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.

What's Powering Philippine GDP Growth? Construction is at a 20 Year High

Construction, both Public and Private, is definitely firing on all cylinders. For the entire 2018, Construction Gross Value as a Percentage of GDP reached 13.47% - the highest it's ever been since 1990, some 28 years ago.

Cumulative Construction Overhang, which measures how far Construction GV is above its historical trend, is now at 6.52% of GDP, more than what it was from 1990 to 2000, the previous boom years.

Private Construction as a Percentage of GDP is at an acute high - 9.62%. The cumulative overhang is even more acute - 5.31% in 2018.

Public Construction is only beginning to break out of its doldrums. Public Construction GV reached 3.85% of GDP, just slightly above the previous high of 3.81% in 1998 - in the height of the Asian Financial Crisis.

As a result, the Cumulative Overhang in Public Construction is much much more muted, only 0.55% of GDP, still way below the ratio from 1998 to 2002.

Public Construction, namely infrastructure, has room to grow. Public infrastructure begets private infrastructure,  and power Private Construction to new highs.

Philippine Public Construction as a % of GDP is at a 20 Year High! - As of September 30, 2018

Philippine House Prices are Still Accelerating! - As of December 31, 2018

Despite the gloomy global macroeconomic environment for emerging markets, Philippine House Prices continued to accelerate in the fourth quarter of 2018. The Philippine House Price Index (culled from data from Colliers International Philippines on Luxury 3BR Condominiums in the Makati CBD), accelerated by 5.00% alone in the fourth quarter of 2018. This is the fastest quarter-on-quarter growth since the second quarter of 2013, when prices rose by 6.92% over the previous quarter. The index now stands at 278.21, almost three times more than its base of 100.00 since the fourth quarter of 2004. The index is also 97 percentage points higher than its inflation adjusted basis.

Source: Colliers International Philippines

How low can Canadian Property Prices Go?

Eight months ago, we speculated that the Canadian Property Market was due for a bust. Today, that reality has come ever closer. So far, as of the third quarter of 2018, property prices have declined by 4.24% since they peaked in the second quarter of 2017.

Property Prices have also leapfrogged incomes so much that the relationship of Property Prices to Income is way out of whack. On average, the ratio of Real House Prices to Real Personal Disposable Income (data from the International House Price Database maintained by the Dallas Federal Reserve) since 1975 has been 95% of Real Personal Disposable Income with a Standard Deviation of 19%. As of the 3rd qtr of 2018, Real House Prices now stand at 142% of Real Personal Disposable Income. This represents more than 2 Standard Deviations above the historical mean. Assuming a normal distribution, there is only a 1.3% probability that the property market could go even higher. If Real House Prices revert to the mean, as they often do, Canada could be in for a property decline of 33.58% from current levels. But markets always tend to overshoot to the downside. If the real estate boom of the past two decades caused prices to surge way past anything that reflect fundamentals, a panic could set in on the downside and cause prices to drop to levels not seen in a generation.

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

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

Almost three years ago, we speculated that the Australian Property Market was due for a bust. Today, that reality has come ever closer. So far, property prices have declined for all three quarters of 2018, peaking in the fourth quarter of 2017. But the decline is marginal - only a shade less than 3% (2.86% to be exact) and may represent a slowdown than an actual property bust.

Australian Property Prices are still way above their their inflation adjusted basis since year-end 2002. If property prices were to drop to their inflation adjusted levels, they would drop by an astounding 42.29%!.

Property Prices have also leapfrogged incomes so much that the relationship of Property Prices to Income is way out of whack. On average, the ratio of Real House Prices to Real Personal Disposable Income (data from the International House Price Database maintained by the Dallas Federal Reserve) since 1975 has been 80% of Real Personal Disposable Income with a Standard Deviation of 21.91%. As of the 2nd qtr of 2018, Real House Prices now stand at 128.48% of Real Personal Disposable Income. This represents more than 2 Standard Deviations above the historical mean. Assuming a normal distribution, there is only a 1.4% probability that the property market could go even higher. If Real House Prices revert to the mean, as they often do, Australia could be in for a property decline of 37.39% from current levels.

Both calculations, inflation-adjusted basis or by income-adjusted basis, predict a severe decline (more than 30%). But markets always tend to overshoot to the downside. If the real estate boom of the past two decades caused prices to surge way past anything that reflect fundamentals, a panic could set in on the downside and cause prices to drop to levels not seen in a generation.

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

Which US State Has the Most Livable Minimum Wage? The Answers May Surprise You.

People in the US have often lamented how the cost of living has outstripped the federal minimum wage, which has remained stuck at $7.25 per hour since July 24, 2009.

Wages have severely  lagged labor productivity by a wide margin. Had wages kept up with productivity growth, wages would be closer to $33 an hour than the current $7.25 per hour. Much of the gains in productivity have gone to capital rather than labor, resulting in increasing income inequality.

MIT has a neat Living Wage Calculator to help people estimate the cost of living in a person's community or region. Based on their calculations, the weighted average (given the Civilian Non-Institutional Population in each state) living wage for the entire US is $12.08 per hour. This is almost 40% higher than the weighted average minimum wage of $8.71 per hour for the entire USA and more than twice the national poverty wage of just $5.71 per hour.

MIT 2017 Living Wage
By State
In US$ per Hour
State	MIT Living Wage	Federal Poverty Wage	Federal Minimum Wage
Alabama	$11.14	$5.80	$7.25
Alaska	$12.48	$7.24	$9.84
Arizona	$11.22	$5.80	$10.50
Arkansas	$10.38	$5.80	$8.50
California	$14.01	$5.00	$11.00
Colorado	$12.47	$5.80	$10.20
Connecticut	$12.88	$5.80	$10.10
Delaware	$12.44	$5.80	$8.25
District of Columbia	$17.11	$5.80	$12.50
Florida	$11.75	$5.80	$8.25
Georgia	$11.93	$5.80	$7.25
Hawaii	$15.39	$6.66	$10.10
Idaho	$10.64	$5.80	$7.25
Illinois	$12.50	$5.80	$8.25
Indiana	$10.70	$5.80	$7.25
Iowa	$10.53	$5.80	$7.25
Kansas	$10.69	$5.80	$7.25
Kentucky	$10.49	$5.80	$7.25
Louisiana	$10.91	$5.80	$7.25
Maine	$11.60	$5.80	$10.00
Maryland	$14.62	$5.80	$9.25
Massachusetts	$13.39	$5.80	$11.00
Michigan	$10.87	$5.80	$9.25
Minnesota	$11.53	$5.80	$9.65
Mississipi	$10.86	$5.80	$7.25
Missouri	$10.76	$5.80	$7.85
Montana	$10.95	$5.80	$8.30
Nebraska	$10.60	$5.80	$9.00
Nevada	$10.94	$5.80	$8.25
New Hampshire	$12.01	$5.80	$7.25
New Jersey	$13.72	$5.80	$8.60
New Mexico	$10.98	$5.80	$7.50
New York	$14.42	$5.80	$10.40
North Carolina	$11.36	$5.80	$7.25
North Dakota	$10.89	$5.80	$7.25
Ohio	$10.47	$5.80	$8.30
Oklahoma	$10.52	$5.80	$7.25
Oregon	$12.48	$5.80	$10.25
Pennsylvania	$11.11	$5.80	$7.25
Rhode Island	$12.10	$5.80	$10.10
South Carolina	$11.17	$5.80	$7.25
South Dakota	$10.03	$5.80	$8.85
Tennessee	$10.44	$5.80	$7.25
Texas	$11.03	$5.80	$7.25
Utah	$11.22	$5.80	$7.25
Vermont	$12.32	$5.80	$10.50
Virginia	$13.86	$5.80	$7.25
Washington	$12.28	$5.80	$11.50
West Virginia	$10.68	$5.80	$8.75
Wisconsin	$11.03	$5.80	$7.25
Wyoming	$10.63	$5.80	$7.25
National USA	$12.08	$5.71	$8.71

Based on these figures, the gap between the minimum wage and living wage for each state is the highest in Virginia, where the minimum wage of $7.25 per hour is just 52% of a statewide living wage of $13.86 per hour. The state of Washington has the most livable minimum wage. Its statewide minimum wage of $11.50 per hour is more than 90% of its computed living wage of $12.28 per hour.

State	Minimum Wage/Living Wage
Washington	93.65%
Arizona	93.58%
South Dakota	88.24%
Maine	86.21%
Vermont	85.23%
Michigan	85.10%
Nebraska	84.91%
Minnesota	83.69%
Rhode Island	83.47%
Massachusetts	82.15%
Oregon	82.13%
West Virginia	81.93%
Arkansas	81.89%
Colorado	81.80%
Ohio	79.27%
Alaska	78.85%
California	78.52%
Connecticut	78.42%
Montana	75.80%
Nevada	75.41%
District of Columbia	73.06%
Missouri	72.96%
New York	72.12%
Florida	70.21%
Tennessee	69.44%
Kentucky	69.11%
Oklahoma	68.92%
Iowa	68.85%
New Mexico	68.31%
Wyoming	68.20%
Idaho	68.14%
Kansas	67.82%
Indiana	67.76%
Mississipi	66.76%
North Dakota	66.57%
Louisiana	66.45%
Delaware	66.32%
Illinois	66.00%
Texas	65.73%
Wisconsin	65.73%
Hawaii	65.63%
Pennsylvania	65.26%
Alabama	65.08%
South Carolina	64.91%
Utah	64.62%
North Carolina	63.82%
Maryland	63.27%
New Jersey	62.68%
Georgia	60.77%
New Hampshire	60.37%
Virginia	52.31%

Source: MIT Living Wage Calculator

What Is the National Living Wage?

Maybe Filipinos Are Getting Richer, More Filipinos Are Studying in the USA as of 2017-2018

Maybe Filipinos are getting richer. More of them are studying in the USA. After almost eight years of declining enrollment, the number of Filipinos studying in the USA has started trending up. At 3,225 students, enrollment at US educational institutions is almost 12% higher than the bottom of 2015, when 2,886 Filipinos enrolled. This is still almost 24% below the 2008 peak of 4,225.

We are finally joining our ASEAN neighbors, particularly Vietnam, whose students are enrolling in US universities in ever greater numbers.

If Filipinos Are Getting Richer, Why Are There Fewer Filipino Students in the USA Every Year? - Updated as of 2016-2017