The Latest Outlook on the Economy: Another Canary Swoons

posted by Robert Shapiro on October 26, 2018 - 8:32pm

For several months, I’ve written about growing signals of a possible recession perhaps 10 to 15 months from now. The yield curve has flattened dramatically, because global investors are nervous about our near-term prospects. Investment growth after depreciation has slowed, even with Trump’s costly tax cuts. Inflation has picked up some steam, and interest rates have risen accordingly. Most important, productivity has been virtually flat for three years, and the inflation-adjusted earnings of a typical household have fallen now for more than a year.

The latest sign of troubles ahead came this morning when the Census Bureau released the latest figures on new home sales. Those sales are an important harbinger for the economy. That’s because building and outfitting new homes involves lots of jobs and economic demand, as do the purchases by new home buyers to make those houses into homes.

So, it matters when new home sales drop on a sustained basis. Last month, those sales fell 5.5 percent, compared to August. (All data are seasonally adjusted.) New home sales have now fallen in five of the last six months—and the average over those six months is down 7.5 percent compared to the preceding six months.

If Republicans think they could face a blue wave in this year’s elections, they might consider how voters will feel in 2020 when the economy is in recession.