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March 2020 Economic Roundup

Recently, a raft of inflation measures have been reported, all totally benign. Overall GDP-wide inflation is just 1.4%; the Fed’s favorite measure of inflation, Personal Consumption Expenditure inflation is running at just 1.6%, and wage growth, no matter how measured, is running at 3% or less and declining. And, after subtracting productivity growth (which reduces wage inflation) of 1.2%, that leaves inflation-adjusted wages growing at 1.8%. Don’t worry about inflation.

In 2019, the US trade deficit shrank for the first time since 2013, from $628 billion to $619 billion; just 1.7%. Exports fell 0.1%, imports fell 0.4%. Imports from China fell 17.6%, but it was made up by a huge rise in imports from Vietnam and meaningfully higher deficits with six other nations. Our trade deficit in petroleum, the lowest ever and almost zero; with other stuff, the highest ever.

While 2020 US GDP growth should be about 2%, two threats that could meaningfully impact the short run are Boeing, which will reduce 20Q1 GDP by 0.4% and the Wuhan Coronavirus, which may reduce GDP by around 0.3%. Fortunately, the economic losses should be made up relatively quickly once the MAX gets recertified and the virus spread slows or a vaccine is developed, thus negatively impacting overall 2020 GDP modestly.

The IMF is predicting global growth of just 3.3% in 2020, but that’s up from 2.9% in 2019, the slowest growth since the Great Recession. The improvement is due to aggressive global monetary easing, the US-China trade truce, diminished fears of a no-deal Brexit and an uptick in global trade growth from 1% in 2019 to 2.9%. Despite these positives, US growth is expected to slow to 2% from 2.3%.

From 1998-2017, the cost of medical services doubled, and hospital services tripled; the CPI rose by just 50%. Why? Healthcare bills are paid by third parties like insurance companies and the government. Consumers have no incentive to monitor prices or be cost-conscious. Conversely, price inflation for the 20 most popular cosmetic procedures including Botox, eyelid surgery, facelifts, and nose jobs was 25%! It’s because these are paid out of pocket.

The share price of Tesla has more than tripled since the end of July and Tesla is now the world’s second most valuable automaker at $160 billion, behind Toyota at $200 billion. The only problem: it’s a consistent money loser. It has never made an annual profit, ever, and 19Q3 was only the fifth profitable quarter in its 16-year history. This rise is a textbook short squeeze and looks bubble-esque.

Source: Elliot Eisenberg, PhD is Chief Economist for consulting firm GraphsandLaughs, LLC, serving a variety of clients across the United States. All rights reserved.

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