Friday, November 4, 2016

Election jitters haven't derailed the economy

The elections are upon us, and the outcome seems more uncertain now than it did before. Half the electorate believes Clinton is a chronic liar and deeply corrupt; if she wins, she will almost certainly face more scandals, a potential prosecution for felony offenses, and possibly impeachment. The other half is appalled that someone as uncouth and unpredictable as Trump should have access to immense power. Whichever one wins, he or she will face an uphill battle to impose an agenda. I think Trump would be more likely to change policies for the better (with the notable exception of trade), whereas Hillary's agenda would be uniformly negative. Under Hillary, the economy would very likely continue to limp along; under Trump there is a reasonable chance the economy could strengthen. I'm not a fan of either, but I'll take my chances with Trump.

Putting that all aside, the latest readings on the economy show no signs of emerging weakness or budding strength, in spite of all the worries. It's steady and slow as she goes. To me, it's an economy that is half full rather than half empty; there is plenty of upside potential waiting to be unlocked by whomever has the right keys (i.e., pro-growth policies). Here are some recently updated charts which tell the tale:

As the election approaches, markets have become more nervous, and stock prices have fallen. Given the great degree of uncertainty that surrounds the election outcome—and the outlook for future policy shifts—it's amazing the market hasn't dropped even further. I take this as a sign that the market has been skeptical all along.

Confidence has been slowly rising from unprecedented lows throughout the current recovery, but it is still far below levels that might be termed enthusiastic. As the chart above shows, the current level of confidence is only slightly above its long-term average.

Trade has been one of the economy's most persistent soft spots for years, after experiencing explosive growth in prior decades. The latest September figures show an encouraging increase in both exports and imports.

Industrial commodity prices are up almost 20% since late last year, in spite of a modestly stronger dollar (they usually move in opposite directions). That is a good indication that global economic activity has perked up somewhat.

The American Chemistry Council's index of chemical activity is up 4.5% in the past year, and at the very least this rules out any weakening in the economy's fundamentals.

The pickup in chemical activity suggests that industrial production is likely to pick up as well in coming months, as the chart above illustrates.

The ISM service sector indices suggest that the economy continues to experience moderate growth. It's encouraging to see a bit of a pickup in the service sector of the Eurozone.

Productivity continues to be weak, and this reflects a dearth of business investment; this has been and continues to be the economy's biggest problem since 2009.

Private sector jobs growth is poking along at just over 1.5% per year. With productivity running around 0.5% this suggests the economy remains on a 2% growth trajectory.


Frozen in the North said...

I'm not sure that elections are the real factor here. some of your index seem to agree others (Chemicals -- thanks for that BTW) seem to indicate a robust economy, even wage pressures, its been almost 8 years since there have been wage pressures in the US. MY guts tell me that the markets are ready for a correction, its been too long since we've had a big one. Oil prices over the past few days could be a good excuse, but again -- at the macro level its hard to see the cause and effect!

I am very worried about the "If Clinton wins they've stolen the election" its a bad way of starting a new administration, and could cause immense harm to the republic. I think the world is watching and is concerned that if the world's second largest democracy (and I think its oldest) cannot get it right then what hope do others have to success.

In fact, using your peak numbers in your initial graph, the sudden drop in oil prices (from nearly $51 to $44) would be a better explanation for the market jitters.

As ever, very very useful analysis -- with you I learn something new every day (at least whenever you post).


Benjamin Cole said...

Another great overview by Scott Grannis.

I will try to say something positive: in 1992 when Bill Clinton was elected there were probably disappointed people who predicted slow economic growth. Instead the Clinton years were some of the greatest in all history and the Dow quadrupled.

Maybe history will rhyme.

Benjamin Cole said...

Another great overview by Scott Grannis.

I will try to say something positive: in 1992 when Bill Clinton was elected there were probably disappointed people who predicted slow economic growth. Instead the Clinton years were some of the greatest in all history and the Dow quadrupled.

Maybe history will rhyme.

Scott Grannis said...

Bill Clinton had a successful presidency mainly because he was smart enough to realize that "triangulating" with the Republicans, who controlled Congress, was the path to success. I seriously doubt whether Hillary is as politically smart as her husband, but I strongly believe that she is a very serious leftist who would try very hard to extend and build upon Obama's (failed) policies. If the choice today were between Bill and Trump, I would probably vote for Bill.

Benjamin Cole said...
This comment has been removed by the author.
Benjamin Cole said...

Scott Grannis: I agree, and surely the GOP Congresses of the 1990s, and the Greenspan Fed, deserve credit for that great decade---but mostly, let's credit the private sector!

If Hillary has any beliefs, surely they change with each new audience.

She evidently has backers on Wall Street and the Silicon Valley.

Another fear is that her globalism and feminism will lead into extended (and fantastically expensive) military confrontations in the Mideast, which will backfire, as they have to date. She has some sort of pact going on with the neo-cons.

Personally, she gives me the creeps.

Christophe said...

I am not concerned Hillary will be a leftist at all. It does not fit her profile. Ambition, power and prestige are probably her main traits. Her household is worth north of $100mil and growing fast. Hillary and Bill are 69 and 70 not exactly the demographic for a leftist. A leftist in her 70s might live more like an hippie/artist in Coconut Grove than private jets, cocktail parties and VIP everything. She has probably not done any of the menial tasks (we all do every day, like grocery shopping, cooking, fill car with gas ...etc...) in over 25 years.

I bet Hillary will be even more pro markets than Bill.

Thanks for great articles Scott.

The Cliff Claven of Finance said...

1.5% Real GDP growth in the past 12 months means the economy is already "derailed"
-- maybe still moving forward, but off the tracks --
during the weakest rebound from a recession in our history.

A good economist would simply point out that the last recession started in December 2007,
so it has been a long time since a recession started.

Predicting a recession is usually a waste of time.

They always take a large majority of economists by surprise
-- excluding the few economists who are almost always bearish.

As a group, economists have NEVER predicted a recession.

While Clinton is almost always ahead in the polls,
my guess is that Trump gains 1 or 2 percentage points
from people who will vote for him, but won't admit it.

If I were going to vote for him, I probably would not admit it
and risk making a liberal go berserk.

He says embarrassing things.

She does embarrassing things.

So it is the most corrupt Presidential candidate in a century
-- and she has the net worth to prove it --
versus a loudmouth who often sounds like he would prefer to die
vs. reading a book about government, national security, economics, healthcare, etc. policy.

Neither candidate wants less government spending and less government borrowing,
to help accelerate private sector growth.

Hillary has been far left since college,
EXCEPT when making highly paid speeches to corporations,
whose money she needed.

Even worse than being far left, is being willing to say one thing and do another
-- a public policy position and a private policy position --
is exactly what Hillary told a speech audience that a good politician (like her) needs.

I just watched the S&P 500 go down nine trading days in a row.

Very unusual -- has not happened since 1980.

Investors are worried about something.

I believe they are worried about Donald "trade war" Trump winning a close election,
or massive election fraud being discovered.

They are not worried about Hillary winning,
since polls have been saying that consistently for many months.

If the S&P500 has been going down before the election (I'll have to assume for now that
the Monday before the election is not a big up day), that usually means the incumbent party
is going to lose (with about 85% accuracy).

I bet $1 on Trump with my neighbor, at two to one odds, a long time ago when Trump
had no hope, so I guess that means my prediction is Trump (mainly because his surname
is not Clinton!)

Those two sad choices do not inspire my optimism about the USA's future.

steve said...

Love John Tamny and he hits the head spot on here:

William said...

Equity market around the globe are in rally mode because Trump is obviously going to win. Equity market believe that removing all illegal aliens, completing the wall on the Mexican border, adding a 30% import tax on goods from China and other unfair competitors, lowering income taxes on the super-wealthy, blocking immigration from countries with terrorism, putting Hillary Clinton in jail, repealing Obamacare, removing restrictions on banks and other corporate regulations, etc. will be hugely beneficial to the U.S. economy.


randy said...

Hey Steve,

Regarding the Forbes article - the message is right on, but wow. The writing was AWFUL! I grew up reading printed Forbes from my teen years. When Malcolm Forbes brought style and swagger, and James Michaels as editor produced depth and quality. It was a beautiful publication. I don't read the website much because it's too difficult with 3 or 4 advertisements playing in the corners. And click bait stories. Are there no editors to sort this out? Or... is this a purposeful style? Sort of yoda like?

"Interesting there is that a Congress in control of the U.S. purse – whether run by Democrats or Republicans – exists to spend the wealth confiscated from the citizenry."

I'd like to repeat that the message is right on, and thanks for sharing. Maybe I'm just getting old and impatient with the younger style of communicating - all these people growing up on 140 characters! Hah.

steve said...

randy, yes tamny has a "weird" writing style and way too verbose but his message is SPOT ON although while I'm rooting against trump I do hope the GOP retains control of house which is likely.

steve said...

Just so nobody misunderstands me, Sean Hannity had this to say recently and he is spot on:

SEAN HANNITY: You know what bothers me the most about Paul Ryan and these weak Republicans? They are tougher against Donald Trump than these weaklings ever have been against Obama, and if they're offended by Trump's words, why haven't any of them spoken out about Bill and Hillary's actions towards women? They're a bunch of phony -- I mean I can't take it anymore. They are so weak that Obama got his entire agenda passed. He got to double the debt mostly with Republican help. He got to keep Obamacare because they didn't want to fight and get blamed for a government shutdown. They got unconstitutional, illegal executive orders on amnesty because they didn't want to fight there either.

This Republican Party of weak, feckless, timid, spineless Republicans is dead. Nobody likes them anymore. Nobody thinks much of them anymore. These are people that are in it just like the Democrats for their own personal political power. They like to be called Congressman and Senator. Well you're no good as a Congressman or a Senator unless you stand for something.

The ONLY good about Hillary becoming president is we lose this sanctimonious, supercilious, imperious
bum in the whitehouse now and YES I know we have four more years of the same but for reasons Tamny enumerated, better that than trump.

Hans said...

Randy, good points. I do not go to Forbes anymore
because they like many others require one to turn off
your ad blocker.

We shall have a triple T. Trump triumphs today.

William said...

Be careful what you wish for - especially when there are very few details much beyond Make America Great Again. There has never been any victor who was less experienced or qualified than Donald Trump. S&P down 85 and NASDAQ down 195. NIKKIE down 650. Gold up 48. US Dollar down 1.75%. US 10 year Bond has rallied 13 PP.

Johnny Bee Dawg said...

Sell all your stocks, establishment folks!
Americans might actually want to start buying them from you now.

RULE OF LAW, lower tax rates, less idiotic regulations, secure borders are ALL positives for America!
Insurance sales across state lines, actual competition for customers in health care.
People who think those are bad things need to take a little break for a while.

This is the most excited Ive been for my country in YEARS.
Imagine GDP finally getting back to its old trend.
Imagine debt to GDP getting back below 100%!! (ALL the debt...even that owned by govt agencies)

God Bless America!!

Ausgarry said...

Black swan time battern the hatches good luck.

Benjamin Cole said...

The most amazing election of all time is nearly in the bag for Trump.

The guy crushed the GOP establishment, told Fox News to shove it, ran his own game out of his back pocket, often looked like a lulu. And he wins!

I think when the Chicago Cubs won the World Series in extra innings in Game 7, after being down 3-1…well, it is that kind of year.

I share reservations of many out there, and this is no time to crow (well Bee Dawg can, but he's cool).

Let us hope Trump listens to own better angels, shows grace, realizes the gravity of the situation and yes hires good advisers. No, I am not calling for more of the same.

And I am calling for everyone to try to make the next President a success.

Good luck everybody and good luck to Trump too.

Ralf Graute said...

Thank you America! My faith is restored. Amazing....

Scott Grannis said...

I think Trump's win is an echo of Macri's win in Argentina, just as Hillary is America's Cristina Kirchner. It is a very auspicious portent for positive changes throughout the Americas.

randy said...

The only positive thing I can say about it is that we've finally seen the last of the Clintons. Hopeful that Trump will lead to positive changes? Yes I guess we have to. To be gleeful about such an awful person as a leader? Can't do it.

steve said...

I'm a right wing conservative whacko and I agree with Randy.

Scott Grannis said...

Not gleeful, but yes hopeful.

Hans said...

Good post Ben Jamin! That's right Dawg - God Bless America!!

All the Street experts indicated a serve selloff.

What a joke these pundits are. More BS from Wall & Broad.

Time for an independent council to investigate the Clinton
Crime family.

Rumor has it that both are meeting with their ME donors, as
a possible place of residency. Huma has been shopping for
Burka for her soon to be ex-boss.

Benjamin Cole said...

"The market’s being driven by a pickup in inflation expectations –- from quite low levels -– on speculation that fiscal policy next year will be more expansionary.’’

Time for "deficits don't matter."?

Trump on monetary policy?

Who knows?

Still, the S&P closed up. Good news. We just had (thanks to the Internet) front seats on the greatest political upset of all time.

And it started with Trump dismantling the establishment---the GOP establishment that is.


randy said...

@Scott, @Steve -
Hopeful? - fair enough. This blog consistently looks past the noise, moderating excessive fear - a valuable (and much appreciated!) viewpoint. I have a 22 yr old daughter in computer science. I see the barriers she faces. It's painful for young women to see that half the country are willing to look past Trumps view on women. Then I discussed it with my 20 yr old son - he acknowledged the flawed man, but expressed faith in us humans and in the institutions of American democracy. Helped me off the ledge :-). Thank God for youth. May they save us.

Al said...

Trump eh? Wow us Canadians can't believe it really happened. U was not a hilary fan at all but Trump is a loose canon. Hopefully he will be more 'presidential' now that he is not in battle mode. Will be interesting.

Hopefully he helps to pass keystone. That would be nice for canada and the US.

steve said...

Rates on the long bond soared yesterday. Be interesting to see how this shakes out. i'm a bond trader and came in to the election 50% cash and 50% in bank loan funds which THEORETICALLY can move higher with higher rates. pretty flat yesterday while everything else was down. going to let the dust settle a little before I expose more.

Your thoughts on market reaction so far Scott?

WealthMony said...

Donald J. Trump is not becoming president at a good time. Although the Fed has been tightening since the end of Quantitative Easing, it looks like there will be a second rate increase in December in anticipation of higher inflation and faster economic growth.

Monetary Aggregates have been plunging to levels last seen in 2001 while the velocity of money has been reduced to 2007 readings. I suppose inflation is on the rise. Is it? From what I understand the PCE rate of inflation was 2.6% for September while the core rate was 1.3%.

Recall we went through 8 years of Bill Clinton and upon his leaving office we soon went into a recession. The seeds for the recession had already been sown before George W. Bush entered office. It looks like the seeds for a recession may have already been sown just prior to Barack Obama leaving office.

We need strong economic growth. We need stronger employment growth so many who no longer work will return to the labor force and find good employment. We need improving global growth to spark the global economy. Can Trump and his team accomplish it without an early recession? I don't how. How does one pick up seeds that have already been sown and germinated?

Johnny Bee Dawg said...

No recession. Quite the contrary

Here come the Banks, and Drugs and Chemicals and Construction companies and Defense stocks and retailers and restaurants and more.
(Anti-Trump Bezos, Zuckerberg, Dorsey...not so much. You guys take a breath.)

Yield curve steepening. Copper percolating.
Index of Steel stocks up 13% since election. Up 89% YTD.
IBD 50 has tons of great innovative companies suddenly breaking out.
Rolling back those REGS. Ending Billion$ in payments to UN Climate Change scams.

Making America Great Again.
Trump Train full steam ahead! Toot! Toot!

Unknown said...

Johnny - as we watch Trump already surround himself with establishment insiders, I am curious how the "Drain the Swamp" mantra is looking so far.
It will be interesting to see how long it takes Trump supporters to realize they were the suckers in one of history's greatest con jobs.

Johnny Bee Dawg said...

Establishment insiders? Lol...Bannon, Kelly Anne, Rudy, Laura Ingraham, Ben Carson? Even Preibus is on the outs with establishment PUBs for letting Trump get in.
Markets love the guy. Let's see how things go when he reduces tax rates and regulations, and secures the borders and kills ISIS. And stops pouring money into the Global Warming scam.
Hillary voters were the real suckers. Not Trump supporters.