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Interview Part 1, Cyclical Slowdown

Key points from Bloomberg TV interview:

The economy is best described as one with a long-term decline in trend growth, exacerbated by ongoing cyclical slowdown.

ECRI uses the Three Ps, how pronounced, pervasive, persistent is a change in the data, to determine whether recent moves in data are noise or not.

-Yoy payroll jobs growth at a 17-month low
-Yoy GDP growth at 1½-year low
-Yoy industrial production growth near 6-yr low

We’ve just covered the current cyclical slowdown, which relates to slower growth this year, continuing into 2016.

Turning to Larry Summers, and the Fed, in their latest minutes they got pretty explicit about recognizing that the long-term decline in trend growth is not going away, something that ECRI first identified before Lehman blew up in the fall of 2008.

In essence, they said that equilibrium short-term real rates will stay lower than before the financial crisis if productivity growth doesn’t pick up and demographic projections are borne out.

This matches what ECRI has been saying for a long time.

Now that this reality is officially on the table, the cyclical slowdown recognized by Main Street, but not Wall Street, especially for 2016, makes a huge difference to the sustainability of the Fed’s rate hike cycle.


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