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An Increasingly Divergent US Economy

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An Increasingly Divergent US Economy Lots of people have been huffing and puffing about whether or not the US economy will go into a recession in the near future, with Menzie Chinn and Jim Hamilton at Econbrowser saying it is now about 50-50 whether or not the US economy will go into recession by the end of 2020.   I do not have a horse in that race, but I am struck that a new odd phenomenon has recently appeared in the US economy, a split between sectors regarding their performance that recently seems to be increasing. The sectors are manufacturing, which has been declining now for several months, the harbinger of recession, and housing starts, which has more recently been showing an acceleration of growth that may well hold off any recession if it

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An Increasingly Divergent US Economy

Lots of people have been huffing and puffing about whether or not the US economy will go into a recession in the near future, with Menzie Chinn and Jim Hamilton at Econbrowser saying it is now about 50-50 whether or not the US economy will go into recession by the end of 2020.   I do not have a horse in that race, but I am struck that a new odd phenomenon has recently appeared in the US economy, a split between sectors regarding their performance that recently seems to be increasing.

The sectors are manufacturing, which has been declining now for several months, the harbinger of recession, and housing starts, which has more recently been showing an acceleration of growth that may well hold off any recession if it continues to accelerate.  It is unclear which will win out.

The manufacturing decline has been widely tied to the trade wars, which would appear to be at least partly responsible.  It is also the sector that through trade may be experiencing the pressures of the slowing of global growth.

However, ironically the recent increase in housing starts may be a result of the fears of recession that have been mounting recently, along with the Repo Ruckus that happened last month.  The upshot of these has been a change in Fed policy towards stimulus, with target interest rates being gradually moved down while the Fed has also stopped reducing balances and has been actively intervening in the repo markets to keep them stabilized.  In any case, housing is the most interest-rate sensitive sector of the economy, so it may be that this shift in monetary policy has triggered the uptick in housing starts that is now moving to offset the decline clearly apparent in manufacturing.This is getting interesting, and I am not going to forecast how it will come out.

Barkley Rosser

Barkley Rosser
I remember how loud it was. I was a young Economics undergraduate, and most professors didn’t really slam points home the way Dr. Rosser did. He would bang on the table and throw things around the classroom. Not for the faint of heart, but he definitely kept my attention and made me smile. It is hard to not smile around J. Barkley Rosser, especially when he gets going on economic theory. The passion comes through and encourages you to come along with it in a truly contagious way. After meeting him, it is as if you can just tell that anybody who knows that much and has that much to say deserves your attention.

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