Posts

Small Businesses Stable in 2018

Image
The Small Business Credit Survey 2019 recently was released from the Federal Reserve of New York. The report surveyed small businesses in the second half of 2018 regarding various performance indicators and credit outcomes. It comes at a time where global growth concerns from major financial organizations have caused uncertainty in markets as well as hesitance from corporate leadership. In particular, this report documents the responses from 6,614 small businesses with 1-499 employees either full- or part-time.


Small businesses in 2018 reported a general improvement in fundamentals. More than half reported revenue growth in 2018 (57%) and a good amount added workers (37%). That leaves the indices for each of those categories up slightly in 2018. The only performance measure that struggled was profitability. While 57 percent reported operating "at a profit" this number did not grow in 2018. 
Profitability struggles characterized the year as small businesses were forced to gra…

Elizabeth Warren and Cancelling Student Debt

Image
As the 2020 election nears and Democrats begin their campaign to take down the incumbent President Trump, the candidates are presenting their agendas to the American public. One of the most recent policy declarations was Elizabeth Warren's introduction of student debt cancellation. The idea is simple. The Massachusetts senator wants to forgive any outstanding student debt for any American citizen. The policy would be massive and have significant consequences for the U.S. economy. The effect is presented in a February 2018 report by the Levy Economics Institute of Bard College, "The Macroeconomic Effects of Student Debt Cancellation."


The student debt situation in the United States is dire. In 2011-2012, seniors graduated with, on average, over $26,000 in debt. As if the first quarter of 2016, $1.35 trillion of student loan debt was outstanding, up 40 percent from 5 years before. As the cost of education has risen by 156 percent between 1990-1991 and 2014-2015, financing …

U.S.-China Trade Issues: The Congressional Research Service Keeps Trade Talks in Focus

Image
Updates on the U.S.-China trade negotiations have been progressing, but reporting on that progress has been far from transparent. On April 8th, 2019, the Congressional Research Service published a short report on "U.S.-China Trade Issues." The report continues to nail down the reasons why the economic squabble continues between the two largest nations in the world. 


President Trump has cited his desire to shrink the trade deficit between the United States and China. In 2018, that deficit reached the highest it's ever been at $419 billion. The report suggests that economists could explain a rising deficit not as an unfair trading relationship, but as a result of "low U.S. domestic savings relative to total investment." Of course, this could be a result of rising rates, but that trend might be temporary.
In addition to a general "unfair" trade relationship, the current administration sees a problem with Chinese cybertheft and the stealing of intellectua…

The Tamed Asian Tigers

Image
The Asian Development Bank (ADB) released its most recent version of the Asian Development Outlook. The economists had a lot to say about the moderation in Asian growth; in particular, what they see as China's expectations start to get milder. For the overall region, the ADB sees growth moderating from 6.4 percent in 2018 to 6.2 percent in 2019 and 6.1 percent in 2020. As for inflation, ADB economists suggest the 10-year historical average of 3.2 percent will be undercut for the next two years with forecasted inflation around 2.5 percent (similar to the U.S. Federal Reserve's inflation target of 2.0 percent).


The stories told by the ADB are not of sharp deceleration but gradual deterioration. China is expected to slow from 6.8 percent in 2018 to 6.3 percent in 2019 "as restrictions on housing markets and shadow banking continue and as the trade conflict with the US weakens exports." In Southeast Asia, growth should be remain at around 5 percent this year as stronger …

The Chinese Economy is Transforming

Image
A new Chinese economy has been a looming threat over the past few years. It has slowly drifted away towards the accelerated, variable pace of an emerging market economy to move towards a mature service based economy centered around consumption. In the World Bank's China Economic Update for December 2018. The economic data in the report shows how the change is progressing and how its reacting to the current trade dispute with the United States.

The most troubling aspect of the shift is the slowing of Chinese GDP despite the gradual pace. The Chinese government already projected lower numbers for the 2019 year, but the World Bank report shows that this is no sudden adjustment. "GDP growth slowed to 6.5 year-over-year in the third quarter from 6.8 percent year-over-year in the first half of 2018 and 6.9 percent in 2017," as mentioned in the report.



An interesting aspect of the slowing GDP is that the deceleration is mostly caused by lower exports. Net exports weighed on GDP…

Prolonged Tariff Dispute Threatens the Farming Industry: Lessons from the 1980s

Image
President Trump's protectionist trade policies have been one of his more contentious economic policies garnering resistance from critics of all political leanings. The tariff dispute between the United States and China is the most well-known consequence of these policies and has resulted in economic growth worries. The U.S. stock market sat on the brink of a full-on bear market at the end of 2018 but recovered sharply in the first two months of 2019. Observers continue to monitor negotiations between top U.S and Chinese conveys that have yet to produce a decisive trade agreement.

Soybean and corn farmers are two groups within those observers that are watching closely in hopes of seeing their markets improve. According to Reuters, USDA Chief Economist Robert Johansson reported that “under the trade dispute, exports to China alone have plummeted by 22 million tonnes, or over 90 percent.” The dramatic reduction in Chinese exports so far has weighed on the latest 2019 projections whic…

We've Been Here Before?

Image
Sometimes, history does repeat itself. However, three years in front of 2015, the economy faces the triple threat of high valuations, rising rates, and geopolitical trade tensions. First Trust Portfolio's comparison suggests the pattern could be bullish. After all, a correction happens every 18 months shedding on average 10-19%. A little deja vu might help to calm things down, but this time fundamental pressure feels heavier.