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Dr. Lacy Hunt: Ample Evidence of a Coming US Economic Slowdown  ( Original )
JAN 25, 2018

ORIGINAL SOURCE: Quarterly Review and Outlook, Fourth Quarter 2017 by Lacy Hunt, PhD, and Van Hoisington of Hoisington Investment Management on 1/24/18

Consensus forecasts for the US economy are rosy. But look deeper into the fundamental unpinning of growth, consumer spending, and you will find some troubling math. While consumer spending rose 2.9% over the past year, real disposable personal income rose a scant 1.9%. Only the ability to spend borrowed dollars drove the spending rise.

In fact, the savings rate for consumers dropped to a 10-year low, from 3.7% a year ago to 2.9% in November. And historical data show that such a low level of savings is usually followed by a period of slow growth:

Other factors that will contribute to a slowdown:

  • Borrowing should slow in 2018 as the 125-basis-point increase in the Fed funds rate since December 2015 makes taking new loans less attractive
  • Monetary policy is expected to continue along this trend, and tighter bank lending standards will further decrease the availability of borrowed capital
  • Nonfarm payroll growth of 1.4% is now below its historic non-recessionary average of 1.9% and in a decided downtrend:

There is a wide array of factors aligned against robust economic growth in the coming year, even if they derive from the sort of data that don’t tend to be featured in mainstream daily financial headlines:

A higher federal funds rate, the continuation of QT, low velocity and abruptly slowing money growth all put downward pressure on growth. The flatter yield curve will further tighten monetary conditions. This monetary environment coupled with a heavily indebted economy, a low-saving consumer and well-known existing conditions of poor demographics suggest 2018 will bring economic disappointments. Inflation will subside along with growth, causing lower long-term Treasury yields.

Please see the full report here; Quarterly Review and Outlook, Fourth Quarter 2017