FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
September 19, 2023

IN THIS ISSUE:

1. U.S. Economy Is Smoking Hot, According To Atlanta Fed

2. Fed Meeting Today/Tomorrow – Another Rate Hike?

3. Americans Want Younger Leaders In Washington, Not Happening

4. U.S. Household Income Drops For Third Consecutive Year

Overview – Touching On Several Bases Today

Some weeks there is simply not a single theme or topic which jumps out at me to write about. This is one of those weeks. When that happens, I usually pick several topics to comment on.

Today, we start with the latest Fed data on the economy which may surprise you. The economy as measured by GDP is on fire in the 3Q.

Following that, I’ll offer a few comments on this week’s Fed policy committee meeting. In short, no surprises are expected.

Next, I’ll delve into the fact that huge numbers of Americans want younger leaders in Washington. But this is not happening; our leadership in Washington is actually getting older; and I’ll explain why below. It’s a very interesting topic.

Finally, I’ll bring you the latest report on US household income. Despite a relatively strong US economy, household incomes have declined for the last three consecutive years. Obviously, this is not a good development.

It all should make for an interesting, fast flowing letter. Let’s get started.

U.S. Economy Is Smoking Hot, According To Atlanta Fed

The US economy turned in a respectable performance in the first half of this year, with Gross Domestic Product rising at an annual rate of 2.0% in the 1Q followed by 2.1% in the 2Q. However, as you can see below, GDP growth accelerated sharply in the 3Q according to the Atlanta Fed’s GDPNow estimate.

The Atlanta Fed’s earlier estimates showed GDP grew a whopping 5.6% (annual rate) early in the 3Q. I have to tell you that when I saw the Atlanta Fed boost its GDPNow estimate to 5.8% in mid-August, I thought No Way, as did a lot of Fed-watchers. I even predicted that the GDPNow number would fall, perhaps significantly, in the last half of August and September.

You can see that the Atlanta Fed’s GDPNow estimate has come down from the peak near 6%, and as of today stands at 4.9%. While that is a significant downward correction, 4.9% is still a very strong rate of growth.

You’ll also notice above that the Fed’s GDPNow estimate is still considerably higher than the forecasts offered by mainstream economists tracked by the Fed. This is not unusual but the gap has been wider than usual all year.

When I saw the GDPNow number jump to near 6% in August, I wondered what on earth could have happened in August to make the number jump so much. As usual, I first looked at consumer spending which accounts for apprx. 70% of GDP. While consumer spending has continued to go up this year, it has not gone up enough to create a near 6% handle in GDP.

Frankly, I don’t have a good answer for this. I thought maybe it was caused by inventories, but inventory investment actually went down so far in the 3Q. I’m hoping the Atlanta Fed will put out some explanation for the big jump, but it hasn’t so far.

Now, the Fed’s GDPNow estimates can be volatile from month to month, and they occasionally don’t get it right, but as you can see above, the number has been fairly steady since 2022. So, do I think GDP is really running at a rate near5%? I have my doubts but it rarely turns out well to fight the Fed.

We’ll just have to see how this turns out in the weeks and months just ahead, and I will of course keep you posted. But this is strange from where I’m sitting. Let’s hope the Fed is correct and the economy has accelerated to a pace not seen in years.

Fed Meeting Today/Tomorrow – Another Rate Hike?

The Fed Open Market Committee (FOMC) is meeting today and tomorrow to set central bank monetary policy for the next couple of months. The obvious question is whether the Fed will opt to raise its short-term overnight lending rate for the 12^th time in the past year and a half, or will it decide to bring its rate-hiking campaign to a halt and leave the Fed Funds rate unchanged at 5.25%-5.50%.

Fed-watchers seem to be split pretty much down the middle as to what they expect the Fed to do tomorrow. Yet pressure on the Fed to do nothing has been growing all summer. I have no idea what the Fed will do, but the good news is that it probably won’t make a lot of difference in the markets since we’re only talking about a 0.25% change, if anything at all.

Fed Chairman Jerome Powell will hold his usual post-meeting press conference tomorrow, but there too, no surprises are expected. The next FOMC meeting will be on October 31/November 1.

Americans Want Younger Leaders In Washington, Opposite Happening

Recent surveys show increasing numbers of Americans say they want younger leaders in Washington. I don’t think that comes as a big surprise. But the reality is that our leaders in the Congress are actually getting older, not younger on balance.

The Constitution defines minimum age requirements for elected offices, but there are no age caps. Yet if it were up to the American public, older candidates would be ineligible to run.

And while such an age limit would require a constitutional amendment, Millennials and others are trying to bring down the average age on Capitol Hill – even while Congress is getting older. But there is really no clear way to do it. And with legislators increasingly serving multiple terms, the average age may continue to rise.

Recent polling by YouGov and CBS News found that 73% of adults believe there should be age limits for elected officials and, in an era of intense polarization, Americans are united in their preference for such a cap, across gender, age group, race and party identification. However, they disagreed on what that limit should be.

Nearly half (47%) of respondents to the YouGov/CBS poll said politics would be better if more young people were in elected office; only 23% said politics would be worse. Self-identified liberals heavily influenced that question, with 74% saying “better” along with 51% of moderates and 26% of conservatives. The other moderates and conservatives were nearly evenly divided over whether politics would be the same or worse with more young people in office.

A person must be 25 years old to serve in the House, 30 for the Senate and 35 to be president. Theodor Roosevelt was 42 when he became president following the assassination of William McKinley.

The most popular maximum age for elected officials was 70 years old, preferred by 40% percent of respondents, followed by 60 (26%), 80 (18%) and 50 (8%). The age-70 option was the most popular across every demographic subgroup except one: Those under age 30 had a slight preference for a max age of 60.

Our two most recent presidents (Joe Biden, 78; Donald Trump, 70) were the oldest in history when they took office, marking a significant change from their predecessors. George W. Bush was 54 at his swearing in, while Barack Obama was 47 and Bill Clinton was 44 (third youngest, after Theodore Roosevelt and John F. Kennedy).

Polling firm Quorum found that the average age has increased in large part because lawmakers are serving longer terms than in the past. Six senators and three House members have served at least 40 years in Congress, including Senators Patrick Leahy of Vermont and Chuck Grassley of Iowa, who lead the way in their 48th year.

According to a survey commissioned in early 2021 by US Term Limits, which advocates for service caps on elected officials, 80% of Americans strongly or somewhat approve of a constitutional amendment that would put term limits on members of Congress, with Republicans, Democrats and independents all supportive.

And younger generations are not helping to balance the equation, with the 30-39 cohort showing the biggest decrease in representation following the last election.

But it’s not because they aren’t trying.

Finally, in my view, the only way we get to a meaningfully younger average age for those serving in Washington is if significantly more young people get involved with politics and, of course, more of them run for office. How likely is that to happen? Only time will tell.

Household Income Drops For Third Consecutive Year

The median household income in the United States dropped for the third year in a row in 2022, according to new data released by the Census Bureau. Yet President Biden is out there on the campaign trail saying just the opposite.

The average household income in the U.S. fell from $76,330 in 2021 to $74,580 in 2022, a decline of 2.3%, according to new data from the US Census Bureau. The decline comes as inflation has remained above trend and food and transportation costs continue to be high.

The decline in household income also reflects the ongoing labor shortage, which has made it more difficult for some people to find work. The unemployment rate was 3.6% in May 2022, but the labor force participation rate was 62.3%, the lowest level since the pandemic began.

So, while the overall US economy is on a roll this quarter, as discussed above, household incomes are not keeping up. In fact, they’re falling behind.

Wishing you a pleasant fall,

Gary D. Halbert

SPECIAL ARTICLES

Atlanta GDPNow Estimate Slips to 4.9% in 3Q

Aging Politicians Are Only Going to Get Older

Gary's Between the Lines column:
Biden Claims He Created 13.5 Million Jobs – Simply Not True

 

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