Recession? Stakes are High

Maybe in USA but “yes” in rest of world (ROW), even China. The Friday Jobs Report provides an unclear snapshot: the economy slows but labor markets hit 3.5% unemployment rate and the consumer, 70% of the US economy, remains strong — although concerns about a weak second consecutive holiday buying season are widespread. The US stock market,  a leading indicator, has sharply declined recently. Folks are worried, uncertainty abounds, financial conditions are tightening and trends inflect downward. Even the Federal Reserve is worried, so is Bullard.

A main drag is the ongoing Trump-initiated trade war, focused on China but spreading to the EU — which will surely evoke a response from the EU designed to hurt key industries in the USA, such as Cummins and Deere. And the robots are coming.

So, our paradigms fail to help us understand and to forecast: The weakest economy in the EU is Germany while the strongest is Greece. Brexit? China? Iran? Shock to oil supply? Upcoming US elections lurk in the background. Go figure.

The declaration of recession from NBER comes well after the recession has begun. Every recession is different, so policy-makers, widely percieved as failing, fight the last recession, not the recession under their feet. Watch the Atlanta Fed for hard numbers.

Are Profits Falling? Manufacturing is.

The critical, typically high-wage, manufacturing sector trends downward:

Thomas Piketty rocked the economic world with his book. The core driver of inequality: r > g. Profits drive capitalist investment, expansion, and economic growth.

I contend that in the period 2019-2030, profits, investment, and productivity will decline, dragging down economic growth and evoking an internal contradiction within capitalism between two camps: good capitalism and bad capitalism. Therein lies the story.


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