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US economy returned to growth last quarter, expanding 2.6%

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Re: US economy returned to growth last quarter, expanding 2.6%

#281

Post by nostrademons »

fallingknife wrote: post #106
nostrademons wrote: post #49

Earlier quoted context omitted.

The stock market, interest rates, and advertising spending are leading indicators, while unemployment is a lagging indicator. Business leaders know the financial structure of their company, and many of them know that they can't survive at 2% rates, let alone 5 or 10% rates. The gloom from business leaders is forward-looking. They're fine for now , while consumer spending holds up and they can run on old debt. But as…

You are thinking of nominal rates, but you should be looking at the real rate, which is the spread of the interest rate over inflation. They can survive 5-10% rates just fine if inflation is 8%. They don't need to raise revenue 2-5x to make coupon payments, because interest isn't their entire cost structure.

Some can - the ones with pricing power. Inflation hits the economy unevenly. Firms with few competitors can raise prices at will to soak up all the extra money floating around. Firms in highly competitive markets cannot raise prices, because as soon as they do everyone moves to a competitor.

The problem is that the ones with pricing power are generally not the ones with high levels of debt, because if they had pricing power, they wouldn't need debt. They may be customers or suppliers of companies with pricing power, though, which forces the latter group to assume lower revenues in the future because some of their customers may go bankrupt.

Re: US economy returned to growth last quarter, expanding 2.6%

#282

Post by [deleted] »

aschearer wrote: post #90
itsoktocry wrote: post #78

Earlier quoted context omitted.

> This is the weirdest "recession" I can remember. Business leaders are constantly talking about how challenging the economic environment is and the need for layoffs etc I think people's sense of timescale is off. Business leaders are talking about things that we likely won't see for months. This isn't rocket science; we have insane inflation, rising interest rates, a strong USD and tightening monetary policy around…

Have you considered that "things are terrible" might benefit one or the other party during the upcoming election?

[deleted]

Re: US economy returned to growth last quarter, expanding 2.6%

#283

Post by hedora »

UncleOxidant wrote: post #158
Auracle wrote: post #133

Earlier quoted context omitted.

[flagged]

Without all that immigration it would cost a lot more to build houses.

I heard a quote from roughly a hundred years ago, from a US immigrant. Paraphrased from memory:

I came to the US and found that, not only were the streets not paved with gold, they weren't paved at all. Furthermore, I was the one that was expected to pave them!

I don't think much has changed on that front.

Re: US economy returned to growth last quarter, expanding 2.6%

#284

Post by imtringued »

function_seven wrote: post #87
importantbrian wrote: post #70

Earlier quoted context omitted.

This seems overly pessimistic. I'm sure a high rate environment isn't ideal for a lot of businesses, but we've had much higher rates in the past and most businesses survived it just fine.

Those businesses were the ones that were either created in that environment, or who survived it long enough. The last time rates were this high, they were this high for decades . I fear the cliff scenario because a lot of business models now were built on a foundation of crazy-cheap debt. The tide is about to go out. Eventually the business environment will re-adjust to the new cost of money, but the transition will…

What do you mean by crazy cheap debt? If you have a loanable funds model where all money that is not being spent is being saved then the interest rate is 0%.

The fact that people don't save the money they don't spend has more to do with how cash works and how it makes it pointless to save.

Re: US economy returned to growth last quarter, expanding 2.6%

#285

Post by imtringued »

jfengel wrote: post #149
subsubzero wrote: post #60

Earlier quoted context omitted.

It is weird, they say history does not repeat but it rhymes. What is troubling about this good news about GDP growth is the fed's course of raising interest rates will continue on and interest rates will keep getting higher and higher. This will lead to a housing market that will grind to a halt and expect that whole sector will hemorrhage jobs. In addition growth companies will be hit hard by rates being high as we…

The reversals in the housing market will be unpleasant, but they go hand in hand with all of the overpriced housing we've had for the last decade. The Fed failed to follow its own policy, of taking the punch bowl away when the party gets going. It allowed the economy to heat up for too long, and thus the inevitable reversals. Averaged over a few decades it will be the same 3-4% GDP growth that we would have gotten if…

There is no karma system in economics. There is no such thing as having to do a "bust" as if it is some backlog of tasks you have forgotten to work on or a divine punishment from God you must endure. A bust just means the interest rate is above the return on investment in the actual economy. That's it.

"Taming the business cycle" is an empty phrase.

Re: US economy returned to growth last quarter, expanding 2.6%

#286

Post by jerf »

davidgay wrote: post #115
nostrademons wrote: post #49

Earlier quoted context omitted.

The stock market, interest rates, and advertising spending are leading indicators, while unemployment is a lagging indicator. Business leaders know the financial structure of their company, and many of them know that they can't survive at 2% rates, let alone 5 or 10% rates. The gloom from business leaders is forward-looking. They're fine for now , while consumer spending holds up and they can run on old debt. But as…

> But as soon as they need to roll over their debt, everything collapses. They'd need to increase revenues by 2-5x, and they can't. That would imply that debt-servicing is their dominant cost. That seems wrong (e.g., a grocery store presumably spends a large fraction of its revenue on purchasing groceries from wholesalers).

Google the term "zombie company"; you'll find a lot of interesting stuff.

Bear in mind HN's view of the business world and profit margins and expenses is heavily skewed by the industry we work in, which remains one of the most profitable in the world across a wide variety of subsectors. The profit margin an incredibly profitable grocery or shipping company might have would be considered a danger flag for a tech company, and I don't just mean the big ones, either. A profit margin of 5% is not uncommon and 10% is doing extremely well for most businesses. It's easy to look at numbers in the millions or billions and think they can take anything because in absolute terms on a single human's scale they've got more money than you can imagine, but it doesn't necessarily take very much by percentage points before the profits of a normal company go "poof".

Re: US economy returned to growth last quarter, expanding 2.6%

#287

Post by jerf »

subsubzero wrote: post #130
UncleOxidant wrote: post #102

Earlier quoted context omitted.

Mortgage rates at 7% is pretty much the average mortgage rate going back 70 years or so. We're basically at the average mortgage rate now. The Fed screwed up by keeping rates too low for too long which juiced home prices such that a huge chunk of people who would like to be able to buy a home are priced out of the market. The problem, though, is that home building needs to continue in order to improve the housing sup…

100% agree: > But keeping mortgage rates artificially low isn't the answer I don't know what the solution is for the housing issue, on one hand you have people (like myself) who bought at high prices(and at low interest rates). My house will be a money loser if I try to sell, and this includes the thousands/millions? of people also in my boat(we are essentially trapped in our house and unable to move). On the other h…

"I don't know what the solution is for the housing issue"

To the extent that there is are "solutions", they all exist in the past now. The best solution is to stop trying to "fix" the market and take the pain now, because the efforts to avoid pain now involve lots of pain later. Unfortunately, it's already "later", and quite a bit later at that, after several previous rounds of "oh crap, we can't have rich people being slightly less rich, better goose the market again!"

Re: US economy returned to growth last quarter, expanding 2.6%

#288

Post by theGnuMe »

Auracle wrote: post #275
UncleOxidant wrote: post #221

Earlier quoted context omitted.

Off-the-books immigration is by definition tough to quantify. But it doesn't seem likely that illegal immigrants are either renting or buying houses in large numbers since they don't tend to have a lot of money. More likely they're doubling up with family that's already here and as such not causing a significant amount of housing demand.

That's a huge reach. You can only "double up" so much.

Yeah they quadruple up or even live 10 families to a 2bdrm and sleep in shifts.

Re: US economy returned to growth last quarter, expanding 2.6%

#289

Post by jfengel »

imtringued wrote: post #285
jfengel wrote: post #149

Earlier quoted context omitted.

The reversals in the housing market will be unpleasant, but they go hand in hand with all of the overpriced housing we've had for the last decade. The Fed failed to follow its own policy, of taking the punch bowl away when the party gets going. It allowed the economy to heat up for too long, and thus the inevitable reversals. Averaged over a few decades it will be the same 3-4% GDP growth that we would have gotten if…

There is no karma system in economics. There is no such thing as having to do a "bust" as if it is some backlog of tasks you have forgotten to work on or a divine punishment from God you must endure. A bust just means the interest rate is above the return on investment in the actual economy. That's it. "Taming the business cycle" is an empty phrase.

There is no karma, but there is a long-term tendency for real economic growth in about the 3-4% range. It's a combination of innovation and increased population. The latter is pretty consistent; the former is not, and yet seems remarkably steady.

You can increase the rates a small amount by borrowing money, but not indefinitely. Eventually, that borrowed money causes inflation, because it increases the money supply. And eventually, people get antsy, and try to cement their gains.

That's not karma, it's psychology. It's how people have behaved, and it's as predictable as anything ever gets in economics. It doesn't take a deity to invoke a bust; it just takes humans.

Re: US economy returned to growth last quarter, expanding 2.6%

#290

Post by metacritic12 »

vikingerik wrote: post #136
importantbrian wrote: post #6

This is the weirdest "recession" I can remember. Business leaders are constantly talking about how challenging the economic environment is and the need for layoffs etc. Meanwhile most of the underlying indicators are actually positive. Growth is strong, employment is strong. Anecdotally we're still having trouble finding good candidates. It's almost like there is a class of business leaders who are just trying to wis…

There never was a real recession - it's an artifact of year-over-year numbers that were so skewed from pandemic effects. Pent-up consumer demand shifted much activity from 2020 into 2021. This is the source of all the apparent weirdness. Every yearly number in 2021 looked great thanks to comparing an artificially high number to an artificially low 2020 baseline. Then every yearly number from 2022 looks terrible, beca…

12% inflation over 3 years is not normal. The previous time it was 12% over any 3 years was back in the raging inflation years of the early 1980s.

Finally, it's not even 12% -- if you look at the 3 year chart here, it's 16% over 3 years, even less normal:

https://fred.stlouisfed.org/series/CPIAUCSL

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