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The 20% of the Economy That Drives 100% of Recessions
Why conventional analysis fails — and the three sectors you should actually be watching.
blog.epbresearch.com/p/the-20-of-th…
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Eric Basmajian
14.9K posts
Eric Basmajian
@EPBResearch
The economy moves in a sequence. Read it before consensus does.
Free Sunday Newsletter → Katılım Şubat 2015
285 Takip Edilen129.1K Takipçiler
The economy lives and dies by three sectors.
We call the components "Cyclical GDP"
The AI-capex cycle is coming through business equipment investment.
→ Computer equipment is just 8% of Cyclical GDP but has contributed to 144% of its growth rate over the last four quarters.
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Ignore 80% of GDP.
Groceries, healthcare...they barely move, even in recessions.
The cycle lives in 3 categories:
→ durable goods
→ housing
→ business equipment
I mapped it all in a free PDF.
Grab it with a sign-up for our free newsletter→ epbresearch.com/newsletter
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Eric Basmajian retweetledi
Elevated profit margins have made the US economy resilient to shocks, including the Iran War.
Much of that remains the case today.
"What matters far more than the event itself is the momentum of the underlying economy heading into it."
Read the article from March here: 👇
Eric Basmajian@EPBResearch
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@EPBResearch Well Eric, the flash was the leading indicator, the thunder was the coincident indicator whilst the tile blowing out confirmed their was indeed, a lightening strike. It all just moved a little faster than what we are accustomed to.
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Lightening hit a tree and blew up a random patch of tile on the opposite side of the house.
What happened here?
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@MaltHb No, but that's my guess. Would travel through the roots, and the door was the first place there was some kind of metal?
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Nominal growth has been fairly stable over the last 2.5 years.
But the split is worsening...
More inflation, less real growth.
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@sidprabhu That’s what I’m asking you. If we are not constrained, why don’t we do both?
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@EPBResearch What physical constraint do we have. Commodities prices have been in the toilet until recently
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This has its roots in a decades-long trend of underinvestment in physical structures and infrastructure.
At its core: a net national savings rate that’s fallen from 10% to 0.5%.
x.com/epbresearch/st…
Reza Chowdhury@RezaC1
NYC WATERWAY It's a good time to remember the following: We have a sewer system designed in ~1850 for 515K residents. Present population ~7.89M legal residents + ~600K unlawful residents. As of 2014 - "The average age of New York City’s 6,400 miles of sewage mains is approximately 84 years." and that's the average. We have over 175 years in technical debt that has accrued. There are portions still using clay pipes. Upgrading the system will easily cost close to $100B in today's dollars. The municipal water finance authority is already ~$35B in debt. Oh and top of that the City is carelessly pushing forward to build hundreds of thousands of additional units of new housing on top of this existing infrastructure without serious upgrades.
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I can see that, but this trend exists for public and private investment in structures. We have preferences for handouts to fuel consumption and downstream, profit margins, but if we’re not constrained, why not do both? The constraint may be physical resources over financial but I believe they come from the same identity.
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There’s something very structurally broken about our society. It’s hard to pin down, but in general we don’t care about efficient government investment. Investment that happens is generally seen as a boondoggle and so there’s no support for further investment. In general Americans seem to only want lower taxes, higher asset prices and stimulus checks from their government.
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@sidprabhu Fair enough. What do you believe to be the main reason why real net investment in structures, including water systems, has increased a total of 9% in 40 years.
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@EPBResearch The US has had no lack of available funds even if its savings rate is low. In fact you could argue that access to cheap money degraded state capacity by making it easier to paper over problems with handouts rather than efficient services.
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The economy is still growing at roughly the same pace.
It’s just producing less real growth and more inflation.
Tomorrow’s Sunday newsletter explains why.
Join here for free: epbresearch.com/newsletter
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Stop using GDP, the unemployment rate and the stock market for your read on the economy.
Here’s why the 3 data points everyone trusts are always too late…
Watch on YouTube:
youtu.be/893fxKE1F9Q?si…
YouTube
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Eric Basmajian retweetledi
Strong GDP and low unemployment feel like proof the economy is safe.
But that’s the reason so many recessions seem to come out of nowhere.
By design, the biggest numbers only confirm what already happened.
The part that moves first turns while the headlines still look calm.
Eric Basmajian@EPBResearch
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GDP and the unemployment rate are late by design.
A recession is dated by them. So is the recovery.
It’s why downturns seem to come out of nowhere and booms feel like you already missed the boat.
They report today’s temperature, not tomorrow’s.
Eric Basmajian@EPBResearch
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