While President Obama has been spending his time arguing for higher taxes on wealthier Americans — which would create no jobs, no economic growth, and little debt reduction but achieve a higher level of tax code”fairness” — this has been what’s happening in the U.S. economy (via Strategas Research):
1. Productivity growth has slowed & with productivity flattening, profit margins are likely peaking.
2. Employment growth has accelerated some (though Mar was tepid). But regardless, profit growth is decelerating. Profits are the leading indicator.
3. Nominal GDP growth was under 4% y/y through 4Q, which is recession territory. It’s tough to see the self-sustaining income-sales-profits cycle here.
4. Uncertainty about the tax code could lead the personal saving rate to rise.
5. Elevated corporate cash levels suggest a “fallacy of composition.” Each company is trying to save more at the same time, which can’t work.
6. The scheduled U.S. fiscal drag is extremely large for 2013 at over $400 billion. If even a fraction of this occurs, we have a sizeable annualized shock.
7. The Euro crisis has been kicked down the road, but probably isn’t over. We’re watching Spain.
8. Gasoline prices are still elevated.
9. There is still an elevated ratio of homes-to-households in the U.S. So, housing may be bottoming, but it is an “L”-shaped bottom, ie, housing alone probably can’t cushion macro shocks.
10. Demographics suggest an inclination for less risk-taking in many developed economies. So, it’s tougher to grow out of current problems.
Oh, and let me add a few more worrisome signs, via the WSJ:
– U.S. companies scaled back their hiring in March. The Conference Board’s Employment Trends Index, which is made up of eight separate gauges of the labor market, fell to 107.28 in March from 107.47 in February. That was the index’s first decline since May 2011 and is consistent with a government report last Friday that showed a slower pace of hiring in March.
– Americans dialed back their use of credit cards in February. Revolving consumer credit, which includes mostly credit-card debt, fell $17.3 billion to $794.84 billion—the second consecutive month of decline. The drop suggests consumers are whittling away some of their expenses.
Then there is this from the NFIB on small business optimism. Lots of red:
So what’s the latest on the Buffett Rule?