A list of seven troubles assailing the US economy heading into summer 2017

Lists of risks are cheap. This one, made in the last week of May 2017 and updated twice in the following week, was a list of conditions already present and already pressing on the economy, like drought pressing on a field. It left out the long-term structural problems, debt above all, which the 2017 predictions page had already covered. It is kept here with its updates, because a list with dates can be checked and a list without them cannot.

The seven

1. Growth had stalled. First-quarter GDP grew at an annualised 0.7 per cent, which, since the population grows faster than that, was a recession per head, whatever the technical dating.
2. China was downgraded. Moody’s cut China’s credit rating for the first time since 1989, citing years of credit-fuelled stimulus and an economy that had come to depend on it, with total debt growing far faster than output.
3. Stimulus was ending on both sides. The Federal Reserve was set on reducing its support, and it had become clear that no fiscal stimulus would pass Congress that year; the people working on tax reform said early 2018 at best.
4. The market had narrowed. The indexes had stopped rising in March except for five large technology stocks, and the number of advancing shares against declining ones had slowed to a trickle. A market carried by five companies is a market waiting for one of them to stumble.
5. Home sales were drying up. Existing-home sales fell 2.3 per cent in April by units, even as prices rose 6.6 per cent; time on market jumped, and inventory, though still low, had begun to build.
6. Bankruptcies were rising where it mattered. In the Southern District of New York, where the largest companies file, Chapter 11 cases tripled in the first quarter.
7. Auto sales had rolled over. Down 8.2 per cent from their December peak, exactly as forecast here a year earlier, when the incentives and subprime lending that had produced 2016’s record were identified as borrowed sales that would have to be repaid.

The updates

The first update, on 30 May, added household debt. The New York Fed reported total household debt of 12.73 trillion dollars at the end of the first quarter, above the peak reached just before the crisis. The number of households was higher than in 2008, but real wages for most people were about 5 per cent lower, and the two roughly cancelled: households had maxed out again, at the moment lenders were beginning to tighten standards for mortgages and car loans.

The second, on 1 June, added the month’s data. Construction spending fell 1.4 per cent in April against an expected rise, the largest drop in a year, taking away one of the few bright spots. Pending home sales fell 5.4 per cent on the year, the biggest fall since 2014. General Motors’ unsold inventory reached 935,758 vehicles, the highest since November 2007, which was one month before the last recession officially began; May added 30,000 more. Illinois was downgraded to one notch above junk by both major agencies, the lowest rating ever given to an American state. And retail-store closures, not yet halfway through the year, had doubled the previous year’s total and exceeded the peak of 2008.

Reading the list

None of the seven, nor the additions, was a forecast. Each was a number already published, most of them by the government or the Fed, and each was moving in the same direction. The pressure was building at the point where the economy’s dependence on the Fed was being withdrawn and nothing was replacing it. What the list could not say was when the pressure would produce a break, and it did not pretend to.

Later note. The break did not come in 2017. The tax cut passed in December and produced a year of 2.9 per cent growth; the narrow market broadened, then fell 20 per cent in the last quarter of 2018 when the Fed’s tightening reached the level this list anticipated; the auto and retail declines continued as described; and the Illinois downgrade was reversed in 2022 after the state’s finances improved. The household-debt figure on the list was 18 trillion dollars by 2025.