Grasping Reality on TypePad, by Brad DeLong

The right response to almost all economic data releases is: Next to nothing has changed with respect to the forecast—your view of the economic forecast today is different from what it was last week, last month, or three months ago in only minor ways. About the only news these past two weeks is an 0.8%-point decrease in our estimate in what production will be over April-June, driven by a reduction in estimated durable goods orders and capacity utilization. This might be an impact o Trump's trade war.

Federal Reserve Bank of New York: Nowcasting Report: May 24, 2019: "The New York Fed Staff Nowcast stands at 1.4% for 2019:Q2. News from this week's data releases decreased the nowcast for 2019:Q2 by 0.4 percentage point. Negative surprises from the Advance Durable Goods Report drove most of the decrease...

Key Points:

Specifically, it is still the case that:

• The Trump-McConnell-Ryan tax cut:
  • To the extent that it was supposed to boost the American economy by boosting the supply side through increased investment in America, has been a complete failure.
    • To the extent that it was supposed to make America more unequal, has succeeded.
    • Delivered a substantial short-term demand-side fiscal stimulus to growth that has now ebbed.
      • (A 3.2%/year rate of growth of final sales to domestic purchasers over the seven quarters starting in January 2017,
      • pushing the level of Gross National Income up from 2.0%/year from this demand-side stimulus.)
• U.S. potential economic growth continues to be around 2%/year.
• There are still no signs the U.S. has entered that phase of the recovery in which inflation is accelerating.
• There are still no signs of interest rate normalization: secular stagnation continues to reign.
• There are still no signs the the U.S. is at "overfull employment" in any meaningful sense.

• A change from 3 months ago: The Federal Reserve's abandonment of its focus on policies that are likely to keep PCE chain inflation at 2%/year or lower does not mean that it is preparing to do anything to avoid or moderate the next recession.

• Changes from 1 month ago: The U.S. grew at 3.2%/year in the first quarter of 2019—1.6%-points higher than had been nowcast—but the growth number you want to put in your head in assessing the strength of the economy is the 1.6%/year number that had been nowcast. The falling-apart of Trump's trade negotiating strategy with China will harm Americans and may disrupt value chains, and the might be becoming visible in the data flow.

• A change from 1 week ago: Industrial production appears to be falling as new durable goods orders come in below expectations. Industrial production may have peaked last December:
   
  

• Over the past 20 years: United States manufacturers are ordering no more in the way of the nominal value of capital goods than they ordered two decades ago. Deflators here are very hazardous, but I believe that translates to a zero increase in real orders as well. This is unprecedented for the U.S. economy: nothing like it has happened before.