Wednesday, 22 of November of 2017

Economics. Explained.  

Category » NumberNomics Notes

Small Business Optimism

November 14, 2017

Small business optimism rose 0.8 point in October to 103.8 after having fallen 2.3 points in Septembe.  This is slightly lower than the cycle high reading of 105.9 set in January which was the highest level for this index since 2004.  A couple of months ago the NFIB noted that the level of the index during the past year represents a hot streak not seen since 1983.

NFIB Chief Economist Bill Dunkelberg added, “Consumer sentiment surged based on optimism about jobs and incomes, an encouraging development as consumers account for 70 percent of GDP.  We expect a pickup in auto spending as people in Texas and Florida continue to replace cars that were damaged in the hurricanes. We expect the same increase in home improvement spending, partly because of the hurricanes, but also because of the skyrocketing price of homes.”

In our opinion the economy is expected to momentum in coming months if the new Trump Administration produces a number of significant policy changes.  Specifically, we believe that later this year or in 2018 we will see both individual and corporate income tax cuts, and legislation that will allow firms to repatriate corporate earnings currently locked overseas back to the U.S. at a favorable 10% rate.  Trump will continue to eliminate all unnecessary, confusing and overlapping federal regulations.  And health care reform of some type is still at least possible.  These changes should boost our economic speed limit should from 1.8% or so today to 2.8% within a few years.

Already we see the stock market at a record high level.   Jobs are being created at a reasonably robust pace.  The unemployment rate is below the full employment threshold.  The housing sector is continuing to climb.  And now investment spending should pick up after essentially no growth in the past three years.  We expect GDP growth to climb from 2.0% in 2016 to 2.3% in 2017 and 2.8% in 2018.  The core inflation will  probably slip from 2.2% in 2016 to 1.9% in 2017 but then up to 2.5% in 2018.  The Fed will continue to raise short-term interest rates very slowly.  Accelerating GDP growth, low inflation, and low interest rates should propel the stock market to new record high levels.

Stephen Slifer

NumberNomics

Charleston, SC


Tax Cuts Imply Bigger Budget Deficits – Or Do They?

November 10, 2017

Everybody is analyzing the impact of the House and Senate tax cut proposals.  The Congressional Budget Office estimates that the package will increase budget deficits by $1.5 trillion during the next 10 years.  Trump supporters claim that the tax cuts will stimulate the economy to such an extent that the additional tax revenues kicked off by faster growth will offset the impact of lower tax rates and that future budget deficits might even shrink.  Who’s right?  The answer seems to depend upon the method of scoring used to evaluate the various tax proposals, and the time horizon selected.

The non-partisan Congressional Budget Office is the official arbiter used by Congress to score the potential budget impact of any proposed changes in taxes or government spending.   It estimates that the proposed tax cuts will increase the budget deficit by $1.5 trillion over the next 10 years.  But it is important to understand that the CBO estimate must be calculated using what is known as “static” scoring.  What that means is that the CBO must apply the lower tax rates to its current estimate of GDP growth.  Not surprisingly, doing so reduces tax revenues and results in an expectation of larger budget deficits in the years ahead.  But that is an archaic method of calculation and results in a totally misleading conclusion.

Also, because Congress uses a 10-year time horizon when it produces its annual budget proposals, the CBO evaluates the impact of any tax or spending proposal using a 10-year window.  But there is nothing magic about 10 years.  Sometimes it is useful to examine these changes using a longer reference period.

While the CBO uses static scoring the economy is dynamic.  Lower tax rates will surely cause some behavioral changes.  What if businesses spend more money on investment?  What if they bring back some of the estimated $4.0 trillion of earnings currently locked overseas and invest it in the U.S.?  What if firms hire more workers?  Those are all reasonable expectations that will boost investment spending for years to come, increase the growth rate of productivity, and raise our economic speed limit from 1.8% currently to perhaps 2.8% by the end of the decade.  Faster growth increases tax revenues.

The Trump administration wants its tax cut proposals evaluated using “dynamic” scoring which takes into consideration the impact of both lower tax rates and faster GDP growth.   Using such a method, they believe that the additional tax revenues generated by faster growth will largely offset the impact of lower tax rates during the next 10 years.  And over a longer time horizon, say 20 years, faster GDP growth will boost tax revenues enough to shrink the projected budget deficits.

So,  wider deficits to the tune of $1.5 trillion over 10 years?  Or smaller budget deficits over a somewhat longer time frame?

Almost certainly tax cuts will trigger some of the behavioral changes described above which means that the CBO estimate that budget deficits will increase by $1.5 trillion over 10 years is way off the mark and misleading.

But only a die-hard supply-sider would conclude that lower tax rates will be revenue neutral during the upcoming 10-year time period.

Unfortunately, estimates of the impact from dynamic scoring vary widely and differ to a large extent upon the political persuasion of the organization making the estimate – which is exactly why the CBO is not permitted to use it.

For what it is worth, we believe that taking the growth effects of these policy changes into consideration the loss of tax revenues might be $0.5 billion during the next 10 years rather than $1.5 trillion. If one were to use a longer budget window we believe tax revenues will increase and actually shrink budget deficits beyond 2026.

We wholeheartedly support a cut in the corporate tax rate from 35% to 20%.  We support the idea of allowing U.S. firms to re-patriate overseas earnings at a favorable tax rate of 10% rather than the 35% rate they would have to pay currently.  And we support the notion of full expensing of investment.  Doing so would eliminate complicated depreciation and amortization schedules and substantially cut compliance costs for all American businesses.  It is the right thing to do and will certainly boost investment spending for years to come, raise potential GDP growth and, in the longer-term, shrink budget deficits.  We hope that our policy makers in Washington will not be distracted by the CBO’s estimate of $1.5 trillion less tax revenue over 10 years.  It uses an archaic and misleading method of calculation, and is constrained to a 10-year time span.  The positive effect of faster growth may accrue largely in the years beyond the normal budget window.

Stephen Slifer

NumberNomics

Charleston, S.C.


Consumer Sentiment

November 10, 2017

Consumer sentiment for Nonmember retreated by 2.9 points to 97.8 after having surged 6.0 points in October.  Despite the November decline, that  is the the second highest level of the year.

Richard Curtin, the chief economist for the Surveys of Consumers, said “Consumers (and policy makers) have four key concerns: prospective trends in jobs, wages, inflation, and interest rates. An improving labor market was spontaneously mentioned by a record number of consumers in early November, and anticipated wage gains recorded their highest two-month level in a decade. These favorable trends were countered by a slight rise in year-ahead inflation expectations and a growing consensus that interest rates will increase during the year ahead.”

Given that rebuilding effort combined with an expectation of major changes in policy likely to be implemented between now and yearend, we expect GDP growth for 2017 to be 2.3% and 2.8% in 2018.  We expect the economic speed limit to be raised from 1.8% to 2.8% within a few years.  That will accelerate growth in our standard of living.We expect worker compensation to increase 3.5% in 2018 vs. 1.1% this year. The core inflation rate should be reasonably steady this year at 1.8% thanks to a price war in the cell phone industry and falling prescription good prices caused by intimidation from President Trump.   However prices should rise by 2.3% in 2018.  Such a scenario would keep the Fed on track for the very gradual increases in interest rates that it has noted previously.  Specifically, we expect the funds rate to be 1.25% by the end of 2017 and 2.0% by the end of 2018.

The drop in sentiment was in both the current conditions and expectations components.

Consumer expectations for six months from now fell from 90.5 to 87.6.

Consumers’ assessment of current conditions declined from 116.5 to 113.6.

Trends in the Conference Board measure of consumer confidence and the University of Michigan series on sentiment move in tandem, but there are often month-to-month fluctuations.  Both series remain at levels that are consistent with steady growth in consumer spending at a reasonable clip of about 2.6% in 2018.

Stephen Slifer

NumberNomics

Charleston, SC


Unemployment vs. Job Openings

November 7, 2018

This release is generally rather obscure.  But. Fed Chairwoman Janet Yellen often refers to data from it so its importance has increased in recent years.

The  Labor Department reported that job openings were unchanged in September at 6,093 thousand after having declined 0.8% in August.    It is worth noting that there are more job openings today than there were prior to the recession (4,123 thousand in December 2007).   There were 6.8 million people unemployed in September.

As shown in the chart below, there are currently 1.1 unemployed workers for every available job.   Prior to the recession this ratio stood at 1.7 so the labor market (at least by this measure) is in better shape now than it was prior to the recession.

In  this same report the Labor Department indicated that the quit rate rose by 0.1 in September to 2.2 after having declined 0.1 in August.  The highest reading thus far in the business cycle of 2.2 has been attained on several occasions in recent months.  This series has been bouncing around between 2.1 and 2.2 for the  past two years.  This is a measure of the number of people that voluntarily quit their jobs in that  month.  It is another series that Janet Yellen likes to talk about.  During the height of the recession very few people were voluntarily quitting because jobs were scarce.  So the more this series rises, the more comfortable workers are in leaving their current job to seek another one.  The quit rate today is 2.2 at the beginning of the recession it was at 2.0.  Thus, it is not clear exactly how high this series can go.  Probably not a lot higher.

There is one other point that should be made about this report.  Janet Yellen claims that there are a large number of unemployed workers just waiting for jobs if only the economy were to grow fast enough.  She is assuming that these people have the skills and are qualified for employment.  We tend to disagree.  There are plenty of job openings out there.  What is not happening as quickly is hiring.  Take a look at the chart below.  Job openings (the green line) have been rising rapidly (and are higher now than they were prior to the recession); hires (the red line) have been rising less rapidly.

Indeed, if one looks at the ratio of openings to hires the reality is that this ratio  has not been higher at any point in time since this series began in 2000.  There are plenty of jobs out there, but employers are having a hard time filling them.  Why is that?

A couple of thoughts come to mind.  First and foremost, many unemployed workers simply do not have the skills required for the jobs available.  If they did, why aren’t they being hired?  Why aren’t some current part time workers stepping into the void for those full time positions? Why haven’t discouraged workers begun to seek employment with so many jobs available?  Why haven’t long-term unemployed workers bothered to go back to school and acquire the skills that are necessary to land a  job?

Or perhaps many of these people flunk the drug tests.  They might not be qualified for employment for a variety of possible reasons.

Perhaps also some people in this group find the combination of unemployment benefits and/or welfare benefits sufficiently attractive that there is little incentive to take a full time job when you can sit at home do nothing and make almost as much.

Whatever the case, it appears that the decline in the unemployment rate in the past year is not simply a reflection of workers dropping out of the labor force.  Jobs are plentiful and the only reason the unemployment rate is not falling faster is because the remaining unemployed/discouraged/part time workers do not have the skills required by employers today, flunk the drug tests, or are unwilling to take the jobs that are available.

Stephen Slifer

NumberNomics

Charleston, SC


Car and Truck Sales

November 5 2017

Unit car and truck sales retreated by 2.6% in October to a an 18.0 million pace after having jumped 15.3 % in September to 18.5 million  units.  The annual rate of 18.0 million is 1.1% higher than it was at this time last year.  This surge in sales in the past two months reflects an almost immediate impact from Hurricanes Harvey and Irma.  Thousands of  cars were lost from flooding and now need to be replaced.  We expect car sales to remain relatively robust for some time to come for a couple of reasons.

First, home sales remain at s solid pace.  Because car and home sales are the two biggest ticket items in a consumers budget, it is not surprising that a change in trend will be evident in these two categories first.  In this case both car and home sales seem pretty solid.

Second, the stock market is at a record high level.  That is an indicator of investor sentiment.  A rising stock market also boosts consumer net worth.

Third, all measures of consumer confidence are at their highest levels thus far in the business cycle.

Fourth, tax cuts to both individual and corporate income tax rates are likely in store later this year or in 2018.

And, finally, consumers have paid down tons of debt and are now in a position to spend.  Jobs are climbing at a pace of 170 thousand per month.  The unemployment rate has fallen to a level that is below the full employment mark.  Consumers are benefiting from stable and still low gasoline prices. For all of these reasons we look for steady 2.3% growth in 2017, and 2.8% in 2018.

Stephen Slifer

NumberNomics

Charleston, SC


Productivity Rebounding – Implies Faster Growth, Lower Inflation

November 3, 2017

After being stagnant for a couple of years productivity is finally on the rise.  We expect its recent pace to be sustained in 2018 which causes lots of good things to happen.  The economy’s economic speed limit will accelerate from 1.8% today to 2.8% or so in the years ahead.  Faster growth in productivity will boost wages to about 3.5%.  Faster income growth will raise the standard of living by 1.6%.  Finally, faster productivity growth will keep inflation in check.  Consider the following:

Productivity growth is closely tied to investment.  Give workers the latest technology or upgraded equipment on the factory floor, the same number of workers will be able to produce more output.  Investment spending was essentially unchanged in 2015 and 2016 as falling oil prices crushed investment in the oil sector and business leaders were frustrated by the gridlock in Congress.

But following Trump’s election things began to change.  In the month after the election many large companies vowed to create jobs in the U.S.  Amazon said it intends to add 100,000 new jobs, Walmart — 10,000, Sprint – 50,000, Pizza Hut – 11,000, and Chinese retail giant Alibaba says it will create one million new jobs in the U.S.

Then, corporate leaders became about excited about the possibility of a cut in the corporate tax rate, repatriation of overseas earnings to the U.S. at a favorable tax rate, and a significant reduction in the particularly onerous regulatory environment.  As a result, corporate confidence has soared.  The Institute for Supply Management’s (ISM) survey of conditions in the manufacturing sector reached its highest level since 2004.  The ISM survey for non-manufacturing firms looks similar.  Small business confidence has soared to its highest level since 2004.  Big firms, small firms, manufacturers, and non-manufacturing firms are all bursting with confidence.

Meanwhile the U.S. stock market has surged to a series of record high levels.  It has climbed more than 20% in the past year.  Stocks around the globe are climbing at an equally brisk pace.

Against this background, corporate leaders have begun to open their wallets.  After essentially no growth for three years, investment spending surged by 7.2%, 6.7%, and 3.9% in the first three quarters of this year.  If the corporate tax cuts and repatriation of earnings come to pass, investment spending will climb for years to come.  We anticipate a 5.0% increase in investment spending in 2018.

The ratcheting upwards of investment has caused productivity to rebound.  Following a couple of years with growth that averaged 1.0%, productivity rose 1.5% in the second quarter and 3.0% in the third (which happens to be the biggest single-quarter advance in three years).  Something different seems to be happening.

Faster growth in productivity causes lots of good things happen.  First, our economic speed limit accelerates.  That speed limit can be estimated as the sum of growth in the labor force plus productivity growth.  Currently the labor force is climbing by a reduced 0.8% pace as the baby boomers continue to retire.  Productivity is currently climbing at about a 1.0% pace.  Add those two numbers and it becomes clear that the economy’s speed limit today is an anemic 1.8%.  But suppose that the additional investment spending boosts productivity growth from 1.0% to 2.0%.  Now suddenly the sum of 0.8% growth in the labor force and 2.0% growth in productivity boosts that economic speed limit to 2.8%.  Trump believes his tax cuts will boost GDP growth to 3.0%.  He may not be too far off the mark.

Faster growth in the economy means that income will be growing more quickly.  Specifically, 1% faster GDP growth means 1.0% additional growth in income.  The most widely used measure of our standard of living is the growth rate of real, after tax, income per capita.  It is currently rising by 0.6% annually.  Tack on an additional 1.0% growth in income and suddenly it climbs to 1.6% which is close to its long-term growth rate.

If productivity grows more quickly compensation will also accelerate because workers have earned their fatter paychecks.  If employers boost worker compensation by 3.0% one might think that labor costs increase by 3.0%.  But what if workers are 3.0% more productive and the firm gets 3.0% more output?  The firm does not care.  Its workers have earned those higher wages.  In the last year compensation rose 1.4%, but in recent quarters growth has picked up.  We expect compensation to increase 3.5% in 2018.

Won’t the faster 3.5% growth rate in compensation lead to higher inflation?  Not really because of the pickup in productivity.  We expect compensation to increase 3.5% next year, but we also expect productivity to rise by 2.0%.  Thus, the increase in labor costs adjusted for the increase in productivity is 1.5%.  Economists have a name for this concept and that is “unit labor costs”.  This is the best measure of the upward pressure on inflation caused by rising labor costs.  An increase in unit labor costs of 1.5% is perfectly consistent with the Fed’s 2.0% inflation target.

Thus, in coming years we expect GDP growth to match its potential growth rate of 2.8%.  That allows worker compensation to grow more quickly and raises our standard of living, but it is not inflationary because of the largely offsetting increase in productivity (2.0%).

As we see it such a scenario could extend the expansion well beyond 2020.  We have often said that the Fed will raise the funds rate to a “neutral” rate of 3.0% by mid-2020.  But with the economy expanding at a rate in line with – but not exceeding – its potential growth rate, and inflation steady at the 2.0% mark, it will have no incentive to push rates any higher.  In the past the Fed has needed to raise the funds rate about  2.0% above the “neutral” to trigger a recession – or in this case about 5.0%.

Given this environment, there is no reason to think that this expansion will end in 2020.  It could go well beyond that date.  2022?  2025?  Sounds crazy, but is it?

Stephen D. Slifer

NumberNomics

Charleston, S.C.


Trade-Weighted Dollar

November 3, 2017

The trade-weighted value of the dollar, which represents the value of the dollar against the currencies of a broad group of U.S. trading partners has fallen 2.5% from where it was at this time last year.

When you try to figure out the impact of currency movements on our trade, you have to weigh the movements depending upon the volume of trade we do with that country.  For example, our largest trading partners are:

With respect to the Chinese yuan the dollar has weakened  about 1.0% over the past year.  A year ago one dollar would buy 6.73 yuan.  Today it buys 6.65 yuan.

The U.S. dollar has weakened 5.6% versus the Canadian dollar during the past year.  For example, a year ago one U.S. dollar would purchase $1.33 Canadian dollars.  Today it will buy $1.25 Canadian dollars.

And against the Mexican peso the dollar has weakened by 3.2% during the past year.  A year ago one dollar would buy 18.9 Mexican pesos.  Today it will buy 18.3 pesos.

The dollar has strengthened by 8.5% against the yen during the course of the past year.  A year ago one dollar would buy 104  yen.  Today that same one dollar will buy 113  yen.

The dollar has weakened 6.6% relative to the Euro during the past year.  At that one Euro cost $1.10.  Today one Euro costs 1.17.

Thus, the dollar has weakened against every major currency except the yen during the course of the past year.   As a result, the trade-weighted value of the dollar, as noted earlier, has fallen 2.5% during the past year.

Currency changes can affect the economy in several ways.   First, a rising dollar can reduce growth of U.S. exports because U.S. goods are now more expensive for foreign purchasers.  Similarly, a rising dollar can accelerate growth of imports because foreign goods are now cheaper for Americans to buy.  A rising dollar can also lower the rate of inflation in the U.S. because the prices of foreign goods are likely to fall.

From October 2014 to January 2016 the dollar rose 22%.  That is a huge change.  The trade component subtracted about 0.5% from GDP growth in both 2014 and 2015.  We expect the dollar to fall about% this year.  If that is the case the trade component of GDP should add about 0.3% to GDP growth in 2017.  In 2018 we expect little change in the value of the dollar and, hence, the trade component should be roughly a neutral factor in calculating GDP growth next year.

Stephen Slifer

NumberNomics

Charleston, SC


Purchasing Managers Index — Nonmanufacturing

November 3, 2017

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The Institute for Supply Management not only publishes an index of manufacturing activity each month, they publish two days later a survey of non-manufacturing firms — which largely consists of services. The business activity index rose 0.9 point in October to 62.2 after having jumped 3.8 points in September.   In October, 16 of 18 service-sector  industries  reported expansion.  Good, solid, broad-based growth at a slightly faster pace than in September.  At its October level the non-manufacturing index equates to GDP growth of 4.3%.

The orders component  edged lower by 0.2 point in October to 62.8 after having surged upwards by 5.9 points in September to 63.0.  Orders continued to flow in at a very rapid rate in October.  Indeed, with the except of a single  month — April of this year — it is the strongest pace of orders since February 2005.

The ISM non-manufacturing index for employment rose 0.7 point in October to 57.5 after having climbed 0.6 point in September.   Jobs growth should continue in upcoming months at about the same pace we  have seen of roughly 170 thousand per month.

Finally,  the price component fell 3.6 points in October to 62.7 after having surged in September by 8.4 points..   That is the fifth consecutive monthly increase.  The price run up in September probably reflect the interruption of the supply chain in that month from the hurricanes.  However, even apart from the hurricanes it is clear that non-manufacturing firms are encountering higher prices for their materials.

Stephen Slifer

NumberNomics

Charleston, SC


Private Employment

November 3, 2017

Private sector employment for October rose 252 thousand.  There were significant upward revisions to both August and September.  August previously had risen 164 thousand, it has now risen 184 thousand.  September had initially declined 40 thousand.  It now shows an increase of 15 thousand.   Both the August and September changes were impacted by the combination of Hurricanes Harvey and Irma.

A better reading of what is truly going on is represented by the  3-month moving average of private employment which is now 150 thousand.  That compares to an average increase of 170 thousand last year.  Thus, employment continues to chug along.  The labor force is growing by about 100 thousand per month.  For employment gains to be consistently larger than the increase in the labor force implies some people not previously in the labor force are choosing to return (like discouraged workers).

Amongst the various employment categories construction employment rose 11 thousand in both September and October.   The trend increase in construction employment appears to be about 15 thousand  per  month.

Manufacturing employment rose 24 thousand in October after having risen 6 thousand in September.   Factory employment is now rising and seems to be accelerating.  We think the trend increase is currently about 15 thousand per month.

Mining declined 2 thousand in October after having risen 1 thousand in September.  After a long period of steady declines mining employment is now rising about 5 thousand per month.

Elsewhere, health care climbed by 22 thousand.  Professional and business services continued to trend higher and increased 50 thousand in October.  Employment in leisure and hospitality establishments rose 106 thousand in October following a decrease of 102 thousand in September when many workers were off due to the hurricanes.

In any given month employers can boost output by either additional hiring or by lengthening the number of  hours that their employees work.  In October the nonfarm workweek was unchanged at 34.4 hours.  The workweek remains elevated and implies that employers are in need of workers and will continue to hire at a meaningful pace in the months ahead.

The increases in  employment and hours worked are reflected in the aggregate hours index which rose 0.2% in October after having been unchanged in the previous month.

There is no doubt that the consumer sector of the economy is expanding at roughly a 2.5% pace.  Individual  income tax cuts still seem possible later this year or in 2018.  The stock market is at a record high level.  Consumer confidence is holding up well.  Remember that consumer spending represents two-thirds of total GDP.

The sector of the economy that had previously been weak was the various production industries.  But that seems to be changing.  As noted earlier, factory employment is rising modestly.  Construction employment has been rising steadily.  And even mining has been rising somewhat after a steady series of declines associated with the drop in oil prices.

Looking ahead the prospect of both individual and corporate income cuts and the repatriation of some overseas earnings currently locked overseas should boost GDP growth from its 2016 2.0% pace to 2.3% in 2017 and 2.8% in 2017.

Stephen Slifer

NumberNomics

Charleston, SC


Payroll Employment

November 3, 2017

Payroll employment for October rose 261 thousand.  There were significant upward revisions to both August and September.  August previously had risen 169 thousand, it has now risen 208 thousand.  September had initially declined 33 thousand.  It now shows an increase of 18 thousand.   Both the August and September changes were impacted by the combination of Hurricanes Harvey and Irma.

A better reading of what is truly going on is represented by the  3-month moving average of private employment which is now 162 thousand.  That compares to an average increase of 187 thousand last year.  Thus, employment continues to chug along.  The labor force is growing by about 100 thousand per month.  For employment gains to be consistently larger than the increase in the labor force implies some people not previously in the labor force are choosing to return (like discouraged workers).

Amongst the various employment categories construction employment rose 11 thousand in both September and October.   The trend increase in construction employment appears to be about 15 thousand  per  month.

Manufacturing employment rose 24 thousand in October after having risen 6 thousand in September.   Factory employment is now rising and seems to be accelerating.  We think the trend increase is currently about 15 thousand per month.

Mining declined 2 thousand in October after having risen 1 thousand in September.  After a long period of steady declines mining employment is now rising about 5 thousand per month.

Elsewhere, health care climbed by 22 thousand.  Professional and business services continued to trend higher and increased 50 thousand in October.  Employment in leisure and hospitality establishments rose 106 thousand in October following a decrease of 102 thousand in September when many workers were off due to the hurricanes.

In any given month employers can boost output by either additional hiring or by lengthening the number of  hours that their employees work.  In October the nonfarm workweek was unchanged at 34.4 hours.  The workweek remains elevated and implies that employers are in need of workers and will continue to hire at a meaningful pace in the months ahead.

The increases in  employment and hours worked are reflected in the aggregate hours index which rose 0.2% in October after having been unchanged in the previous month.

There is no doubt that the consumer sector of the economy is expanding at roughly a 2.5% pace.  Individual  income tax cuts still seem possible later this year or in 2018.  The stock market is at a record high level.  Consumer confidence is holding up well.  Remember that consumer spending represents two-thirds of total GDP.

The sector of the economy that had previously been weak was the various production industries.  But that seems to be changing.  As noted earlier, factory employment is rising modestly.  Construction employment has been rising steadily.  And even mining has been rising somewhat after a steady series of declines associated with the drop in oil prices.

Looking ahead the prospect of both individual and corporate income cuts and the repatriation of some overseas earnings currently locked overseas should boost GDP growth from its 2016 2.0% pace to 2.3% in 2017 and 2.8% in 2017.

Stephen Slifer

NumberNomics

Charleston, SC