The last 3 weeks have seen the macro fundamentals of the G-10 major economies collapse at the fastest pace in almost 4 years and almost the biggest slump since Lehman. Despite a plethora of data showing that ‘weather’ is not to blame, US strategists, ‘economists’, and asset-gatherers are sticking to the meme that this is all because of the cold on the east coast of the US (and that means wondrous pent-up demand to come). However, as the New York Times reports, for the earth, it was the 4th warmest January on record.
G-10 macro data is collapsing…
Must be the weather in the US, right?
For people throughout the Eastern United States who spent January slipping, sliding and shivering, here is a counter-intuitive fact: For the earth as a whole, it was the fourth-warmest January on record.
But this might be another surprise:
The United States covers only 2 percent of the surface of the globe, so what happens in this country does not have much influence on overall global temperatures.
Brazil, much of southern Africa, most of Europe, large parts of China and most of Australia were unseasonably warm in January, the National Oceanic and Atmospheric Administration reported Thursday. That continues a pattern of unusual global warming that is believed to be a consequence of human-caused emissions of greenhouse gases.
Even in the United States, more than a third of the country is in drought of varying intensity. Mountain snowpack in many parts of the West is only half of normal, portending a parched summer and a likelihood of severe wildfires.
But the cold weather in the East is being balanced, in a sense, by the bizarrely warm temperatures in the West. And that trend, too, is likely to continue.
The outlook over the next month is for continued above-normal temperatures in the West, the Southwest and parts of Alaska, as well as a continuation of the California drought, despite recent rains that have eased the situation slightly.
Can we finally put to bed the “weather” meme and perhaps, just perhaps, recognize that the global economy is slowing as the animal spirits exuberance of global central bank liquidity pump-priming has simply run its course and faces the reality of a debt-saturated, growth-stifled reality.
The United States achieved a 2.0 percent average annual growth rate of real GDP per capita between 1891 and 2007. This paper predicts that growth in the 25 to 40 years after 2007 will be much slower, particularly for the great majority of the population. Future growth will be 1.3 percent per annum for labor productivity in the total economy, 0.9 percent for output per capita, 0.4 percent for real income per capita of the bottom 99 percent of the income distribution, and 0.2 percent for the real disposable income of that group.
The primary cause of this growth slowdown is a set of four headwinds, all of them widely recognized and uncontroversial. Demographic shifts will reduce hours worked per capita, due not just to the retirement of the baby boom generation but also as a result of an exit from the labor force both of youth and prime-age adults. Educational attainment, a central driver of growth over the past century, stagnates at a plateau as the U.S. sinks lower in the world league tables of high school and college completion rates. Inequality continues to increase, resulting in real income growth for the bottom 99 percent of the income distribution that is fully half a point per year below the average growth of all incomes. A projected long-term increase in the ratio of debt to GDP at all levels of government will inevitably lead to more rapid growth in tax revenues and/or slower growth in transfer payments at some point within the next several decades.
There is no need to forecast any slowdown in the pace of future innovation for this gloomy forecast to come true, because that slowdown already occurred four decades ago. In the eight decades before 1972 labor productivity grew at an average rate 0.8 percent per year faster than in the four decades since 1972. While no forecast of a future slowdown of innovation is needed, skepticism is offered here, particularly about the techno-optimists who currently believe that we are at a point of inflection leading to faster technological change. The paper offers several historical examples showing that the future of technology can be forecast 50 or even 100 years in advance and assesses widely discussed innovations anticipated to occur over the next few decades, including medical research, small robots, 3-D printing, big data, driverless vehicles, and oil-gas fracking.