Accounting for Non-Market Activities and Equal Pay in the San Antonio GDP

Dr. Belinda Roman and I recently completed a working paper titled, Women in the Economy. It is the first paper completed in our new research program on women in the economy. One of the many shortcomings of the gross domestic product measure is that it excludes any activity that is not conducted within a market (i.e., non-market activities). A large component of non-market activities is household production. This includes any activity it takes to run a household for which the activity is not paid, like child-care, meal preparation, yard work, and house cleaning that is done by the residents of the household. One focus of the paper was to measure the value of non-market household production in San Antonio. We also measured the addition to GDP if women received equal pay in the labor market. The following chart summarizes the results.

Slide1

As shown in the table, placing a market value on household production would add an additional $20.8 billion to GDP in San Antonio. it should be noted that household production includes the production by both men and women, but time use data indicate that women conduct the vast majority of household production. Additionally, if women received equal pay, another $18.2 billion would be added to GDP. Accounting for these two components of economic activity would raise GDP in San Antonio from $109.3 billion  to $148.3 billion in 2016.

We also recently published an op-ed article in the San Antonio Express-News that summarizes the study. The article can be found here.

Yield Curve Continues to Trend Toward Inverting – Strong Indicator of Recession

Yesterday The New York Times published an article titled, “What’s the Yield Curve? ‘A Powerful Signal of Recessions’ Has Wall Street’s Attention” (https://www.nytimes.com/2018/06/25/business/what-is-yield-curve-recession-prediction.html). If you have the time, it is worth a read because the author, Matt Phillips, discusses the importance of the yield as a predictor of recessions. As I have discussed in at least one previous blog post, the yield curve is one of the best indicators of recessions. As Phillips notes, “every recession of the past 60 years has been preceded by an inverted yield curve, according to research from the San Francisco Fed.”

The graph below shows the yield curve through June 25, 2018. The gray bars indicate recessions, so the relationship between the inversion of the yield curve and recessions is pretty clear. It is also pretty clear that the yield curve is trending toward flattening (i.e., approaching zero in the graph). As noted in the article, the inversion of the yield curve does not give much of an indication of when the recession will occur, except that it will be in the fairly near future. As I have mentioned before, I think we will see the U.S. economy dip into recession by late 2019 at the earliest or sometime in 2020.

Yield curve thru 6-25-18

 

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U.S. Economic Expansion Now Second Longest in History

The U.S. economic expansion is now the second longest in history at 107 months.

Of course, this is great, but I think we also have to consider the possibility that the economy is going to run out of steam in the near future and start to go in another direction.

My thought is that by the end of 2019 or at least in 2020, this will start to occur. As shown in the following table, the expansion will be the longest in history if it keeps going through the middle of next year. Despite the nonsense spewed by some renowned economists before the Great Recession, we were reminded that expansions do not go on forever.

The business cycle is clearly not dead, and this expansion is likely to end in the near future.

US Economic Expansion thru May 2018

GDP and the Role of Women in the San Antonio Economy

My colleague, Belinda Román and I, have been working on a study of a more accurate measure of the role of women in the San Antonio economy. The results were released this past Wednesday at the San Antonio Hispanic Chamber’s Women’s Award Luncheon. The presentation can be found here.

This is the first study done under our new Women in the Economy Research Program at the SABÉR Institute. There is still much to be researched in this area, but we began by calculating what the gross domestic product of the San Antonio metropolitan economy would be if the non-market household production activities were counted in GDP and if women received equal pay to men.

Household production includes, in part, activities like child care, yard work, preparing meals, house cleaning, maintenance and repairs of the house, and travel time related to such activities.

As of 2016, GDP in San Antonio was $109.3 billion, and with these adjustments, GDP would be about $149.1 billion. We are still working to complete the full report, but it will be released in July.

Steve

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Forecast of the San Antonio Economy as Presented to the GFOAT

I gave a speech today to the San Antonio chapter of the Government Finance Officers Association of Texas on the San Antonio economy. I will pull out specific charts and talk about them in detail over the next couple of weeks, but here is the entire speech for now. In short, the economy looks strong and should continue to be strong for the next year or so, but I think the probability of another recession starting within the next couple of years is pretty high.

Steve

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The Joy and Benefits of Writing

Most of my writing is in the form of academic papers or reports for consulting projects. I am always amazed at how hard writing actually is. It seems so easy on the face of it…just sit down and start tapping on the keyboard. It takes a remarkable amount of energy and effort, but it can bring much joy and benefits.

One huge benefit is that it makes you think. I have found that there is nothing that makes you think harder about a subject than writing about it. When I am writing about my research, the process quickly highlights any potential shortcomings in the research process or outcomes.

It can also bring great joy to the writer. Of course, if one enjoys writing, the process it self can be fun, but writing something that you think is quite good, maybe even to your surprise, can be such a high. It is a severe rush of pleasure – a “writer’s rush,” if you will.

I had this experience yesterday afternoon as I was completing a report. It was the end of the day, and I had no sleep the night before, which does not make for good writing circumstances for me. Moreover, I had come to the point of writing the conclusion section of the report. This has always been the least favorite section of any paper for me to write. This is probably due to the fact that it typically leads to long outs of writer’s block and ultimately, very uninspiring writing. As I finally dove into writing the conclusion yesterday, inspiration came out of nowhere, and when I got done writing it, I read over it and thought, “Wow, that is pretty good.”

What a rush and a great way to end the work day!

Steve

 

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Credit Cycle Starting to Worsen

I have been saying for the past few months that I think we are likely to have a recession within the next couple of years. One reason for this is that it seems the credit cycle is starting to reverse itself, especially as it relates to consumer credit.

The following four graphs pulled from the Federal Reserve Economic Database give some indication of this. As shown in Charts 1-3, delinquency rates for other consumer loans, credit card loans, and consumer loans declined pretty steadily since the economic recovery began, but since 2015, the delinquency rates have started to rise.

Furthermore, the increase in delinquencies seems to pick up pace in 2016 for all of the categories of loans with consumer loans and credit card loans maintaining the increase through 2017. Delinquencies in automobile loans have also been rising (see here).

On the positive side, delinquency rates on single-family mortgages appear to continue to decline (see Chart 4). This might just indicate that consumers are clearly financially stressed, but they are continuing to pay their mortgages on time in an attempt to at least keep their homes. If the economy does go into recession, we will see delinquency rates rise on mortgages, as well.

Consumers under financial stress are not likely to maintain their strong spending patterns, and since consumer spending is two-thirds of gross domestic product, a slowdown in consumer spending is not going to bode well for continued economic growth.

On the commercial side, the credit market seems to be fairly strong as delinquency rates are continuing to fall. It is just a matter of time, though, before this trend reverses course, too. If consumer spending starts to decline, this means goods and services will go unsold, eventually causing businesses to decrease production as inventories increase and demand for services falls. With less revenues flowing into the business, we will likely see delinquency rates start to rise. A recession cannot be far away at this point.

Chart 1. Delinquency Rate on Other Consumer Loans, All Commercial Banks (Seasonally Adjusted – gray bars indicate recessions)

Delinqunecy Rate on Other Consumer Loans All Commercial Banks

Chart 2. Delinquency Rate on Credit Card Loans, All Commercial Banks (Seasonally Adjusted – gray bars indicate recessions)

Delinquency Rate on Credit Card Loans All Commercial Banks

Chart 3. Delinquency Rate on Consumer Loans, All Commercial Banks (Seasonally Adjusted – gray bars indicate recessions)

Delinquency Rate on Consumer Loans All Commercial Banks

Chart 4. Delinquency Rate on Single-Family Residential Mortgages, All Commercial Banks (Seasonally Adjusted – gray bars indicate recessions)

Delinquency Rate on SF Mortgages All Commercial Banks

Maybe this is all just a regression to the historical mean, but I think these trends are a bit concerning and worth watching.

Steve

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“Inextricable Connections” Are Important for Economic Development

As an economist whose research focuses on regional economies, I have often wondered about the economic and social impacts of the movement to online retail and social engagement in general through online means and away from interactions among physical persons. As one whose graduate degrees are in political economy, I am aware of the close connections between politics, a well-functioning government, and the functioning of the economy. Like many U.S. citizens, I am also increasingly concerned about the acrimony of our political environment in the U.S., especially, but also around the world.

I am reading Brene Brown’s, Braving the Wilderness, and among the many great insights in the book, she makes the point that we have a human need for “inextricable connection.”

All of these examples of collective joy and pain are sacred experiences. They are so deeply human that they cut through our differences and tap into our hardwired nature. These experiences tell us what is true and possible about the human spirit. We need these moments with strangers as reminders that despite how much we might dislike someone on Facebook or even in person, we are still inextricably connected. And it doesn’t have to be a big moment with thousands of strangers. We can be reminded of our inextricable connection after talking with a seatmate on a two-hour flight.

The problem is that we don’t show up for enough of these experiences. We clearly need them. But it’s vulnerable to lean in to that kind of shared joy and pain. We armor up. We shove our hands into our pockets during the concert or we roll our eyes at the dance or put our headphones on rather than get to know someone on the train (Brown, 2017, pp. 128-129).

The disrupting or tearing apart of these connections not only has social ramifications, but it also has economic effects that are not good. One of the key lessons I took away from the book is that it is easy to hate and spread nonsense when you can hide behind email and social media. One of her chapter titles summarizes it perfectly: “People Are Hard to Hate Close Up. Move In” (p. 63).

Reading the book highlighted one of the concerns I have been thinking about with respect to the effects of moving our everyday economic transactions and engagement with others both socially and economically to the online world. I took from Dr. Brown’s discussion that as this social disruption continues, the lack of personal engagement will decline as brick and mortar stores go out of business. Even though the interactions we have as we shop at one of these stores might be brief, it seems to me that they are very important per the points Dr. Brown makes as previously highlighted. As we lose these physical in-person interactions, it seems to me that it only exacerbates our vitriolic political climate, which is not good for our economic future.

Additionally, we may also lose the benefits and efficiencies that come from clusters of people (be they large or small numbers) engaging with one another in person. These are called agglomerations economies in economics. One of the biggest benefits that comes from these interactions are the transmission of ideas that lead to innovations that facilitate business growth, new business creation, and ultimately, economic development. Some argue that these can occur just as well in an online environment, and to some extent they do. What gets missed is the richness of the discussions that occur when in the physical presence of others that do not occur in an online environment. Sometimes (often times?), this just happens serendipitously as we wander the streets or engage in our daily activities – including our consumer activities at physical stores.

As usual, Dr. Brown states the importance of the physical interactions much more eloquently than I do.

As I started digging into this question [i.e., Is social media a toll to achieve collective joy and pain or more for the spreading of hate, unfounded statements, and picture of cute animals?] with research participants, there was very little ambiguity It became clear that face-to-face connection is imperative in our true belonging practice. Not only did face-to-face contact emerge as essential from the participant data in my research, but studies across the world confirm those findings. Social media are helpful in cultivating connection only to the extent that they’re used to create real community where there is structure, purpose, and meaning, and some face-to-face contact.

One of the most well-respected researchers in this area is Susan Pinker. In her book The Village Effect: How Face-to-Face Contact Can Make Us Healthier and Happier, Pinker writes, “In a short evolutionary time, we have changed from group-living primates skilled at reading each other’s every gesture and intention to a solitary species, each one of us preoccupied with our own screen.” Based on studies across diverse fields, Pinker concludes that there is no substitute for in-person interactions. They are proven to bolster our immune system, send positive hormones surging through our bloodstream and brain, and help us live longer. Pinker adds, “I call this building your village, and building it as a matter of life or death.”

…Social media are great for developing community, but for true belonging, real connection and real empathy require meeting real people in a real space in real time (Brown, 2017, pp. 140-141).

To be clear, I am not against shopping online or the internet or social media. I do my share of shopping online and certainly use the internet and social media, but I do think there are negative consequences for the economy that we need to keep in mind. One of these negative consequences is that it reduces our physical interactions with others, which reduces our understanding and tolerance of others. This leads to an inability to have reasonable and productive public debates and a dysfunctional democracy. Whether you love or dislike the government, a poorly functioning government has serious negative consequences for economic development. This lack of face-to-face interaction may also stifle the benefits of agglomerations economies, which could also slow economic development. In other words, the demise of online retail seems to be more than just structural changes happening in the economy. The reduction in face-to-face interactions leads to destructive social problems and slower development of the economy.

Just something to keep in mind as many of us consider where to shop at the end of the holiday season and spend all of those gift cards afterwards. Now, out the door I go to finish my last minute holiday shopping.

May you enjoy the season with those you love.

Steve

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References

Brown, B. (2017). Braving the Wilderness: The Quest for True Belonging and the Courage to Stand Alone. New York: Random House.

 

 

 

 

The Imperative of Understanding the Role of Institutions, Culture, and History in Economics

I recently read an article by Dr. Avner Greif of Stanford University titled, “Cultural Beliefs and the Organization of Society: A Historical and Theoretical Reflection on Collectivist and individualist Societies.” While it is a somewhat dated article being published in 1994 (see citation below), Dr. Greif’s conclusion struck me as being very important and still applicable to understanding economic development and economics in general today. I think his concluding remarks are also important to take into consideration when one is attempting to apply economics in the making of public policy or just trying to understand a certain issue or event.

Here are the highlights I took from Dr. Greif’s conclusion.

…This paper points to factors that make trajectories of societal organization – and hence economic growth – path dependent. Given the technologically determined rules of the game, institutions – the nontechnological constraints on human interactions – are composed of two interrelated elements: cultural beliefs (how individuals expect others to act in various contingencies) and organizations (the endogenous human constructs that alter the rules of the game…). Thus the capacity of societal organizations to change is a function of its history, since institutions are combined of organizations and cultural beliefs, cultural beliefs are uncoordinated expectations, organizations reinforce the cultural beliefs that led to their adoption, and past organizations and cultural beliefs influence historically subsequent games, organizations, and equilibria.

Understanding the sources of institutional path dependence indicates the factors that forestall successful intersociety adoption of institutions for which there are many historical and contemporary examples…The view of institutions developed in this paper indicates why it is misleading to expect that a beneficial organization of one society will yield the same results in another. The effect of organizations is a function of their impact on the rules of the game and the cultural beliefs of the society within which this game is embedded. Analyzing economic and political institutions and the impact of organizational modifications requires the examination of the historical development and implications of the related cultural beliefs.

Past, present, and future economic growth is not a mere function of endowment, technology, and preferences. It is a complex process in which the organization of society plays a significant role. The organization of society itself, however, reflects historical, cultural, social, political, and economic processes. Comparative historical analysis is likely to enhance our comprehension of the evolution of diverse societal organization, since this process is historical in nature. Furthermore, such an analysis provides the historical perspective and diversity required to examine institutional evolution and the interrelations between culture, the organization of society, and economic growth (Greif 1994, 943-944).

What this means to me is that if we are truly going to understand economics, the process of economic development, and the functioning of economies, we have to also understand the related historical, political, social, cultural, and institutional elements. We can’t only rely on mainstream economic theory. The culture and institutions that are embedded within an economic system are vitally important to fully understanding how that economy functions at a macro level, as well as gaining a full understanding of the economic behavior at the micro level.

Furthermore, since history (along with culture) plays a key role in determining the path dependence of the economy’s institutions, it is imperative to understand the historical context of an economy in order to be able to appropriately apply economic theory to the development and implementation of effective policy. Institutions, culture, and history matter, but yet, we ignore them, for the most part, in mainstream economics…much to the detriment of society.

Reference

Greif, A. (1994). Cultural beliefs and the organization of society: A historical and theoretical reflection on collectivist and individualist societies. Journal of Political Economy, 102, 5, 912-950.

 

Steve

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San Antonio 2018 Economic Forecast

I had the pleasure and honor of being on a panel at an event this past Friday hosted by Texas CEO Magazine in partnership with the Bill Greehey School of Business at St. Mary’s University in which I presented my economic forecast for the San Antonio economy in 2018.

The presentation can be found here.

Employment growth in San Antonio remains healthy but has been slowing a bit over the past twelve months, which follows a similar pattern to the other major metropolitan economies across the state through August. Given the length of the economic expansion, growth rates have regressed toward the long-term average. The unemployment rate in San Antonio is still quite low at 4.1% in August, but it has started to tick up over the past year.

Again, a similar pattern is occurring across the other major metropolitan areas, too. We are at the point in this phase of expansion where the economy is at or very near full employment, so growth is going to be driven by population growth and/or growth in productivity, so it is difficult to see that growth will be much greater than average, if it is at all in 2018. For next year, I believe we continue to see growth in San Antonio with employment increasing in the range 2.25-2.50%, which is around the historical average growth rate of 2.43%. I project that the unemployment rate in 2018 will probably be in the range of 4.00-4.25% in San Antonio in 2018.

You will also see in the slides that I think we need to consider the possibility of the U.S. economy going into recession in the next two to three years. This is simply due to the fact that the current expansion is already 100 months old, which makes it the third longest in history. If growth continues over the next two to three years, it will become the longest expansion in history.

If we learned anything in the last recession, it is that growth does not go on forever. The expansion is long in the tooth. As already mentioned, growth in the foreseeable future is going to come from population growth and/or higher levels of productivity. Given the trends in demographics with the aging baby boomer generation and limitations being put on immigration, it is difficult to see where the population growth is going to come from in the next few years. Boosts in productivity are, in part, going to be driven by technological change, and while that is exceedingly difficult to forecast, it is hard to envision from where the boost in productivity will come in the near future. With this in mind, it seems that the odds are pretty high that the economy will run out of steam within the next two to three years.

Of course, all of this is contingent on various risks, and the biggest risk I see at this point is political risk. The national and global political situation has injected a massive amount of uncertainty into the business and economic environment. This, in and of itself, can be a deterrent to economic growth, but it certainly makes economic forecasts more difficult.

Steve

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