Happy New Year! Well, it’s time for my annual predictions for the coming year, based on the inverse relationship between population growth and per capita consumption which I presented in Five Short Blasts. Briefly stated:
As our population (both the U.S. and the world as a whole) continues to grow beyond its optimum level, forcing people to crowd together, per capita consumption inevitably declines as a lack of space constrains our ability to store and use many products, especially larger products (like homes and cars, among others). As per capita consumption declines, especially in the face of ever-rising productivity, rising unemployment and poverty are inescapable. This same effect occurs when we attempt to trade freely in manufactured goods with nations that are already overpopulated. The more overpopulated our trading “partner,” the worse the effect.
Only actions to stabilize our population (especially reducing immigration) and action to restore a balance of trade through a sensible return to the use of tariffs have any hope of mitigating these effects.
Back-drop for 2016:
With the exception of the United States, where growth has been mediocre, to say the least, the rest of the world is teetering on the brink of a recession. It’s a new world where economic growth is dead, a fact that economists have yet to come to grips with. When you understand the economic relationship explained above, this comes as no surprise. But no one understands it. So the world’s population continues to grow exponentially. In fact, world leaders are leaning ever more heavily on population growth in a desperate, self-defeating attempt to stave off the effects of an “aging population.” (Why does no one ever ask the question, “won’t this just make matters worse in the long run, eventually forcing us to face an even larger aging population?) Even Europe is experiencing significant population growth again as it leans heavily on immigration, just as the U.S. has done for decades.
In the U.S., the economy has slowed dramatically in the 2nd half of the fourth quarter of 2015. Manufacturing is in recession, if not an outright depression. The housing sector has been healthy, but home prices have returned to record high levels, mortgage money is tight and qualified buyers are growing scarce. Only cash buyers, led by foreign investors, have kept this segment of the economy going. Signs of a slow-down have recently begun to emerge. The health care sector should remain strong.
Auto sales were strong in 2015, but this was fueled in large part by sub-prime auto loans to buyers who really have no business buying new cars. Have sales been pulled forward from 2016? Are we facing a “repo” crisis like we saw in housing over the last few years?
Wages are flat or declining for 90% of Americans, while the rich get richer at a fast enough pace to make average wages appear to be rising. “Job” growth has been relatively strong, but what is a “job” these days? Part-time work is considered a “job,” even if it’s only one hour per month. And reductions in hours don’t count as “layoffs.” So, in my opinion, much of the celebrated strength in the labor market has been illusory. With the big holiday spending spree behind us (and it wasn’t much of a “spree” according to retail sales figures) is a significant slow-down in consumer-spending on the horizon?
The federal budget deficit has been running below the trade deficit for a while now. In other words, the government isn’t putting money back into the economy at the same rate that the trade deficit sucks it out. This is a recipe for a recession. It happens every time that the federal budget deficits begins to lag the trade deficit. (Of course, the only sustainable cure for this situation is to cut the trade deficit, not increase the budget deficit.)
One of the biggest contributing factors to the recovery of the past few years has been the rally in the stock market, which has made Americans feel wealthier, propping up consumer confidence. But Wall Street is already signaling that the “good times” of the tepid recovery we’ve experienced for the last two years are behind us. The S&P was down in 2015. Corporate profits are declining. It’s reasonable to expect that companies will soon begin to prop up their bottom lines as they always do at this point in the “business cycle” – by cutting costs, which means cutting people.
Something that Wall Street hates more than anything is uncertainty and this is a presidential election year. As we saw in 2015, voters are in no mood whatsoever for politics as usual. Republicans are sick of the ineffectiveness of the people they’ve been electing. Democrats are disappointed and disillusioned with the lack of “hope and change” that they expected. All are sick of gridlock and virtually all see the country as headed in the wrong direction. (Does this sound like a population that believes in the hype about how good the economy is doing?) How will it all turn out? I’ll tell you. A Republicrat (either male or female) will be elected to assume the role of “status quo maintainer-in-chief,” the latest in a long line of bench-warming presidents.
Finally – inexplicably – while the seams of the economy have begun to spring leaks, the Federal Reserve has decided that the time is right to shoot a hole in the boat. Inflation is non-existent. Wages are flat. But it seems that the Fed has decided that, regarding the labor market, it’s time to “drink the Kool-Aid” and proclaim the economy healed. The only explanation is that the Fed has grown concerned that it is quickly becoming irrelevant in terms of its ability to have any effect on the economy. At any rate, it seems determined to pretend that the good old days have returned and to raise interest rates regardless of the state of the economy.
Predictions for 2016:
Given that backdrop, here’s what I see in the year ahead:
- The stall in the economy that I predicted for 2015, though delayed, will materialize this year and may already be underway as I write this. In terms of GDP per capita, the U.S. is headed for a recession. Perhaps it will be bad enough to become an official recession.
- Unemployment will begin to creep back up, ending the year above 5.8%.
- The U.S. trade deficit in manufactured goods won’t worsen in 2016, held down by a recession-driven global slow-down in trade.
- The Federal Reserve will reverse course by mid-year and begin undoing its ill-advised interest rate hikes. But don’t count on any “quantitative easing.” The Fed has grown wary of its ballooning balance sheet. It still wants to think of itself as a real bank.
- Disappointing economic growth in China will worsen, falling below 6% by the end of the year.
- Bond yields will remain low in spite of the Fed’s actions. The yield on 10-year treasuries will remain below 2.75%. The weak economy simply won’t support higher rates.
- The stock market will be very volatile and will end the year basically flat for the 2nd year in a row.
- Sadly, the Trans Pacific Partnership trade deal will be implemented. By the end of the year, auto sales will be in significant decline as imported trucks begun to flood the market (thanks to the elimination of tariffs on trucks). In addition, Chinese-made autos will begin to make inroads in the market.
- Expect Obama to issue more executive orders to legalize more illegal immigrants. The newly-elected president, whoever that may be, will also be expected to further liberalize immigration. The reasons cited will be humanitarian in nature. The real, unspoken reason will be that that is precisely what their corporate benefactors have paid them to do – grow the consumer base and, with it, total sales volume. Quality of life be damned.
If you have followed this blog, you know that my predictions tend toward the pessimistic side. That’s because nothing has been done to address the two major issues that are dragging heavily on our economy – free trade with badly overpopulated nations and continued population growth beyond the economically optimum level. One might say that if I keep predicting economic gloom and doom year after year, I’m bound to be right sooner or later. To which I respond, how long can the economy be propped up with money-printing, deficit spending, sub-prime lending and other gimmicks? These tactics are eventually doomed to failure. 2016 is the year it’ll happen.