December 2015

In this month’s letter, in a series of tables, charts and commentary, Bill Longbrake provides long-term forecasts for 15 U.S. economic indicators for the period from 2016 through 2023. Bill shares the view of many that potential inflation-adjusted growth will languish in the vicinity of 2 percent. However, he expresses skepticism about the consensus view that inflation will rise to 2 percent over the next three years and explains why inflation might remain very low in the near term and take much longer to rise to 2 percent. Bill’s inflation view, if correct, has significant implications for forecasts of many other economic indicators.

Bill provides a final assessment of observations he made a year ago about how the U.S. and global economies might fare in 2015. He got some things right and many things wrong. The U.S. and global economies are dynamic and ever changing. Some trends are foreseeable. But, governmental policy intervention, whether it be political or economic, can alter outcomes and set in motion feedbacks that significantly affect economic developments. In this respect, 2015 was no different from any previous year. Such will also be the case in 2016. Nonetheless, Bill summarizes key U.S. and global economic developments that seem possible, perhaps likely, in 2016.

This month's tables and charts | Read this month's letter

November 2015

As we enter the holiday season, the U.S. economy continues its slow forward march, with the exception of manufacturing which is struggling curtesy of a strong dollar. Much of the damage inflicted by the Great Recession has been repaired. The Federal Reserve is poised to take the first step to raise short-term interest rates after seven years of zero rates. Although the outlook is sanguine, most no longer expect robust growth. When the consensus coalesces around benign trends, it is especially important to listen to opposing viewpoints. The question we should ask is: what is different today that could result in unpleasant surprises? This month’s letter explores how the cumulative impacts of monetary policy might lead the U.S. into recession. Bill Longbrake also voices his skepticism about significant acceleration in wage rate growth. Read this month's letter.

October 2015

After a turbulent August and September, a semblance of calm has returned to global financial markets. Fears that China is on the verge of economic Armageddon have subsided. Policy makers have soothed markets by doubling down on monetary stimulus. The fundamentals were never as troublesome as the market feared. But they aren’t great either. Growth is slowing … everywhere, including the U.S. where soft third quarter growth is probable. Inflation is hard to find. Slow growth and low inflation is the order of the day. The only good news is that recession is probably not imminent. This month’s letter includes an examination of the impact of macroeconomic trends on long-term rates of return on Investments and discusses the consequences of a persistent low-inflation/low-growth environment and the challenges that will pose for fiduciaries who are responsible for pension funds and endowments. Read this month's letter.

September 2015

Primarily courtesy of Chinese policy communication bungling and China’s slowing economy, turbulence has returned once again to global financial markets. Financial conditions in the U.S. are the tightest they’ve been since the panic of 2007-09. Yet another round of falling commodity prices has raised investor fears that the global economy is slowing, perhaps materially. But, on the home front all is well … or, is it? The Fed didn’t raise rates … perhaps there is reason to worry. Productivity is barely discernible, inflation refuses to rise, and in spite of a plunging unemployment rate, labor wage rates show no sign of acceleration. Is recession around the corner? Probably not just yet, but growth certainly could slow down. Could it be that monetary and fiscal policies are fostering malaise rather than growth? Bill Longbrake ponders these issues and questions and more in this month’s letter. Read this month's letter.

July 2015

In this month’s letter Bill Longbrake examines the short and long-run consequences and implications of the Greek fiscal crisis and the Chinese stock market crash. He also explores the question of whether the next U.S. economic recession might be just around the corner. The remainder of the letter contains updates about the U.S. economic outlook for employment, inflation and monetary policy, as well as a summary congressional work on a variety of fiscal policy issues. Read this month's letter.

June 2015

After the shocking -0.7 percent GDP growth in the first quarter, recent data reports are painting a better picture. So, the economy is not about to go into a tailspin as some worried about a month ago. But neither is it poised to accelerate as most forecasters expected prior to the start of the year. In this month’s letter Bill Longbrake explains why economic growth is likely to continue to be low and disappointing for many years to come, primarily because of a lack of private and public investment which will result in historically low productivity gains. Read this month's letter.

May 2015

First quarter U.S. real GDP growth came in at a paltry 0.2 percent and updated economic activity reports promise to push growth well down into negative territory. Where is the much expected benefit of lower oil prices? When the data don’t fit expectations excuses proliferate. But, a close examination cannot explain away all of the unexpected weakness. In this month’s letter, Bill Longbrake discusses how misguided monetary and fiscal policies may be undermining economic growth and how global monetary policies may be fostering yet another bubble. Read this month's letter.

April 2015

With the exception of Europe, the global economy, including China and the U.S., is off to a disappointing start this year. As for Europe, the stars appear to have aligned at long last but is Europe’s recent good fortune prelude to steady, if uninspiring growth, or will it turn out in a few quarters to be a dead cat bounce within a trend of long-term secular decline? Bill Longbrake discusses Europe’s long-term prospects and the threat posed by Greece’s acute financial crisis. He also examines the surprisingly weak first quarter growth in the U.S. and what this portends. Read this month's letter.

March 2015

Economic activity in the U.S. has been somewhat softer over the last two months. Notwithstanding this, the U.S. economy is performing reasonably well. Better data reports are likely as winter turns to spring. Nonetheless, there are serious disconnects in key economic phenomena. Employment growth is very strong, GDP growth is weak and productivity is negative. In this month’s letter, Bill Longbrake discusses the reasons for these disconnects and the long-run consequences of underinvestment. Other forces are stirring – the collapse in energy prices, the strong dollar, the plunging euro, and ultra-low interest rates – which eventually may pose significant challenges for the U.S. economy. Read this month's letter.

February 2015

It would seem that everything is coming up roses, at least in the U.S. Is this a Goldilocks world? In this month’s letter, Bill Longbrake discusses global mega trends, secular stagnation and global monetary policies, the long-run implications of which appear to be at odds with the short-term Goldilocks scenario. Bill concludes that it’s hard to say where all this leads but it probably won’t be what the consensus expects. Read this month's letter.

January 2015

2014 ended with the “surprising” collapse of oil prices, although there were plenty of warning signals in advance. With the benefit of hindsight, the commodity price boom was just another bubble. It was initiated by substantive changes in the global economy but then carried to unsustainable heights by cheap and abundant money. Now as 2015 commences, bond yields around the world are in free fall and worries of potential deflation abound. Of course, the two sets of developments are related and are the inevitable result of monumental global adoption of market-driven economic systems and by aggressive use of policy to try to tame the extremes of market-driven systems. This has led to an explosion in aggregate global supply that has not been matched entirely by a commensurate expansion in global aggregate demand. Such a mismatch inevitably leads to intense deflationary pressures. In marked contrast with global developments, the U.S. economy seems to be doing just fine and is gaining economic momentum. Bill Longbrake focuses this month’s commentary on developments in the U.S., which for the most part are favorable. Nonetheless, the U.S. outlook is not free altogether from risk and one needs to be careful not to be dismissive of troublesome international developments or their potential consequences. Read this month's letter.

Robert H. Smith School of Business
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