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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Creative Industry Registers $4.0 Billion Impact on San Antonio Economy in 2016

I recently finished the update to the economic impact of the creative industry in San Antonio and was honored to present it at the creative industry luncheon this past Wednesday.

The presentation can be found here.

In 2016, employment in the industry totaled 20,363 with incomes reaching over $914 million. Output was over $3.3 billion with a bit over $1 billion of that being exported from the region. Once multiplier effects are taken into consideration, the total impacts on employment amounted to 24,885 full-time equivalent positions earning incomes of $1.1 billion and registering a total economic impact of about $4.0 billion.

Steve

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Books on Economics That Are Worth a Read

I have always enjoyed reading, but about four years ago, I decided to set a goal of reading a book every two weeks. While I have kept to the pursuit of the goal, I have yet to meet it if one measures it on an annual basis. I have come close, but I have not yet completed 26 books in a given year. I do not read very quickly (unlike one of my daughters who devours books voraciously – her Dad shares with just a slight tinge of envy), so when I decide to read a rather thick tome, it takes me longer than two weeks.

Furthermore, most of what I read are books about economics or somehow related to economics, so they are not always the quickest reads. That may sound odd, since I am an economist, but honestly, it is really what I enjoy reading. I can’t help it; I am a nerd. To achieve some balance, I do read fiction, and even cookbooks, and thoroughly enjoy reading them.

Through this process, I have come across books that I have thought were excellent and others that maybe did not quite reach that level (does not mean they were not worth the read, though), so I thought it would be fun to put together a list of the books on economics that I have read over the years that I have found to be excellent.

So what is “excellent’? For this list, it does not mean they were the best-written books in the sense that they achieved high art with the English language. It also does not mean that I necessarily agreed with everything that was discussed in the book.

What it does mean is that these books extended my knowledge in new and interesting ways, presented complex ideas in novel ways, and/or just made me aware of an issue or made me think more deeply about an issue. I should also add that they reflect my own interests. After all, who reads books about topics in which they have no interest?

They tend to be heavily weighted toward urban economics, macroeconomics, complexity economics, cultural economics, economic history, and heterodox economics, although other issues are covered. While I think you will learn a good bit about economics from the books on these lists, it is not a list of the great books in the history of economic thought (maybe that will be a post for the future). It is also not comprehensive in any way of the best books on economics, as I still have a lot left to read, fortunately.

I also tried to stay away from textbooks, although a couple made it on the list. Also, keep in mind that this is my opinion, obviously, and you may not agree. I would like to hear what you think.

So, here is the list, not in rank order, with a comment or two inserted.

  1. This Time is Different: Eight Centuries of Financial Folly by Carmen M. Reinhart and Kenneth S. Rogoff (A dense read chocked full of data, but gives you a very good sense of the factors leading to financial crises and the hugely detrimental effects they can have on the economy from a long historical perspective.)
  2. Complexity and the Economy by W. Brian Arthur (If you have any interest in complexity economics, this is a great introduction to the subject. In fact, you should read anything by W. Brian Arthur.)
  3. The Death of Economics by Paul Ormerod (These two books by Ormerod are great reads on complexity economics.)
  4. Butterfly Economics by Paul Ormerod
  5. The Nature of Economies by Jane Jacobs (Jane Jacobs was not trained as an economist, but in my opinion, her writings on economics were some of the most important in helping us understand the functioning of the macroeconomy and urban economies.)
  6. Cities and the Wealth of Nations by Jane Jacobs
  7. The Death and Life of Great American Cities by Jane Jacobs
  8. Mis-Measuring Our Lives: Why GDP Doesn’t Add Up by Joseph E. Stiglitz, Armatya Sen, and Jean-Paul Fitoussi (Probably not the most exciting read on this list, but you will have a great understanding of the shortcomings of one of our main economic indicators – GDP – so I think it is a very important book.)
  9. Triumph of the City: How Our Greatest Invention Makes Us Richer, Smarter, Greener, Healthier, and Happier by Edward Glaeser (Some interesting arguments about the value of cities that may be a bit counter-intuitive.)
  10. The Rise and Fall of American Growth: The U.S. Standard of Living Since the Civil War by Robert J. Gordon (Arguably the most eye-opening book on the list. It is a long book, but a great read with many fascinating historical anecdotes.)
  11. After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead by Alan S. Blinder (There are many good books on the most recent financial crisis and the Great Recession, but this is the best that I have read. Blinder is also quite entertaining.)
  12. Buddhist Economics: An Enlightened Approach to the Dismal Science by Clair Brown (This is one of those books that really stretched my thinking on economics. Fascinating stuff.)
  13. Economism: Bad Economics and the Rise of Inequality by James Kwak (If you want to understand the perils of misunderstanding and/or inappropriately applying economic theory, you should read this book.)
  14. Globalizing Capital: A History of the International Monetary System by Barry Eichengreen (Great read on the historical development of the international financial system, but you had better bring at least some knowledge of finance and the the financial markets.)
  15. Why Nations Fail: The Origins of Power, Prosperity, and Power by Daron Acemoglu and James Robinson (This book, along with the next three in the list, provide a great overview from different perspectives of global economic development throughout large spans of history.)
  16. Guns, Germs, and Steel: The Fates of Human Societies by Jared Diamond
  17. The Wealth and Poverty of Nations: Why Some are so Rich and Some so Poor by David S. Landes
  18. A Farewell to Alms: A Brief Economic History of the World by Gregory Clark
  19. Seven Bad Ideas: How Mainstream Economists Have Damaged America and the World by Jeff Madrick (See the comment on Economism.)
  20. This Changes Everything: Capitalism vs the Climate by Naomi Klein (An interesting book on the relationship of economics to one of the most important issues of our time.)
  21. Creative Communities: Art Works in Economic Development by Michael Rushton (One of my main interests is in understanding the intersection between arts and economic development, so I found this book very interesting.)
  22. A Textbook of Cultural Economics by Ruth Towse (If you want to get a more in-depth understanding of the economics of arts and culture, this is a good book. As the title tells, it is a textbook, but Towse does a good job of explaining the economics, although some helpful details on the economic theories are missing, in my opinion.)
  23. Economics and Culture by David Throsby (Throsby is one of the leading scholars in the field of cultural economics, so if you have an interest in this, I highly recommend this book and the following one, as well.)
  24. The Economics of Cultural Policy by David Throsby
  25. Theories of International Economics by Peter M. Lichtenstein (To be honest, this is the book I am currently reading, so I have not finished reading it, but Lichtenstein does such a wonderful job of explaining international economic theory that I had to put it on the list. He also discusses international economics from the perspective of many heterodox theories, which I think it very important.)

 

Again, I hope you find this list interesting and maybe even useful, and if you decide to read any of the books, I hope you enjoy them as much as I did. Lastly, if you really want to understand how the economy functions, I strongly encourage you to read about some of the heterodox or alternative economic theories (which is why I included some books on this list that do just that), and I also highly recommend that you read books on topics of interest from the perspective of anthropology, political science, sociology, psychology and all of the other social sciences, humanities, and natural sciences.

Happy reading!

Steve

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