It's Official: Economic Recovery in the Great Depression is Faster than the Great Recession's

The economic recovery of the Great Recession has been almost imperceptible to most Americans. On a per capita bais, real GDP per Capita grew by 11.55% in the past twelve years - or roughly a compounded annual average growth rate of only 0.91% per annum. This is far less than the so-called "Hindu Rate of Growth" threshold of 1.30% per annum.  This growth rate is so slow that it is almost imperceptible.

In 2019, something extraordinary happened. Those who survived the Great Depression in 1941 (twelve years after the onset of the Great Depression) will be substantially better of than the survivors of the Great Recession in 2019. Real GDP Per Capita for Great Recession survivors would have grown by another anemic 0.91% per annum in 2019. But for survivors of the Great Depression era, their incomes per capita would have grown by an astounding 15.95% in just one year. Moreover, that trend will only accelerate in the next two years. By 1943, Great Depression survivors will be almost 34.48%  richer than they were in 1941.

Can we expect the same for survivors of the Great Recession in the next two years? It's possible but not probable.

When Does the Overheated Real Estate Market of Australia Reach Equilibrium?

Last year, the real estate bust hit Australia. Prices have declined 8.27% since they peaked in the last quarter of 2017. But the decline is still a shade below a 10% correction and has not yet reached bear market proportions of a decline of 20% or more.

House prices could still fall by 38.56% to reach their inflation-adjusted levels. In relation to incomes, the ratio of real house prices to real personal disposable incomes have fallen significantly. That ratio is now within two standard deviations from the historical mean. In other words, they are now just overvalued and not extremely overvalued.  The probability of house prices being any higher is now a healthier 5.22% instead of 1.4% the last time we looked.

If the ratio does revert to the mean, house prices could still fall by 30.67% in real terms. 

How low can Australian Property Prices Go? Let Me Count the Ways  

How Overheated are the Real Estate Markets of Canada, Australia, and New Zealand?  

Why is Job Growth Much Faster For Foreign-Born Workers Than For Native-Born Workers?

One reason. It's all about the money. Wages for foreign-born workers are but a fraction of wages for native-born workers. The difference is stark: $21K for foreign-born workers vs. $95K for native-born workers. In other words, native-born workers earn almost five times foreign-born workers.

Who added more jobs? Trump or Obama: June 2019

Obama added more than 10.1 million jobs over two terms, or roughly 105.1K jobs per month. The trouble is, Obama added almost as many jobs to foreigners as he did to native born workers. Forty-three percent of the jobs added went to foreigners.

This ratio was much worse for Obama during his first term: 1.7 million of the jobs added went to foreign born workers. The native born? They lost 537K jobs. In other words, 146% of the jobs went to foreigners.

Obama's second term was much better for native born workers: 70% of the jobs went to them. But it was too late. It was not enough to stem the anti-immigration sentiment that had been building up nationwide. When Trump had announced his candidacy on May 2015 on a vehemently anti-immigrant platform, the jobs growth was still definitely skewed to foreign born workers. They had gained almost 2 million jobs and the native born workers had just gained 237K jobs.

Trump has continued the trend, adding almost 8 million jobs in 29 months, with around 75% of the jobs going to native born workers. Nevertheless, the trend towards hiring foreign born workers continues unabated. The cumulative jobs added to foreign born workers as a percentage to their Civilian Noninstitutional Population was an astounding 10.50% as of June 2019. Native Born workers just gained 3.15% for the same period.

Source: www.bls.gov, https://fred.stlouisfed.org

Why There Is Still No Wage Inflation: There are 8.1 Million Missing American Workers

Last year, we pointed out that there would be little to no wage inflation because there were still 8 million American workers missing from the labor force. That was when the unemployment rate was at 4.1% as of February 2018. Today, as of June 2019, the unemployment rate is even lower still - a decades low 3.7% and there is still no wage inflation.

Yes, wages are rising but at less than a measly $0.75 gain a year while the inflation rate has been hovering at around 2% for the past ten years.

The reason for this? Labor Force Participation Rates (LFPR) and Employment-Population Ratios (EPR) have yet to recover their Pre-Recession peak.

If the June 2019 LFPR had reached their pre-recession peak of 66.0%, the US would have roughly 8.1 million more workers in the labor force than it has now. Likewise, if the June 2019 EPR  had reached their pre-recession peak of 62.9%, the US would have roughly 6.0 million more people employed than it has now.

This means that the millions of people who disappeared from the labor force during the Great Recession are starting to reappear and get jobs and that has held wages down. The gains in LFPR and EPR have been very gradual, and at this rate, it may take years, if not decades for the economy to finally recover.


There Are Still Almost 8 Million Missing American Workers

Is the Philippines Spending Too Much on Infrastructure? And How Much is Too Much?

Is the Philippines spending too much on infrastructure?

We all know that the entire country is sorely lacking in infrastructure. All one has to do is step outside into the streets and experience the unbearable traffic not just in Manila but everywhere. In many cases, traffic is so slow, it's faster to go on foot, were it not so hot and humid. The productivity loss in traffic alone is massive - at least 21% of Metro Manila's GDP in 2017. That was then. I'm sure it's a lot higher now.

But traffic congestion alone is not the only infrastructure problem holding the Philippines back. The Philippines also faces a water and power crisis. These are long-running structural problems with no quick solution.

To counter this, the Duterte administration has launched a massive Php 8 trillion infrastructure program, much of it financed by China, as part of its 2017 to 2022 Philippine Development Plan, ushering in what the administration calls a "golden age of infrastructure."

The sheer size and scale of the "Build, Build, Build" infrastructure program ($156 billion) represented a daunting 50% of the $314 billion economy at the time it was launched in 2017. The last time this happened was during the Marcos years, which promptly ended in tears. External debt skyrocketed, peaking at 94% of GDP in 1986.

When the government lacked the dollars to pay off the loans, a debt "moratorium" - and not default - ensued. Whether it was an actual default or something else, the end result was the same: a political and economic crisis. The Marcoses were booted out of power, leaving the first Aquino government to deal with the aftermath.

As a result of the debt hangover, debt became a bad word for the Aquino government and succeeding administrations. It became something to be avoided as much as possible. What then transpired was a considerable underinvestment in infrastructure, both public and private, for the next four decades. Gross Capital Formation (GCF) as a percentage of GDP averaged only 21.04% from 1986 to 2017, considerably below that of our peers. The ASEAN historical average for the same period was 28.22%, more than 7% of GDP higher than the Philippine average. The only time GCF was above the ASEAN average was during the Marcos years.

Singapore, Thailand, Malaysia, and Indonesia averaged much higher than the ASEAN historical average. As a consequence, their economies boomed and we were left behind.

The gap between between what we were spending and what we should have been spending grew ever larger. If measured from 1960, this infrastructure "gap" be stood at $196 billion or 63% of GDP in 2017. If measured from 1986, the gap is even bigger: $285 billion or 93% of GDP in 2017.

The Duterte's Build, Build, Build Program will double Public Construction as a percentage of GDP from 2.8% Pre-Duterte to around 5.5% during the Duterte administration.

If Private Construction follows suit (as it usually does), Gross Capital Formation as a percentage of GDP will once again be slightly above the ASEAN historical average.

And the infrastructure gap? The infrastructure gap will decline from 93% of GDP to just 58% of GDP, using the ASEAN historical average from 1986 to 2017, at the worst case.

At best, it will decline from 63% of GDP to just 29% of GDP, using the 1960 to 2017 historical average.

This all presumes that infrastructure spending will yield a net positive to the economy and that the government does not waste money on corruption-riddled white elephants. According to NEDA, all the infrastructure projects have an economic cost benefit ROI of at least 10% or higher. For our sake, let's hope that's true. If not, we may have fallen into a China Debt Trap.

Great Recession vs. Great Depression: The GDP Growth Rate Has Finally Speed Up!

Last month, the Bureau of Economic Analysis released an initial estimate of the GDP growth rate for the fourth quarter of 2018.  The good news? Real GDP increased 2.9% in 2018, the highest annual growth rate it has been since the start of the Great Recession.

 The bad news? Growth seems to have peaked in the second quarter of 2018. From a high of 4.2% in Q2, growth slipped down to 3.1% in Q3 and to 2.6% in Q4.

On a Nominal GDP Per Capita basis, the economic recovery of the Great Recession is still way ahead of the Great Depression. The dip in nominal GDP per capita was really shallow - less than 3 percentage points. The drop in GDP per capita during the Great Depression was a catastrophic 47%.

At this point in the economic recovery, some eleven years after the Great Recession started, we are more than 30% better than where we were. Whereas during the Great Depression, nominal GDP per capita remained almost 10% below the depression's inception.

 In terms of real GDP per capita, people were made whole only on 2013 of the Great Recession. Five years later, we are only 9% better than where we were in 2013.  During the Great Depression, people were only made whole, in terms of Real GDP Per Capita, only on year 10 of the Great Depression. But the recovery accelerated even faster. Just one year later, people were 8% better. That trend will accelerate in year 12 - by then, they will be almost 18% better than they were just one year earlier. Now where will we be one year from now? We don't know. So far, we are faring better than people of  the Great Depression, but just barely.