tariffs aren't going to "force manufacturing" back into the US, for several reasons. First, we manufacture a lot already--we just focus on manufacturing extremely high-end complex goods, like airplanes, medical imaging equipment, turbines, etc. Second, this isn't the 1950s. Finished goods are created from parts sourced all over the place, so slapping tariffs on imports generally ends up hurting domestic manufacturing, too (witness what happened last time, when Trump increased the price of steel imports, hurting us manufacturing that used steel as an input). Third, even if we decided it was a good idea to build up domestic manufacturing capacity for low-end goods/commodities, it takes time to do so. Nobody makes billion dollar long-term investments based on the short-term tariff whims of an elderly idiot who is going to be out on his ass one way or the other in 4 years. Trump can impose all the tariffs he wants, and it's just going to raise prices for years.
I don't know when a recession comes. A lot depends on how you define "not too far away." But sooner or later one's coming and I'd much rather have a Democratic trifecta to respond to it than what we got. Tax cuts for the rich! Tariffs for the rest of us? Let's give every family a thousand bucks in crypto.
Trump & his GOP never had to deal with an economic crisis. It was three years of normal, then Covid hit, and the fiscal response was led by Dems in the House. Trump cosigned. Why not? It might have boosted his reelection chances. This time they're on their own.
Most recessions, and especially the really bad ones, have been caused either by financial collapse or the Fed going wild with interest rates. The economy doesn't just get tired and go into recession. This time the Fed didn't go nearly as berserk as it did before the bad recession of 1981 and it has already reversed, but damage may have been done. And as Kevin pointed out in a recent post, in terms of fundamentals there have only been a couple of times that stock prices were higher than they are now. There is also presumably a danger factor in the crypto bubble.
And the fact is that there is a recurrent cycle of expansion and collapse, which is mostly finance-driven. As an expansion phase progresses, confidence turns into overconfidence. The greatest danger as the Trump administration goes on is that there will be new rounds of deregulation and consequent expansion of asset bubbles and other unsupported expansion.
So yes, the danger increases, but when bubbles collapse is hard to predict - the timing doesn't come from unemployment.
Of course there are also the likely consequences of deporting 20 million people and imposing massive tariffs. Both these things are likely to cause inflation - what would the Fed do then? If Trump and Republicans actually do everything they promised - and threaten - we will be going into unknown economic territory.
" If Trump and Republicans actually do everything they promised.."
Trump will never do what he promised, unless he see benefit for himself from it.
Tariffs are a useful way to mess the economoy, so maybe.
Deporting 20 million people isn't useful, so he is not going to do that. But it is a good excuse to create Trump-loyal force that he can use to terrorise opposition, so he may pretend to prepare to do the deportation.
I think deportation as a policy and a deportation force will be used to take revenge and punish places like sanctuary cities that defy Trump. I expect California to experience a lot of this.
Trump will have to pick his spots bc he can't do mass deportation everywhere. I'm not sure what gets hit hardest. Places like TX and FL have compliant governors with anti-immigrant fervor. CA does not. Does Trump go after low-hanging fruit or does he want a massive battle he might lose?
There are a lot of ways that could go at the beginning. Personally I think he'll want to do something that looks dramatic for the videos and that will help him build up his brownshirt brigades.
So one option could be a few big raids on small places like Springfield, sort of a "promises kept" operation that wouldn't affect ag much if at all, just hurt the small and medium-sized businesses that have hired the Haitians. Going after Haitians would have the added benefit of not targeting Latinos and risking MAGA's future with them. I couldn't begin to guess how much DeWine would be on board with it or how much he might push back.
A darker one might be tight(er) cooperation with the quasi-militarized groups in, say, AZ. That would have a fair amount of support locally and provoke a big visible fight with the governor there, which he may want. It might not even depend on having a flow of border-crossers there, who knows, though you'd think he wants some captives for the videos.
A lot would probably depend on how much influence Miller and Homan have and on how much progress his SecDef has made in forcing the military into submission at that point.
This is a really hateful thing to have to think about.
One flaw (among many) in the promise to deport 20 million immigrants is the cost. One estimate (from the American Immigration Council) says the cost to deport 1 million is $88 billion per year. A larger-scale one-time effort would cost $315 billion, including $167 billion for mass detention.
Trump will never get the funds approved by Congress to run his mass deportation scheme at anywhere near that level. Not to mention, he'd face a rebellion from business interests that depend on immigrant labor.
Maybe the fiasco of the border wall in his first term is a decent guide. He promised to build a wall across the entire southern border, all 1954 miles of it. In the end, 52 miles of new fencing was erected (along with fencing to replace old fences and barricades). That's 2.66% of the original promise. If he's equally effective this time, that would be 532,000 deportations of the 20 million he promised. Even getting the money for that is questionable.
When bubbles collapse, imo, is when it gets recognized that the cash flow generated by assets can't support the lending that's already been done. That's my own simplistic explanation for more or less normal circumstances, and of course it doesn't make those moments any easier to spot ahead of time. They're kind of Wile E. Coyote moments that way, the ones where he looks down and sees nothing but air, then looks at us out of the frame. At those moments he's a stand-in for our titans of finance.
Are we even having recessions anymore aside from weird one-offs like Covid or the Real Estate bubble collapse? I mean, back in the 20th Century they were kind of regular things, but now?
Again?
The bond market continues to remind Trump that they don't think much of his proposed tariff policy. I'm reminded of a story I don't quite remember about Clinton, early nineties, who was faced with rising unemployment. He wanted to go with the traditional Democratic policy of stimulus, but Rubin, his Sec. Treas, said that this would upset the bond market and advised a balanced budget instead. Clinton said, IIRC, "You mean I have to base my policy on what a bunch of bond traders say?" Turns out the bond traders were right, the economy did fine, and Clinton is the last Pres. to have balanced the budget. It's amusing to research this and see the articles of the time lambasting Clinton for... balancing the budget and ruining the economy!
I don't have much faith in such "rules," because they are completely empirical. They strike me as the kind of thing an economist says so he or she can get on TV. If the prediction fails, it's easy to say that "fundamentals have changed" and if the prediction succeeds, you become the new "Nostradamus."
Here's a rule: The last Republican president to NOT have a recession was...Gerald Ford. Two-term Republican presidents had two. The last Democratic president to have a recession begin on his watch was...Harry Truman.
When? I don't pay much attention to yield curves and the various other "rules". They seem like numerology to me. Probably not right away. Recessions rarely happen all at once. They just seem to if you haven't been paying attention. By the time Lehman Brothers collapsed in 2008, we'd already been in a recession for 9 months and it was clear to everyone that things were deteriorating rapidly. Unemployment didn't really start rising until October of 2008.
The US economy is hard to move and even Donald Trump can't screw it up immediately. I'd expect to see some signs by the 3rd quarter of 2025. I'll be surprised if we're not in a recession by the end of 2025. If you're going to adjust your investment portfolio, don't panic yet, but don't wait until things are rapidly deteriorating, either.
Point taken, though FTR Carter had a 2-quarter recession in 1980. They treated him like he was he the biggest catastrophe in history, just for doing what Republicans do all the time, and his record of growth was better than Reagan's.
GDP growth dropped for only one quarter and never actually went negative:
https://fred.stlouisfed.org/graph/?g=1BDT0
Unemployment jumped from about 6% to 7.5%. NBER calls it a recession, but it's marginal, at best.
The working class members of the electorate who voted for Biden but not for Harris sent a signal the economy was not providing for them according to the optimism and assumptions of Harris's campaign rhetoric. One dimensional metrics demonstrating the working class living standards were improving contradicted their experience in the workplace. Two weeks ago this blog had a post with such metrics concluding President-elect Trump should have an easy presidency. The first people to notice job growth is slowing are the members of the precarious class. They have the least influence on policy and are the most ignored members of American society. The most influential members of society will be able to forestall a market correction with the type of unscrupulous market manipulation that kept the credit bubble growing until the markets finally crashed in 2008. Whether Trump can prevent a recession before 2028 will be interesting to track. Trump has expertise with this kind of dishonesty.
In conventional political thinking, the smart play is to inflict the pain in the first year and count on the fruit-fly memories of average voters to sweep you back into office the next time around, like Reagan in '81 and '84. And isn't it Elmo and his circle, along with the tariff hawks, who have been signaling that pain is in store very soon?
But like you say, lying is trump's preferred go-to and it's served him extraordinarily well in an extraordinary range of circumstances. Be interesting to see what happens if it all ends up a cage match between him and the bond traders.
It's unusual when a presidential campaign persistently, publicly and loudly commits itself to crashing a pretty good economy, but that's where we currently are.
If tЯump goes through with his tariffs, it will be a full scale depression.