Longbrake Letter

September 2018

Above potential economic growth continues to be a global theme as global and world economies are finally benefiting from years of easy monetary policy. Momentum is powerful and is currently self-reinforcing. Practically all economies are growing above potential and slack has already disappeared or is disappearing rapidly. Recent global data have been a bit softer than expected, which might mean that acceleration in momentum is waning. Read the Outlook Assesment.

Is a new Great Financial Crisis (GFC) near at hand? In short, the answer is “No.” But, just because I don’t expect a financial crisis of the sort that decimated global economies in 2008 to occur any time soon, that view does not extend to the possibility of recession in coming months. Read the letter.

June 2018

Above potential economic growth continues to be a global theme as global and world economies are finally benefiting from years of easy monetary policy. Momentum is powerful and is currently self-reinforcing. Practically all economies are growing above potential and slack has already disappeared or is disappearing rapidly. Recent U.S. and global data have been a bit softer than expected, which might mean that acceleration in momentum is waning. Read the Outlook Assesment.

In the May Longbrake Letter, I raised this question and discussed developing risks. I concluded that good times seem likely to prevail during 2018 and perhaps 2019, but in the interests of prudent risk my advice was to prepare for the possibility of recession in 2020 or possibly 2019. Read the letter.

May 2018

U.S. and global growth continues to be strong and exceeds potential. The May Outlook Assessment evaluates U.S. and global 2018 forecasts made at the beginning of the year. Practically all economies are growing above potential and slack has already disappeared or is disappearing rapidly. However, recent U.S. and global data have been a bit softer than expected, which might mean that acceleration in momentum is waning. Read the Outlook Assessment.

Optimism abounds. Best to enjoy the good times now because we know from history that strong economic momentum, when the economy is operating at or above full capacity, eventually leads to recession and correction of the imbalances that built up during the euphoric period of overly strong growth. Professional forecasters are worried; most others are not. In this month's letter, Bill Longbrake examines what might go wrong and lead to a recession in 2020 or possibly in 2019. Bill also discusses whether weak productivity will improve and boost economic growth. Read the letter.

April 2018

2018 U.S. and global growth forecasts have been upgraded. The April Outlook Assessment evaluates U.S. and global 2018 forecasts made at the beginning of the year. Above potential economic growth continues to be a global theme as global and world economies are benefiting from years of easy monetary policy. Momentum is powerful and is self-reinforcing. Practically all economies are growing above potential and slack has already disappeared or is disappearing rapidly. However, recent U.S. and global data have been a bit softer than expected, which might mean that acceleration in momentum is waning. Read the Outlook Assessment.

In this month's letter, Bill Longbrake reviews his approach to forecasting economic outcomes for the U.S. and incorporates data and forecasts from the Congressional Budget Office's April 10-year federal budget revision. Enormous fiscal stimulus embedded in the "Tax Cuts and Jobs Act," disaster relief spending, and substantial increases in defense and discretionary spending caps have dramatically changed the near-term outlook and will lift U.S. growth substantially above potential in both 2018 and 2019. Bill cautions readers to enjoy the good times now because experience tells us that massive stimulus, when the economy is already operating at or above full capacity, eventually leads to recession and correction of the imbalances that built up during the euphoric period of strong growth. He suggests that prudent risk management mandates preparation for a possible recession in 2020. Read the letter.

March 2018

Optimism abounds across the globe and world economies are finally benefiting from years of easy monetary policy. Momentum is incredibly powerful and is currently self-reinforcing. Practically all economies are growing above potential and slack has already disappeared or is disappearing rapidly. In the case of the U.S., there is no slack and the enormous fiscal stimulus embedded in the "Tax Cuts and Jobs Act," disaster relief spending, and substantial increases in defense and discretionary spending caps will lift growth substantially above potential in both 2018 and 2019. When an economy has no slack and operates well above its potential, it risks overheating and that triggers upward pressures on prices and accelerates the buildup of imbalances in the economy. We are in the mature phase of the business cycle and the added stimulus will propel the economy higher in coming months. Best to enjoy the good times now because we know from history that strong economic momentum, when the economy is operating at or above full capacity, eventually leads to recession and correction of the imbalances that built up during the euphoric period of strong growth. Read the full letter.

February 2018

Optimism abounds across the globe. World economies are finally benefiting from years of easy monetary policy. Tax cuts and spending increases in the U.S. will amplify the already very ample and self-reinforcing momentum which is driving synchronous global growth well above long-term potential levels. Slack has already disappeared or is disappearing rapidly in many economies. The U.S. economy will overheat in coming months. Bill Longbrake counsels in this month's letter, that one should enjoy the good times now because we know from history that strong economic momentum, when the economy is operating at or above full capacity, eventually leads to recession and correction of the imbalances that build up during the euphoric period of strong growth. Bill Discusses 16 risks facing the U.S. and global economies. He also explains and assesses significant 2018 forecasts. Read the full letter.

January 2018

This month's letter is in two parts. In Part I, Bill Longbrake provides his final assessment of "hits" and "misses" on his 2017 forecasts. There were a lot of misses, which is a reminder that domestic and international economic and political dynamics can and usually do change dramatically over the course of a single year. Nonetheless, Bill takes a crack in the second section of Part I to summarize expectations for economic activity in 2018, which promises to be a very good year.

However, given that forecasts grow stale quickly and that the course of events can change economic outcomes, sometimes substantially, in Part II Bill provides a 10-year outlook for several key economic variable for four different scenarios. The "BASE" scenario reflects steady growth, but incorporates the demographic impact of slowing employment. Outcomes in other scenarios are not forecasts but rather show what could happen should the economy overheat, should recession occur, or should productivity remain extremely weak.

In next month's letter, Bill intends to discuss accumulating economic imbalances and to examine significant risks that could alter the U.S. and international outlooks for the worse, if not in 2018, in the not too distant future.

Read the letter: Part I, Part II