Bill Mitchell — US growth surprise will not last

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Last Friday July 27, 2018), the US Bureau of Economic Analysis published their latest national accounts data – Gross Domestic Product: Second Quarter 2018 (Advance Estimate), which tells us that the annualised real GDP growth rate for the US was a very strong 4.1 per cent in the was 3 per cent in the June-quarter 2018. Note this is not the annual growth over the last four-quarters, which is a more modest 2.8 per cent (up from 2.6 per cent in the previous quarter). As this is only the “Advance estimate” (based on incomplete data) there is every likelihood that the figure will be revised when the “second estimate” is published on August 29, 2018. Indeed, the BEA informed users that it has conducted a comprehensive revision of the National Accounts which includes more accurate data sources and better estimation methodologies. So I had to revise my entire dataset today to reflect the revisions. The US result was driven, in part, by “accelerations in PCE and in exports, a smaller decrease in residential fixed investment, and accelerations in federal government spending and in state and local spending.” Real disposable personal income grew at 2.6 per cent (down from 4.4 per cent in the first-quarter). The personal saving ratio fell from 7.2 per cent to 6.8 per cent. Notwithstanding the strong growth, the problems for the US growth prospects are two-fold: (a) How long can consumption expenditure keep growing with flat wages growth and elevated personal debt levels? (b) What will be the impacts of the current trade policy? rise is a relevant question. At some point, the whole show will come to a stop as it did in 2008 and that will impact negatively on private investment expenditure as well, which has just started to show signs of recovery. Government spending at all levels has also continued to make a positive growth contribution. But with rising private debt levels and flat wages growth the growth risk factors are on the negative side. When that correction comes, the US government will need to increase its discretionary fiscal deficit to stimulate confidence among business firms and get growth back on track....

To the degree that the consolidated domestic private sector is driving growth, growth of private debt is the key driver. Growth based on expanding private debt is income-dependent, and incomes must also grow for the increased debt to be sustainable over time. If the rate of growth of private debt falters, increasing net exports or (inclusive "or)) government deficit spending must offset to maintain the growth path.

Bill looks at the details of this and it is a good example of MMT macro analysis. He shelfs the discussion of the external sector for another day.

I will write more about the tariff tit-for-tat in a future blog post.

What appears to be happening is the decisions taken by Trump are putting US trading partners into situations that will see them concede in one way or another....

This is a fairly long post and quite detailed. It will be mostly of interest to those already handy with MMT analytical tools, but it will also give MMT newbies a look at how MMT analysis works.

Bill concludes by looking at the US labor market and the plight of US workers.

This post really covers the bases!

Here is something else to consider:

So, the standard neoliberal claims that the labour share has to be reduced to stimulate more private business investment and jobs is not supported by the evidence.

The increased owner/rentier share is not going to capital investment and not that much is going to increased consumption either. This is means that the residual is being saved.

The increased savings over investment would imply that owners expect a better return from financial investment than productive investment, as Marx held — and also predicted that when this became chronic it presaged late-stage capitalism. This seems to be occurring in the developed world where the rate of actual growth is masked by the lack of distinction in GDP between actual production and services, especially financial services. Production is increasingly being exported to the still developing world. Now President Trump is trying to reverse that trend.

Bill Mitchell – billy blog
US growth surprise will not last
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

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On net, we can say that the economy is likely getting some near-term boost from the tax cut, which could lead to a growth rate of close to 3.0 percent in 2018. It is difficult to see this persisting into 2019 unless we see a pick up in productivity growth as the labor market tightens and employers are forced to pay higher wages.

It is important to point out that for almost everyone but economist types, growth does not mean anything. People care about whether they have a job and whether their pay is rising. On the last point, the news has not been good, as real wages have been flat over the last year.

However, it is important to note that without the increase in energy prices, they would have risen 0.5–0.7 percent. That is not a great story given how much ground has to be made up for workers to get their share of growth, but at least it is movement in the right direction. And, as the energy price hikes of last summer move out of the 12-month window, we will be looking at real wage gains of 0.5 to 0.7 percent, what workers were seeing before Donald Trump became president.

Beat the Press
Quick Thoughts on Trump's "Amazing" Economy
Dean Baker | Co-director of the Center for Economic and Policy Research in Washington, D.C fiscal balance MMT private debt US economy 2018-07-31