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John Early  

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  • Still Expecting A U.S. Recession? The Numbers (Still) Beg To Differ [View article]
    Hi Go Lakers
    Not so impressed with GDP much of the revision was higher inventory. The release also included profits and both measures I look at were down. On the other hand, personal income and durable orders that came out this morning certainly indicate the economy is stronger than I expected. Happy Thanksgiving.
    Nov 25, 2015. 10:19 AM | Likes Like |Link to Comment
  • Still Expecting A U.S. Recession? The Numbers (Still) Beg To Differ [View article]
    Hi Go Lakers

    You may want to take another look at real inventory. It has grown 50% faster than real GDP over the last 3 years. It has grown faster in 11 of the last 15 quarters and the last 4 quarters straight.
    Nov 12, 2015. 11:45 AM | Likes Like |Link to Comment
  • Still Expecting A U.S. Recession? The Numbers (Still) Beg To Differ [View article]
    Hi Go Lakers
    "not a single indicator" Really? So why is it that the peak month of industrial production was back in December 2014. GAAP or as reported earnings of the S&P 500 peaked in Q3 2014 and is down about 14.9%. It has fallen for 4 straight quarters. Profits ( with cost of capital and inventory adjustments also peaked in Q3 2014. Housing starts and permits both peaked in June 2015. The US stock market (S&P 500) is going on 6 months now without a new high. With inventories growing 60% faster than GDP in the last year not all is as rosy or sustainable as the idea that no indicator is pointing down.
    Nov 11, 2015. 12:48 PM | Likes Like |Link to Comment
  • Recession Will Blindside Those Focused On Unemployment Claims And Yield Curve [View article]
    David, thanks for the thoughtful comment. You are of course right not to look at single indicators when everything happens in the context of everything else. When I examined CFNAI I didn't find it had any meaningful leading indication on quarterly GDP. I viewed it as a coincident indicator, but will look at it again. Building permits as I interpret them show strength for Q4, but weakness in Q1 2016. I have not examined the STFSLI and look forward to doing so. Also will look deeper into temporary workers. You may want to reexamine the correlation between GDP and the yield curve during this period of ZIRP.
    Nov 5, 2015. 12:09 PM | Likes Like |Link to Comment
  • Recession Will Blindside Those Focused On Unemployment Claims And Yield Curve [View article]
    John "Too" Early its true. And it has gotten worse. I was about a year early on the 1990 recession, about 2 years early on the 2001 recession, about 2 and a half years early on the 2007 recession. Looking at about 3 and a half years now and counting on the next downturn.

    In those previous times I came out ahead of the market over the full cycle. Not at all clear If I will come out ahead this time.
    Nov 4, 2015. 01:44 PM | 6 Likes Like |Link to Comment
  • Q3 GDP Forecast At 0.5% [View article]
    I attempt to look at actual correlation between variables and then determine if their is an actual influence between them or if perhaps some other variable influences one before the other. On a concurrent basis the change in the oil price has a significant correlation with the change in economic growth. It appears a rising price of oil corresponds to a stronger world economy. On the other hand a lower price of oil corresponds to faster growth in the future. It still surprises me that the strongest correlation for this is with oil leading 21 months. See the gold line in the chart.
    Oct 24, 2015. 11:12 AM | Likes Like |Link to Comment
  • Why Has Labor's Share Of GDP Declined For 40 Years? [View article]
    The decline is directly related to the lagged effect of marginal tax rates and brackets on personal income. Back when the share of the pie going to take home pay for workers averaged over 50% the top bracket was over 100 times per-capita GDP now the top bracket is less than 9 times per-capita GDP. The higher the marginal rate on the last dollar of income is the lower the after tax marginal cost of hiring an additional dollar of labor.
    Sep 21, 2015. 01:01 PM | Likes Like |Link to Comment
  • The Obamacare Economic Disaster? [View article]
    It is hard to argue that Obama care is killing jobs. Since December 2009 when Obama care became law the economy has added 12.9 million private sector jobs. In the nine years prior to December 2009 the economy lost 4.7 million private sector jobs.
    Aug 10, 2015. 10:31 AM | 3 Likes Like |Link to Comment
  • A Few Thoughts On GDP [View article]
    The Laffer Curve is about the relationship of the tax rate to government revenue. Maximizing government revenue is hardly a worthy policy goal certainly not a conservative one.

    I have never seen a Laffer Curve plotted with actual data or even one that puts units on the axes. Does the axis about the tax rate refer to the average tax rate, the top marginal rate, the average marginal rate or the share of GDP going to tax? Does the axis about the revenue to Government cover Nominal revenue, real revenue or the share of GDP taken in the tax? If we had one tax rate that applied to all income the Laffer curve would probably make sense and be useful, but with the marginal tax rate system we actually have the Laffer curve as near as I can tell is a meaningless hypothetical used to argue for lower marginal tax rates.

    If I tried to plot a Laffer curve with data through 2014 I would conclude a 39.6% top rate maximized revenue. With data through 1945 I would conclude a 94% rate maximized revenue. If through 1989 the conclusion might be a 28% rate.

    On the other hand the rate of GDP growth and the level of the top marginal income tax rate can be plotted on a graph using actual historical data and the conclusion is consistent that a top rate of 50% is more pro growth than any top rate at a lower level. If we had a 50% top rate I think the bracket that optimized the balance between a low average tax rate and a high marginal one would be about $1.5 million. So only the portion of income above that would be taxed at 50%.
    Jun 1, 2015. 11:05 AM | 1 Like Like |Link to Comment
  • A Few Thoughts On GDP [View article]
    The great builders of industries usually have a steady capital expenditure program so that in any given year they take the depreciation for decades worth of investments. These captains of industry are not driven by the one year time frame you describe. Plus most of the expenses of building a business are fully deductible in the year they are made. The higher the marginal tax rate the more value there is to the deduction and the greater the reward of growing value within a business where it is only taxed at the discretion of the owner. The increased value of a business is untaxed unless it is drawn out as personal income, the business is sold for a capital gain or it is taxed in the estate of the owner. If the increased value is given to a charitable foundation it is never taxed.

    The top marginal rate can be too high as well as too low both damage growth and investment. The top rate has its biggest influence on growth and investment 2 years later. So for example the top rate this year will have its largest impact on growth in 2017.

    Since 1920 there have been 22 years in three different time periods where the top tax rate was at 35% or below. Using the 2 year lead time the 22 years influenced by the low top rates had an average GDP growth rate of 0.3%. All three periods had below average growth rates. For example, the 10 years from 2005 to 2014 influenced by a top rate of 35% annualized growing 1.6% about half the average rate.

    Lunco while your argument sounds logical I don't know how you can back it up empirically.
    Jun 1, 2015. 12:36 AM | 1 Like Like |Link to Comment
  • A Few Thoughts On GDP [View article]

    You state, "Taxes take money from corporations/individuals that could otherwise be invested in new plant/equipment or in new enterprises."

    The business revenue that is spent on real investment like productive equipment is deductible or depreciable. So those expenditures reduce the portion of revenue subject to tax. It is the profit or share of business revenue that is not spent on wages, equipment, marketing, research or the start up costs of new businesses that gets taxed. if all the revenue went to deductible expenditures or were part of a steady capital expenditure program there would be no corporate tax due or personal income tax due for the business revenue. Thus the statement that income taxes prevent investing in businesses is backwards. Plowing money into deductible and depreciable business expenditures prevents paying taxes.

    Lunco if the economy worked the way you describe Clinton would have had dismal GDP growth rather than being better than Reagan and Bush 43 would have had stellar growth rather than being the first President since Hoover to loose private sector jobs while in office.

    If the economy worked the way you believe the GDP growth rate during the 12 years of Harding, Cooldige and Hoover would have annualized a lot better than the 0.5% that occurred and the 12 years of FDR would have annualized a lot worse than the 9% that occurred.

    The key to sustainable prosperity is for wealthy busnisess owners to have a low average income tax rate with a high marginal income tax rate. The average rate has to be low enough on a large enough amonut of income to make it worthwhile to run and or fund a business. The marginal rate has to be high enough that wealthy people avoid taxation by plowing money into growing the value of the businesses they own while pulling less out as personal income.
    May 30, 2015. 10:48 PM | 1 Like Like |Link to Comment
  • Industrial Production Sinks As Capacity Signals Inventory End [View article]
    The industrial production index is a real index. It measures output not dollars of output.

    So far industrial production and real retail sales show a peak in November 2014. To be in recession real personal income (RPI) and employment would also need to have meaningful declines. RPI did slip in March.

    If we are entering into recession we will see a negative jobs number soon.
    May 17, 2015. 02:14 PM | 1 Like Like |Link to Comment
  • No GDP Growth In Q1? [View article]
    Before the NBER declares a beginning date for a recession often about a year after the fact, there will be a sustained downtrend in employment, real personal income, real retail sales and industrial production. They would want to see at least a 6 month downtrend and then a few more months in case there are revisions.

    Industrial production and real retail sales may have had business cycle peaks in November 2014, but employment and real personal income have continued to make new monthly highs. If we are in a recession employment and real personal income would turn down soon.
    Apr 29, 2015. 09:13 AM | 1 Like Like |Link to Comment
  • GDP Model Update: Q4 Now Looks Negative [View instapost]
    bixbubba, there are 2 other quarters in the data period where the oil price declined by a larger percentage: Q4 2008 and Q1 2009. Obviously other factors are not as negative now as they were then.

    The estimate of the model goes from 3.3% Q3 to -0.14% Q4. The 25% oil price decline for the quarter (69% annual rate) accounts for less than 1% (less than a third) of this 3.44% estimated decline. Even if oil had no impact on growth Q4 should still be substantially weaker.

    I don't know of any reason why the relationship between growth and oil should be different this quarter than in the past 10 years, but that doesn't mean there is not one.
    Jan 28, 2015. 12:46 PM | 1 Like Like |Link to Comment
  • GDP Model Update: Q4 Now Looks Negative [View instapost]
    Thanks Bob. The standard deviation is 1.3 so it does seem probable that the number will come in below 1.2%.

    bobdark, I think the biggest difference in this model and the mainstream outlook is the lead time for housing starts and the indication of oil. With the 9 month lead time housing starts have a very negative indication for the 4th quarter. Most people believe falling oil is good for the economy. While I think low oil prices are beneficial after a long lag, on a concurrent basis I believe falling prices are a sign of a weak global economy which will be a drag on the US.
    Jan 28, 2015. 09:44 AM | Likes Like |Link to Comment