Weekend Reading: Ignorance Is No Excuse

Authored by Lance Roberts via RealInvestmentAdvice.com,

The “tax bill cometh.” According to the press, this is going to be the single biggest factor to jump-starting economic growth since the invention of the wheel.

Interestingly, even the Fed’s economic projections are suggesting that economic growth will pick up over the next two years from the impact of tax cuts. (Chart is the average of the range of the Fed’s estimates.)

Of course, you should note the Federal Reserve has NEVER accurately forecasted future economic growth. In fact, it has become an annual tradition of over-estimating growth and then slowly ratcheting down estimates as reality failed to achieve overly optimistic assumptions.

However, despite the Administrations hopes of long-term economic growth rates of 3% or more, in order to pay for the deficits created by cutting revenue, even the Fed has maintained their long-run outlook of less that 2% annualized growth. (Down from 2.7% in 2011) Hardly the supportive stamp of endorsement for the “greatest tax cut” of all-time.

But for economic growth to blossom, the consumer will have to pull their weight given consumption makes up roughly 70% of GDP. The problem, as witnessed by the latest retail sales report, is that consumptive spending is far weaker than headlines suggest.

On Thursday, the retail sales report for November clicked up 0.8%. Good news, right?

Not so fast.

First, sales of gasoline, which directly impacts consumers ability to spend money on other stuff, rose sharply due to higher oil prices and comprised 1/3rd of the increase. Secondly, building products also rose sharply from the ongoing impact of rebuilding from recent hurricanes and fires. Again, this isn’t healthy longer-term either as replacing lost possessions drags forward future consumptive capacity.

But what the headlines miss is the growth in the population. The chart below shows retails sales divided by those actually counted as part of the labor force. (You’ve got to have a job to buy stuff, right?) 

As you can see, retail sales per labor force participant was on a 5% annualized growth trend beginning in 1992. However, after the financial crisis, the gap below that long-term trend has yet to be filled as there is a 22.7% deficit from the long-term trend. (If we included the entirety of the population, given the number of people outside of the labor force that are still consuming, the trajectory would be worse.)

But wait, retail sales were really strong in November?

Again, not so fast.

The chart below shows the annual % change of retail sales per labor force participant. The trend has been weakening since the beginning of 2017 and shows little sign of increasing currently.

While tax cuts may provide a temporary boost to after-tax incomes, that income will simply be absorbed by higher energy, gasoline, health care and borrowing costs. This is why, 80% of Americans continue to live paycheck-to-paycheck and have little saved in the bank. It is also why, as wages have continued to stagnate, that the cost of living now exceeds what incomes and debt increases can sustain.

Yes, corporations will do well under the “tax reform” plan, and while the average American may well see an increase in take-home pay, it will unlikely change their financial situation much. As a result, economic growth will likely remain weak as the deficit expands to $1 Trillion over the next couple of years and Federal debt marches toward $32 trillion. As noted by the CFRB

“Fiscal conservatives on the right have lost a massive amount of credibility based on the GOP budget they passed this year. After many years of calling for a budget that cut spending, reformed entitlements, controlled the debt and balanced the budget, they failed to enact even one of those goals when they finally had a chance."


"Out of a possible $47 trillion in spending over 10 years, the budget called for cutting an utterly pathetic $1 billion. Their fiscal credibility died with a whimper. I doubt that credibility can be regained, but it seems quite likely that some of the more conservative GOP members will call for letting the sequester hit.”

So, when someone acts astonished that things didn’t work out as planned…just remind them that “ignorance is no excuse.” 

Just something to think about as you catch up on your weekend reading list.

Trump, Economy & Fed


Research / Interesting Reads

“When the music stops in terms of liquidity, things will get complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.” – Chuck Prince, Citigroup


LawsofPhysics Fri, 12/15/2017 - 16:31 Permalink

Yes, but for so many that you meet, it is indeed bliss.Stupid is as stupid does, don't waste valuble time and capital trying to fix it..."Full Faith and Credit"same as it ever was...

you enjoy myself Fri, 12/15/2017 - 16:37 Permalink

Most people have no idea how much they actually get taxed. The federal rate of 25% kicks in at just $38K, and everyone in DC plays the sick game of ignoring the payroll tax.  I'm absolutely convinced most don't know that every dollar over $38K is taxed at 40%.So yeah, inflation is a bitch and steadily erodes your standard of living.  But a bigger culprit is having nearly half of your earnings skimmed off the top for our gargantuan government.  

BrownCoat Fri, 12/15/2017 - 16:47 Permalink

"But for economic growth to blossom, the consumer will have to pull their weight given consumption makes up roughly 70% of GDP."Can't have consumption without a middle class.Easy peasy solution: Stop all immigration. That will put upward pressure on labor rates. As it is, the US middle class is getting hollowed out. We're well on our way to being a Banana Republic with 2% of the population wealthy and 80% dirt poor.End Welfare. The Great Society turned out to be not so great after all. Stopping incentives of "meal ticket" children for welfare queens should cut government spending. 

brushhog Fri, 12/15/2017 - 16:47 Permalink

Last quarter, we saw OVER 3% gdp growth for the first time in a dozen years. The stock market is at record all-time highs never seen before in the history of the republic. Unemployment is holding at 4%, housing is rising, retail is surging, interest rates are normailzing...we're heading into possibly the biggest economic boom in decades and the powers that be are PISSED that its happening under Trump instead of Clinton, Obama, or Bush. And ZH, because its a Russian site, is going to paint every positive sign as a catastrophy signaling the end of America. For years high oil prices were a problem that was going to bring the US down, then prices crashed and THAT signaled the end of America....now they are rising again and this article tells us thats bad too. For years NIRP and ZIRP was going to be the end of us, now higher interest rates and slowing bond prices are the end. Housing prices going up its the end because affordability is gone and the country is going to tear itself apart....housing prices coming down, its CRASHING! We're all doomed. You have to be able to see through the bullshit.

dunce Sat, 12/16/2017 - 02:10 Permalink

It is surprising that they even managed to get any bill passed with McConnel and Ryan bumbling along, Rubio grandstanding, Collins mewling, and Rand Paul howling.

To Hell In A H… Sat, 12/16/2017 - 08:14 Permalink

My post will be number 13. Weekend reading? lol  Doo me a favour. The Trumptards on ZH, cant be bothered. 180+ replies on the NFL and only 13 on this subject matter. There are your answer and companies like Cambridge Analytics and TPTB know what riles us.The money changers, economy destroyers and war mongers VS niggers and the Trumptards will choose to vent their anger at niggers 99 times out of 100.  With an intellect like that, TPTB knows they have us beat.