Friday, November 1, 2019

The weakest recovery and the longest expansion

If it weren't for Trump's trade wars and a dearth of business investment, the economy would be in excellent shape. As it is, growth continues along the moderate 2% path that it has followed for more than 10 years. It's been the weakest recovery ever, but also the longest business cycle expansion. And with no obvious excesses or systemic problems in view, it promises to continue. 

Chart #1

The Q3/19 GDP report—1.9% annualized growth—makes the current expansion the longest on record. Chart #1 shows the quarterly annualized growth rate of both nominal and real GDP. To be sure, 2% growth isn't a barn-burner, but it's impressive given the degree to which the manufacturing sector has been hit by Trump's tariff wars.

Chart #2

Since the recovery started just over 10 years ago, annualized GDP growth has been 2.3%; in the past year it was 2.0%, and in the most recent quarter 1.9%. As Chart #2 suggests, for most of this past year the market has been expecting growth to slow, and indeed it has. That is reflected in the more than 100 bps decline in the real yield on 5-yr TIPS since late last year. At today's real yield of a mere 0.05%, 5-yr TIPS appear to be priced to the expectation that real GDP growth will average about 2% per year going forward. Not surprisingly, Chairman Powell recently chimed in with a similar view, saying the FOMC expects moderate growth of about 2%.

Chart #3

Chart #3 compares real economic growth with private sector jobs growth. Not surprisingly, the two tend to move together: more jobs means more growth. The recent slowdown in GDP growth is reflected in a similar slowdown in jobs growth (the October jobs report was much better than expected, but it didn't do much to change the trend growth rate of jobs, which has been declining so far this year).

Both jobs and GDP have suffered from a lack of business investment, which likely has a lot to do with the uncertainties surrounding international trade. Private sector jobs currently are growing at pace of about 1.3% per year. If jobs grow at least 1% per year and productivity registers at least 1% per year (which it has in recent years), then 2% real economic growth is sustainable. (Jobs growth plus productivity growth is a decent first approximation for overall economic growth.) For growth to move higher, we would need to see a pickup in business investment, which not only creates jobs but improves the productivity of existing workers. A resolution to the tariff wars would undoubtedly prove a catalyst in that regard.

Chart #4


Demographic factors (more and more boomers are retiring) likely also play a part in this year's slowdown. Employers continue to complain that their biggest problem is finding qualified workers. Chart #4 shows that more small business owners than ever before report that "job openings are hard to fill."

Chart #5

But it's not like the economy is running out of available workers. As Chart #5 shows, the labor force participation rate (the percentage of the working age population who are either working or looking for work) looks to be increasing, albeit slowly. People who had been on the sidelines are being enticed to return, perhaps because they see better opportunities. Or in the case of not a few retired baby-boomers I know, they have decided that working is better than just sitting around watching TV. Regardless, there are still almost 6 million people out there who officially are looking for work, according to the BLS.

Chart #6

Chart #6 compares actual growth in real GDP to its long-term trend. (Note that this is plotted using a semi-log scale for the y-axis; a straight line on this chart thus corresponds to a constant rates of growth.) By only averaging 2.3% per year, the current recovery—the weakest in history—has resulted in a $3.4 trillion "shortfall" of growth relative to what might have been had the economy rebounded to its long-term trend as it did after every prior recession. Had this been a "normal" recovery, real median family income might have been almost 18% higher (~ $1000 per month) than it is today. 

Chart #7

Chart #8

Charts #7 and #8 show two measures of business investment. Both show that investment in the current business cycle has been weaker than in previous business cycles (especially in real terms, as Chart #7 highlights). Weak investment is likely major factor behind the economy's unimpressive 2% growth rate. Which is unusual, because corporate profits have been unusually strong in the past decade. 

Chart #9

What other factors might be restraining the economy's ability to grow? The size of government ought to top anyone's list. In the past 12 months, the federal government spent a staggering $4.5 trillion, almost 21% of GDP, and 8% more than the same measure a year ago. Even more staggering, though, is the composition of that spending: 72% of what the federal government "spent" in the past year ($3.2 trillion) was in the form of transfer payments (see Charts #9 and #10). That's money that is spent on things like healthcare, social security, income security, and interest payments on debt (as of last June the annual interest on federal debt outstanding was a little over $600 billion, or 13.3% of federal spending). Only 28% of federal spending was for goods and services (i.e., true purchases). Think of purchases as a proxy for what it costs to run the government, while transfers are basically entitlements—spending that is determined not by the budget process but rather by eligibility. 

Chart #10

Note how the growth in transfer payments has surged relative to the growth of purchases since the early 90s. As Chart #10 shows, since 1970 transfer payments have more than doubled relative to total spending. By far the biggest role of the federal government in today's economy is that of an income transfer agentNeedless to say, with $3.2 trillion per year (and growing) on autopilot, the potential for fraud and waste is ginormous. It's safe to say that the huge size of government transfer payments acts as a drag on overall economic growth and efficiency. And it's only going to get worse unless changes are made to entitlements eligibility (e.g., raising the social security retirement age and/or indexing social security payments to inflation rather than wage growth). 

These are problems that have been and are going to be with us for a long time. In the meantime, it's reassuring to note that financial market conditions look quite healthy:

Chart #11

The threat that an inverted yield posed to the economy (a threat I discounted long ago), has now disappeared. As Chart #11 shows, the Treasury yield curve is now positively-sloped (the 1-10 spread is about 20 bps today), and the real Federal funds rate is essentially zero. The Fed is not tight, and their recent decision to lower their target rate, while overdue, was welcome. The Fed has now caught up to the market and things are thus looking copacetic.

Chart #12


The real yield curve is actually a better thing to look at, and here too things look good. The blue line in chart #12 is a proxy for the overnight real rate, while the real yield on 5-yr TIPS is the market's estimate of what the overnight real rate will average over the next 5 years. Both are identical. By lagging the market's expectation of falling real rates for most of this year the Fed had been threatening with policy arguably "too tight." But now the Fed is neutral. A sign of relief.

Chart #13

Swap spreads (see Chart #13) are my favorite leading and coincident indicator of systemic risk, financial market liquidity, and fundamental economic health (the lower the better). Swap spreads are now low both here and in the Eurozone. Things could hardly be better.

Chart #14

Chart #14 shows Credit Default Swap spreads, a highly liquid and generic indicator of the market's confidence in the outlook for corporate profits. Spreads are quite low, which means the market is confident that the outlook for profits—and by extension the outlook for the economy—is healthy.


Thursday, October 31, 2019

Quick update on truck tonnage


Chart #1

Chart #1 is an updated version of what has become a perennial favorite chart, which shows that the growth of stuff carried by the nation's trucks is decently correlated with equity prices. Truck tonnage has been rising at a 3-4% annual rate for the past several years, and equity prices have been moving higher as well. This at the very least suggests that the damage from Trump's trade wars is still relatively minor, even though the manufacturing sector has taken a noticeable hit.

Chart #2






As I explained previously, the raw data for truck tonnage has been unusually volatile of late, so I've switched to a 3-mo. moving average, which appears to do a good job of filtering out seasonal adjustment defects. Chart #2 shows both the raw data (white) and the moving average (magenta). 


Monday, October 14, 2019

Net worth and risk aversion

Recent releases of estimates of households' balance sheet and financial burdens (as of June '19) reveal that net worth continues to rise at the same time that households' leverage continues to decline. This bears repeating: asset values are rising, but risk aversion remains strong, and that's quite healthy.

Chart #1

As Chart #1 shows, the net worth (total assets less total liabilities) of the US private sector (households plus non-profit organizations) in June 2019 reached the staggering sum of just over $113 trillion. That's almost double what it was at the depths of the 2008-9 Great Recession and almost 60% above what it was at its 2007 peak, according to the Federal Reserve. This was achieved as a result of strong gains in every category of assets: savings accounts, stock and bond holdings, real estate, and privately held businesses. What is perhaps most remarkable is that liabilities today have increased by only $1.5 trillion (10%) from their 2008 high.

Chart #2

As Chart #2 shows, for the past several years, the inflation-adjusted level of household net worth has increased by an amount that is very much in line with its historical trend: about 3.6% per year.

Chart #3

Chart #3 adjusts the data in Chart #2 for population growth. Here, too, we see that recent gains in real per capita net worth are very much in line with historical trends (about 2.4% per year). If there's anything unusual about this, it is that these gains have come despite the fact that the current business cycle expansion has been the weakest ever. Fortunately, it seems that unusually strong corporate profits have offset relatively weak growth, thanks largely to globalization, as I discussed here.

Chart #4

Chart #4 shows the ratio of recurring financial obligation payments to disposable income. Thanks to modest increases in liabilities and lower interest rates on debt, the true burden of household debt has declined significantly. Household financial burdens today are lower than at any time since the early 1980s.

Chart #5

As Chart #5 shows, household leverage (total liabilities as a % of total assets) has declined almost 35% since its high in early 2009, and has returned to levels not seen since the mid-1980s.

Chart #6


In my last post, I mentioned that recessions typically follow periods of excesses. The only "excess" that's obvious today is federal debt, which has risen to 78% of GDP, as shown in Chart #6.

But that's deceptive.

As an astute reader ("Cliff Claven") recently pointed out, the true burden of debt must take into account the amount of interest being paid on outstanding debt relative to GDP. Debt outstanding is quite high relative to GDP these days, but interest payments on that same debt are relatively low, thanks to historically low levels of interest rates. Federal debt interest payments this year will total about 2% of GDP, well below the all-time highs of 3% reached in 1991, according to the Office of Management and Budget (see Chart 4.05 on the aforementioned link). This may worsen, of course, if interest rates rise. But rising interest rates would probably be accompanied by faster growth and/or higher inflation, which in turn would increase nominal GDP, and that would mitigate the burden of rising interest rates. Moreover, faster nominal GDP growth would likely boost tax revenues.

In short, while federal debt looks bad on the surface, in reality we are far from facing a disastrous situation.



Friday, October 4, 2019

Stall speed? No. Risk aversion? Yes

Do a search for "economy stall speed" and for at least the past 8 years you will find no shortage of people periodically worrying that the economy is approaching "stall speed" and thus more at risk of a recession. Just the other day Bloomberg asserted that "The US economy is approaching "stall speed" as factory gauge hits 10-year low." I've argued many times through the years that this is a flawed analogy; a slowing economy is not at all akin to an airplane approaching stall speed. Economies are perfectly capable of growing at very slow—or even zero—rates for prolonged periods, whereas planes do need a minimum velocity to stay aloft. Consider: the US economy grew at a paltry 0.9% annualized rate in the nine months from July 2015 through March 2016, during which time oil prices plunged—threatening widespread bankruptcies—and the world feared the potential fallout of a Brexit. There was plenty of handwringing and predictions of an imminent recession, but in the end the economy resumed its slow-growth, 2.1% path.

As I put it in a post three years ago, "recessions typically follow periods of excesses—e.g., soaring home prices, rising inflation, widespread optimism—rather than periods dominated by risk aversion such as we have today." It's not slow growth that precipitates a recession, it's too much risk-taking and too much optimism that eventually collide with the reality of tight money. Recessions happen when the future proves to be radically different—in a bad way—than it was presumed to be, and people are thus forced to do an about-face.

Today, risk aversion is just as abundant, or even more so, than it was in the latter half of 2015. Instead of plunging oil prices back then, today we have a global slowdown in manufacturing activity. Instead of Brexit fears, we have the fear that Trump's tariff wars will escalate and precipitate a global recession. Meanwhile, monetary policy is not even close to being tight: real and nominal yields are extremely low, and liquidity is abundant. Yes, the yield curve is inverted, but while an inverted yield curve has always preceded a recession, by itself it is not sufficient to provoke a recession. I explored this in detail in this post: Risk aversion is the big story, not the yield curve.

Risk aversion is everywhere, because for one thing it's hard to find any economy that is prospering these days. China's economy has been slowing for many years and is really feeling the pain of Trump's tariffs; manufacturing conditions nearly everywhere have been negatively affected by higher tariffs; the Eurozone is barely growing; Argentina is suffering through yet another recession; and the "Trump Bump" that propelled US growth to over 3% a year ago has faded. Fed projections of US GDP growth in the current quarter average 2.3%, which would take us almost all the way back to the 2.1% Obama-era range of growth which characterized the weakest recovery ever.

The following charts lay bare the case for economic weakness and risk aversion, and the rationale for why a recession is nevertheless not baked in the cake.

Chart #1

As Chart #1 shows, big declines in the ISM Manufacturing Index tend to coincide with periods of weak growth. The current level of this indicator suggests US economic growth could be in the range of 0-2%.  Caveats: it's important to keep in mind that this index has a subjective component, being calculated based on questionnaires filled out by the nation's purchasing managers. At the current level, it says that a little over 50% of those surveyed see conditions deteriorating. Also, there have been quite a few times in the past when the index has been as low as it is today without a recession following.

Chart #2

Chart #2 is one component of the manufacturing index, and its recent slump makes it clear that Trump's  tariff hikes, which began in the first quarter of 2018, were the proximate cause of the current weakness in manufacturing conditions.

Chart #3

Chart #3 suggests that, facing deteriorating export orders, a majority of manufacturing firms are now less inclined to make new hires. This is not good, of course, but keep in mind that manufacturing jobs represent less than 10% of US payrolls. It's a small segment of the economy.

Chart #4

Chart #4 shows that manufacturing conditions in the Eurozone have deteriorated even more so than in the US. Trump's tariffs are having global repercussions.

Chart #5

Chart #5 shows conditions in the service sector, which represents over 70% of US payrolls. Conditions have deteriorated, but not significantly.

Chart #6

Chart #7 shows that the service sector is relatively weak in the Eurozone, and has been for some time.

Chart #7

Chart #7 shows that there has been a significant decline in the hiring intentions of service sector businesses. This chart is probably the most bearish chart I can think of right now. Will there be no net new hiring in the future?

Chart #8

Charts #3 and #7 make a strong case for a slowdown or even a flattening in overall employment growth. And indeed, we've already seen a slowdown in the growth of private sector payrolls, as I've been documenting in several posts this year, and as the recent payroll numbers reflect. Chart #8 shows that over the past six months, private sector job gains have averaged 132K/mo. The September number was just 114K. Jobs growth is definitely slowing—private sector jobs currently are growing at the rate of about 1.2% per year, which is down from last year's 2.1% high—but it's far from going to zero.

Chart #9

As Chart #9 shows, there has to date been absolutely no increase in the pace of layoffs; first-time claims for unemployment today are as low as they have ever been. Moreover, today brought news that the unemployment rate has fallen to 3.5%, a level not seen since 1969. Firms in general may not be anxious to hire, but no one seems anxious to reduce their workforce. What we have today is a case of "failure to thrive," not a case of degenerative economic disease.

Chart #10

Chart #10 illustrates how real yields tend to track the real growth rate of the economy, and that makes perfect sense. When the economy is strong, real yields in general are strong. Which is another way of saying that demand for bonds is weak when the economy is strong. By the same logic, demand for bonds is strong (i.e., yields are low) when the economy is weak. Real yields have declined this year as a weakening economy has boosted demand for the safety of Treasuries. The chart further suggests that the bond market is pricing in the expectation that real growth going forward will be about 2%, a bit weaker than what we saw during the Obama years. That's a far cry from recession levels.

Chart #11

Chart #12

Chart #11 compares the level of 5-yr Treasury yields with the Core CPI inflation rate. Prior to the Great Recession, bond yields moved almost in lockstep with inflation, and yields were reliably higher than inflation. But since 2010, the bond market has virtually ignored inflation. Demand for bonds has been so intense that nominal yields have been bid down to very low levels relative to inflation. That's directly illustrated in Chart #12, which shows the difference between nominal 5-yr yields and core inflation. The current level of ex-post real yields on 5-yr Treasuries is as low as it has been in almost 40 years. By this measure (i.e., the demand for the safety of bonds), risk aversion hasn't been this high in several lifetimes.

Chart #13

Chart #13 shows a long history of 10-yr Treasury yields, which are now only inches above their all-time low. Demand for the safety of Treasury bonds is so intense that investors are willing to pay $66 for $1 dollar worth of annual earnings. (That's the inverse of the current 1.52% yield on 10-yr Treasuries, otherwise known as their PE ratio.)

Chart #14

Risk aversion can also be found in the equity market, as Chart #14 shows. The current PE ratio of the S&P 500 is 19.3, which means that the earnings yield on stocks is 5.2%, a premium of 3.7% over 10-yr Treasuries. Whoa: investors are happy to pay $66 to be assured of an annual return of $1 in Treasuries, but it only takes $19 for the promise of $1 in equities. That is another way of measuring just how risk averse this market is.

Chart #15

Finally, Chart #15 compares the price of gold to the price of 5-yr TIPS (using the inverse of their real yield as a proxy for their price). Both of these assets promise guarantees of sorts. Gold is the classic refuge from economic and political storms. TIPS are default-free and guarantee an inflation-adjusted rate of return. That their prices tend to move together makes sense, since they are both safe havens, and are thus indicative of risk aversion.

With so much risk aversion, and with no sign that monetary policy is too tight or even likely to become tighter, it's highly unlikely that today's slow-growth environment is a precursor to a recession. Maybe we'll see more economic weakness before things get better, but in the meantime there is little reason to think that today's slow growth makes a recession tomorrow more likely.

Thursday, September 26, 2019

Truck tonnage update: still looking good

I've made a series of posts on this subject over the years, and they have apparently captured the interest of many readers, so here's another installment.

Truck tonnage, which is published monthly by the American Trucking Associations, has a strong tendency to track the level of stock prices over time. That's not surprising, since the physical volume of goods carried by trucks (which represents "70.2% of the tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods," according to the ATA) should be a reasonable proxy for the overall economy, and stock prices tend to rise as the economy grows.

Last month's post showed a huge spike in July truck tonnage, but to be fair the series has been unusually volatile of late. The most recent datapoint, for August, registered a 3.2% drop from July, but it still shows a 4.1% year over year gain. Fiddling with the data, I discovered that a three-month moving average does an excellent job of smoothing out the inherent volatility of this index, and it shows the series to be in a definite uptrend. All of which suggests the equity market may be a bit too cautious about the current health of the economy.

Chart #1 

Chart #1 shows the raw data for truck tonnage (white line) and the three-month moving average of the same data (yellow line). Note how the volatility in the data almost completely disappears using a three-month moving average. That suggests there are some problems with the seasonal adjustment factors that are being used by the ATA.

Chart #2

Chart #2 compares the three-month moving average of the trucking data with the level of the S&P 500.

Wednesday, September 25, 2019

No housing market bubble

The worst you can say about the US housing market is that home prices appear to be consolidating after   almost four years of gains. There are few if any signs of a housing bubble waiting to pop, or a mismatch between housing supply and demand. Prices are no longer rising by 5-10% year, to be sure; instead they are rising only 2-3% per year. Nevertheless, housing construction is proceeding at a fairly modest pace, from an historical perspective, and new home sales are increasing. Mortgage rates remain at historically low levels, and housing in general is affordable. 

Chart #1

Chart #1 reminds us that the health of the housing market is closely tied to the health of the broader economy. With one exception—the mini-recession of 2001—a significant downturn in housing starts preceded every recession in the past 50 years. The current level of housing starts is weak by historical standards (40% below the peak of early 2006), but remains far below levels that have been associated with housing busts in the past.

Chart #2

Chart #2 compares a survey of builder sentiment with the level of starts. Not surprisingly, sentiment tends to lead starts. Builder sentiment today remains quite optimistic, and they are the ones closest to the action on the ground. So I would expect to see starts register further gains in the future. Labor shortages likely explain why starts are not more robust. And, it's likely that the prevailing mood of caution in the country and the markets which I've observed for years has contributed to keep the housing market sane. 

Chart #3

Chart #3 shows the supply of unsold homes, which has been very low for a number of years. The supply of unsold homes began rising in 2005, and the housing market peaked (in price and in housing starts) in early 2006. Lax lending standards (negative amortization loans, no doc loans, inverse floaters, zero down payments) and a surge in housing starts created a huge oversupply of homes and an artificially strong demand for homes that was unsustainable. There are no such signs today.

Chart #4

Chart #5

Chart #4 shows the broadest and arguably the best measure of US housing prices. Case-Shiller methodology focuses on repeat sales and covers a large portion of the country. Housing prices today are about 6% above their 2006 high, but on an inflation-adjusted basis, prices are still 12% below their 2006 highs. As Chart #4 also suggests, the real price of homes tends to rise modestly over time, due to the increasingly-larger size of houses and rising real incomes. Chart #5 simply shows the year over year increase in nominal prices. The latest datapoint in Chart #5 shows national home prices up 3.2% in the year ending July. The Case Shiller index for the 20 largest metropolitan areas shows a gain of only 2% in the past year.

Chart #6

Chart #6 shows 30-year fixed mortgage rates, which today are running around 4%, well below the ~6% rates that prevailed in 2006 when the housing market peaked. Prices are only modestly higher today than they were in 2006, but borrowing costs have plunged.
Chart #7

At today's prices and mortgage rates, homes are much more affordable than they were in 2006 (see Chart #7). 
Chart #8

Not surprisingly, new home sales (see Chart #8) are still in an uptrend, and still far below the boom-time levels of the mid-2000s. There is plenty of room to run.

Chart #9

Chart #9 shows an index of new mortgage purchases (i.e., mortgages taken out for new purchases, not for refinancing purposes). Mortgage rates have averaged around 4% during the period shown in this chart, and new buyers have been entering the market all along. 

Chart #10

Chart #10 reminds us that consumer confidence is rather strong, and that adds to the body of evidence (affordable prices, no shortage of new buyers, no oversupply of homes) suggesting that the outlook for the housing market is healthy.

Tuesday, September 24, 2019

50 years of failed climate doomsday warnings

I strongly recommend reading Mark Perry's recent blog post which documents how climate alarmists have repeatedly and disastrously failed to predict future eco-apocalypses. He provides links to 50 failed predictions of gloom going back as far as 1967. Here are just a few examples:

1970: Ice Age By 2000
1976: Scientific Consensus Planet Cooling, Famines imminent
1988: Maldive Islands will Be Underwater by 2018 (they’re not)
2004: Britain will Be Siberia by 2024
1966: Oil Gone in Ten Years
1977: Department of Energy Says Oil will Peak in 1990s
1988: World’s Leading Climate Expert Predicts Lower Manhattan Underwater by 2018
2005: Fifty Million Climate Refugees by the Year 2020
1989: Rising Sea Levels will Obliterate Nations if Nothing Done by 2000

When it comes to climate, beware of those who say it's "settled science." If your predictions end up consistently wide of their mark, you are not dealing with science. More likely, you're part of a cult.

UPDATE (10/9/19): A group of scientists and professionals in climate and related fields sent a letter to the United Nations on Sept. 23 declaring that “there is no climate emergency." Here is the letter. The full list of signatories is scheduled to be released October 18th. 

Upshot: There is no scientific consensus on the subject of man-made global warming, nor is the science settled. 

Monday, September 23, 2019

Why living standards continue to rise

For the past 25 years, inflation has averaged 1.8% per year, but that disguises the fact that prices of durable goods have been falling by a significant amount. Is that a problem? Hardly, since a big decline in the prices of durable goods has dramatically increased the purchasing power of the average worker.

Chart #1

Chart #1 it shows the three major components of the Personal Consumption Deflator index (a broader and better measure of inflation than the CPI): services (which are largely driven by wages and salaries), durable goods (e.g., equipment, computers, cars, TVs), and nondurable goods (e.g., food, gasoline, clothing). Total inflation over the time period represented here was 55% (an annualized rise of 1.8% per year), but looking deeper we see that wages rose 85% while durable goods prices fell 38%. At the risk of over-generalizing, this means that wages over the past quarter century have gone up 200% relative to the prices of durable goods (1.85/.62). That's equivalent to saying that one hour of the average person's work today buys three times more durable goods than it did 25 years ago. It's no wonder that these days nearly everyone has a smartphone and nearly every house has at least one big-screen flat TV. 

Such a divergence between wages and prices has never happened before, as I first noted in a post over 9 years ago. Prior to 1995, there was never a time in modern history when any major category of prices experienced a sustained decline. Why did this change beginning in 1995? For one, that's about the time when personal computers began to proliferate. But it's also the case that 1995 marked the beginning of China's emergence as a major exporter of durable goods. China's economy has become a powerhouse of productivity as hundreds of millions of Chinese workers have benefited from the introduction of modern equipment and capital. This in turn has raised the productivity of all workers globally, and it has resulted in a significant increase in global economic prosperity. What's good for China has been good for nearly everyone in the world.

Chart #2

Computer deflation is coming to an end, however, as Chart #2 suggests. Note that this series began in 1998; prior to that the BLS didn't consider it important to create a separate price series for personal computers and peripherals. But by then they were already plunging in price. The cost of personal computers fell 36% in 1998, 22% in 2002, 12% in 2006, and 6% in 2010, but prices are down only 1.3% in the year ending last August. Computers and related equipment are not going to become ever-cheaper for much longer. Plus, the Chinese economy is slowing down and tariff wars are like sand in the wheels of commerce. It's been a great ride, but it's slowly coming to an end.

Chart #3

On the bright side, prices of nondurable goods haven't increased at all for the past 8 years (see Chart #1). And as Chart #3 shows, commodity prices in general haven't gone up for more than 10 years. Wages, in short, continue to go up relative to things. That's another way of saying that living standards continue to rise.