Monday, October 19, 2015

Surprisingly strong charts

We all know this is the weakest recovery ever. Real GDP has only managed to grow by an annualized rate of 2.2% since mid-2009, and by my estimates, the economy is missing out on some $3 trillion in annual income thanks to a series of bad policy choices. Even Democrats seeking the presidency bemoan the miserable state of the economy.

We also know that there is a laundry list of problems out there in the world: slow-growing Europe is being overrun by millions fleeing the chaos in the Middle East; rogue nations either have The Bomb or will shortly; the Chinese economy has slowed from a 10% growth rate five years ago to just under 7% today; industrial commodity prices are down by a third from their 2011 highs; oil prices have plunged almost 60% since mid-2014, sending HY energy-related credit spreads to over 1000 bps and reducing the number of active drilling rigs in the U.S. by 63% from last year's highs; business investment is anemic, despite record-setting profits; the world's major central banks seem powerless to boost growth, despite years of trillions of quantitative easing and near-zero interest rates.

I could go on, but you get the point: there is absolutely no shortage of bad news and things to worry about. However, there is a real shortage of good things to cheer. What follows are some charts that highlight surprisingly strong things that are occurring in U.S. economy:


Housing starts have doubled in the past five years, and today's stronger-than-expected release of builder sentiment suggests that starts are likely to continue growing at double-digit rates. The level of starts may be disappointing in an historical context, but it is the change at the margin that is important, and that change is huge. As of last August, residential and nonresidential construction spending was up almost 14% from the previous year.


Car sales have doubled since their 2009 lows, and are up 10% in the past year. The level of sales is now quite impressive from an historical perspective.


Bank lending to small and medium-sized businesses (aka Commercial & Industrial Loans) has been growing at double-digit rates for five years, and is up over 11% in the past 12 months. Bank Credit, now $11.5 trillion, has increased over 7% in the past 12 months. Lending growth towers over the 4% nominal GDP growth of recent years.


Household balance sheets are in great shape. Credit card delinquency rates have never been so low. Real per capita net worth is at record levels. Household financial obligations are at historically low levels relative to disposable income. Households' leverage position (liabilities as a percent of total assets) has dropped by almost one third since its peak in early 2009.


The commercial real estate market is on fire. Commercial real estate prices have been growing at double-digit rates for years, and they rose 11-12% in the 12 months ended last August.


Federal revenues have been rising at a 11.3% annualized rate for the past five years, and in the past 12 months they have increased at twice the rate of nominal GDP growth. Individual income tax receipts grew 10.5% in the past 12 months. Taxes don't lie, and they don't grow like this if the economy is sick. Soaring tax receipts at the very least say that there are a lot of things going right in the economy.

The purpose of this post is not to paint an optimistic picture of the current or future U.S. economy. My point here is simply to say that there is enough good stuff going on to at least rule out another recession. And that happens to be good news, considering how worried markets are today.


22 comments:

Danyaal Farooqui said...

Who's about to get the bomb?

William said...

But, Scott, aren't the charts which you have shown either Coincident or Lagging Economic Indicators? What about Leading Indicators of economic activity?

What I have read and charts I have seen from the OECD and ECRI show a slowing of the US and many other economies' Leading Indicators. This late in an economic cycle with full employment (5% or so unemployment) should not our focus be more on the Leading Indicators?

Thanks for the excellent analysis and charting. Best regards,,,William

Benjamin Cole said...

Btw I think the fertilizer stock Potash (POT) looks interesting...look for more of the same, slow growth and low inflation...
Property and equities look fully priced...

There is lots of good news... the old USSR is gone, and Russia is now an orthodox Catholic nation, run by crony capitalists... Precisely the kind of nation we used to embrace as an ally!

Russia is bombing ISIS...GOP King Trump seems to get this....

Besides, the USA spent trillions in Iraq and ended up impotent, while the Russians spend millions and are regarded as dominating. Let them have it.

More good news is that we are not wasting trillions of taxpayer money there anymore.

hoot said...

you write the same thing over and over

Johnny Bee Dawg said...

Same troll, different name, different day.
Glad that Scott keeps emphasizing the most important data.

His assssment has been spot on for many years, now. It's kind of hilarious to see the criticism.
Even now, stocks are having their best month in 4 years.
As long as the Zero Hedge crowd keeps braying loudly, negative sentiment will keep driving stocks ahead. Lots of all-time highs these days in easily identifiable relative strength winners. S&P total return is 4% from all time highs.

Dividends keep growing way faster than inflation. There are lines at restaurants. Traffic in shopping areas is overwhelming. Airlines are full and bumping people from every flight I take. Home builders are having trouble finding workers. Job openings are at record highs. My town has 45 breweries, suddenly. Hundreds of new disease-killing drugs are being discovered, until President Hillary crushes them with her price controls. Gas is cheap. Food is cheap. Savings are up. Monthly payments are low. Everybody has extra money in their pocket. It takes less hours of work than EVER before to buy almost everything in life, except for a Women's Studies or an Art History degree.

And the best part is it could all be so much better if Washington, DC could ever get out of the way. Everywhere you look, it's easy to see a hundred things that could be fixed. The mark-to-market accounting changes that lasted from Nov 2007 to March 2009 almost did us in. The DEM Congress from 2007 until 2010 nearly did us in, too. Thank God the American People pushed back and put the brakes on their insane spending and bad policy. The question is....will we keep pushing back, or return to those dark DEM days??

steve said...

the reason scott repeats himself is because the data is repeating itself! more of the same:growth, but not impressive growth with no real signs of degradation. hence a stock market that won't fall more than 10% and a bond market that is peaking at record low yields. trying to pick a top or bottom is a fools errand.

marcusbalbus said...

a foolish consistency.......

Lawyer in NJ said...

The idea that one party, left alone to dominate fiscal policy, offers a path to prosperity and balanced budgets, flies in the face of history from 1980 on.

This country succeeds when the moderating effects of bipartisan compromise are present.

Matthew Grech said...

Ah, yes, marcus snipes again... but doesn't say why!

marcusbalbus said...

Blessed is the man who, having nothing to say, abstains from giving us wordy evidence of the fact--from calling on us to look through a heap of millet-seed in order to be sure that there is no pearl in it.

marcusbalbus said...
This comment has been removed by a blog administrator.
steve said...

from where I sit JBD is spot on with his most recent comment and fail to see how he insulted anyone. I would really hate to go through life being such a miserable pessimist.

marcusbalbus said...
This comment has been removed by a blog administrator.
Mac said...

One wonders what Svengali-esque powers this " Scott Grannis " possesses that some are compelled to seek out the blog and find themselves reading materials they find redundant. I hope I do not fall under his spell. Maybe a few tears from a gypsy will protect me.
Mr. Grannis, Housing and autos are of course the two big ticket discretionary purchases. I think a study just came out where lower income folks are happy as clams. Any chance what we are seeing in the data is an early 2000s redux where credit is just getting easier and easier and the bottom three or four deciles are drinking at the reopened trough?

Scott Grannis said...

Mac: This blog is not required reading and I receive no compensation for page views or from advertising. It's just a forum to share my views on the market and to engage in constructive dialogue about what's going on in the economy and the financial markets.

As for your question, everything I see tells me that consumers are far less leveraged now than they were in the 2000s, the sole exception being student loans which are in bubble territory but which I doubt are contributing to auto sales and home purchases.

The explanation for the strong growth in housing and autos is relatively simple: both sectors were severely punished in the wake of the 2008 crisis, and the gains they have experienced are more a natural recovery from exceptionally weak levels than an artificially- or credit-induced bubble. After all, it's undeniably the case that we have seen significant improvement in jobs, incomes, and tax revenues over the course of the current business cycle expansion, and all of those easily support the improvement in auto sales and housing.

Jarrod Bailey said...

As usual. Good, to the point analysis. And a beacon of rational thought in a world often crowded by the zero hedges of the world.

Thanks Scott. Keep it up.

What are your thoughts on investment opportunities in Europe?

Benjamin Cole said...

I often disagree with Scott Grannis. So what? I often disagree with myself a couple years hence.

A word to the wise: a different viewpoint is a chance to learn.

Scott Grannis said...

Amen

Johnny Bee Dawg said...

History shows that this country succeeds when American voters stand up and fight back against the socialist policies of the DEMS.

Post FDR, early 1980s, 1994 landslide,, and 2009's Tea Party swarming of Congress all come to mind. "The Party of No" has kept government spending flat for the past 5 years, because the new Tea Party group swept into office refused to compromise. Voters gave Reagan a mandate and he refused to compromise. 1994 ushered in the biggest PUB landslide in Congress since Reconstruction, and they refused to compromise. All resulted in improved prosperity for the most people.

Any time DEM policies were repelled, America has improved.
Never forget that Poverty rates in the US were plummeting until LBJ's "War on Poverty" began. They've never gone lower.

Big UnConstitutional redistributive government is a pox on the People, which ever Party promotes it.
My biggest fear is there isn't any Ronald Reagan, or Contract With America on the horizon to save us this time.
Fears of Hillary or Barack coming to power crashed markets last time. We will just have to see which direction voters want to go this time.

Johnny Bee Dawg said...

EDIT: Should have said "2009's Tea Party founding". Their swarming of Congress didn't happen until the 2010 elections. And then the 2012 election. And then the 2014 election.

Mac said...

Scott, Thanks for your response.Two quick comments. My first paragraph was a failed attempt at snark directed at the gent that found you redundant. He didn't have to show up and read your posts. Second, while it may be true that the consumer got smoked in 2008, wasn't the operating environment one of excess leverage, meaning a return to say 17mm auto sales all else being the same would be a return to an unsustainable pace. FWIW I would offer that we came off a 25-50 year borrowing binge in which we pulled demand forward. QE coupled with Keynes passed the baton to the government, China took a similar path and increased indebtedness by 117% and we all sit here wondering why we are in a morass. Nominal GDP is meager and should be, no?

marcusbalbus said...

pettifoggery