The Daily Escape:
Rachel Carson National Wildlife Refuge, Kennebunk, ME – January 2023 photo by Eric Storm Photo
From the WaPo:
“The economy posted another consecutive quarter of steady expansion between October and December, with economic activity increasing at a 2.9% annual rate. Consumer spending contributed to the strong fourth-quarter showing, especially given the slumps in large parts of the economy, including housing and manufacturing.”
The latest GDP figures show we have a resilient but slowing economy. Some of the slowdown is intentional, brought on by the Federal Reserve’s aggressive increases in interest rates as a way to control our high inflation. The Fed raised interest rates seven times last year, expecting that higher borrowing costs would lead businesses and households to cut back enough to slow the economy and curb price increases.
That’s happened in the real estate market, and to a lesser degree, in manufacturing. WaPo quotes Joseph LaVorgna, chief economist at SMBC Nikko Securities America:
“You may see [growth] and think the economy is out of the woods, but that would be entirely the wrong read….There are a lot of variables that are all pointing in the same direction: There’s a housing recession. Manufacturing looks like it’s approaching recession. We’re seeing weakness in temp hiring. And it’s doubtful we’ve felt the full effects of all of the Fed’s rate hikes.”
So Biden can take credit for an excellent recovery so far, but many major banks are still forecasting an economic downturn this year. As Diane Swonk, chief economist at KPMG says: (emphasis by Wrongo)
“Momentum has already begun to slow in response to rate hikes, but the bulk of the slowdown is yet to come….The Fed’s goal is to let growth stall out in 2023.”
So are we in for a bad downturn that will persist through the 2024 elections? It’s a possibility if we keep playing politics with the economy.
We need to let people know that inflation has been easing month after month while the unemployment rate has held steady at about 3.5%. The year-over-year change in the consumer price index peaked at just over 9% in June, and since then it’s fallen to just under 6.5%. Other inflation indicators like the producer price index (PPI) have trended lower from prior highs as well.
And the world’s biggest inflation scold, economist Larry Summers who has been saying for 2+ years that we need a deep recession to drive out high inflation is sounding less hawkish: (brackets by Wrongo)
“I still think it’s going to be hard…[but]…You have to recognize that the figures are better than somebody like me would have expected three months ago. It’s still a very difficult job for the Fed, but the situation does look a bit better.”
From prior experience, Larry knows how to prepare, cook, and eat crow.
Can the Democrats and Republicans get out of the way of our currently good economic growth? From Heather Cox Richardson:
“On Monday the Wall Street Journal reported that median weekly earnings rose 7.4% last year, slightly faster than inflation. For Black Americans employed full time, the median rise was 11.3% over 2021. A median Hispanic or Latino worker’s income saw a 4.8% raise, to $837 a week. Young workers, between 16 and 24, saw their weekly income rise more than 10%. Also seeing close to a 10% weekly rise were those in the bottom tenth of wage earners, those making about $570 a week.”
Overall, the economy seems to be on solid ground at least for now. But the average American probably doesn’t view it that way.
And who will the voter reward or blame in 2024? We’ve seen that the House Republicans want to hamstring Biden and the national economy by holding the debt limit increase hostage to budget cuts, possibly in Social Security and Medicare.
So the Dems countered by asking new Speaker McCarthy for a plan on what would be axed from the social services budget. Now, Roll Call is reporting that the GOP seems to be changing their strategy on the fly:
“House Republicans are mulling an attempt to buy time for further negotiations on federal spending and deficits by passing one or more short-term suspensions of the statutory debt ceiling this summer, including potentially lining up the deadline with the end of the fiscal year Sept. 30.”
They’re trying to time the engineering of a debt default crisis to coincide with the government’s new fiscal year, thinking this creates a “mega crisis” of default/government shutdown that will bring Biden to agree to the egregious spending cuts the MAGAs want.
But this should help Democrats. First, Democrats will be able to point to the MAGA cuts as being far outside the American mainstream. Second, the GOP reckless attempt at hostage-taking will be on display just as the election season ramps up.
Are the wheels of the Republican clown car already coming off?
