Tuesday, December 03, 2019

Is the Future still Bright?

by Calculated Risk on 12/03/2019 11:26:00 AM

It was almost seven years ago when I wrote "The Future's so Bright …" I noted that I was the most optimistic since the '90s, and that things would only getting better.

I pointed out that housing starts would increase significantly over the next several years, that state and local governments would start hiring again, that the budget deficit would decline sharply, and that household deleveraging was nearing and an end.

As I noted in January 2013: "There are several tailwinds for the economy, and the headwinds (like household deleveraging) are mostly subsiding."

Now the tailwinds are subsiding. Housing starts and new home sales are still positive, but the significant growth is behind us. For vehicle sales, the growth ended a few years ago, and sales are mostly moving sideways recently.

Some commercial real estate sectors - like hotels - growth is slowing.  And the Federal budget deficit is increasing sharply.

Fortunately employment is solid, and household debt service and financial obligation ratios are at record lows.

I've also been positive on demographics too, but unfortunately with less immigration and more prime age deaths, the demographic outlook isn't as favorable as a few years ago (See Lawler:Lawler: Updated “Demographic” Outlook Using Recent Population Estimates by Age)

Census 2017 materially over-predicted births, materially under-predicted deaths (mainly for non-elderly adults), and somewhat over-predicted net international migration (NIM) for each of the last several years.
And we haven't addressed some of the longer term challenges I mentioned seven years ago - such as rising health care expenditures, climate change, and income and wealth inequality - in fact policy over the last couple of years have made the situation worse.

I'm not on recession watch, and I expect further growth in 2020, but the future isn't as bright now.