Political Calculations
Unexpectedly Intriguing!
12 June 2024
Sailing Freighter Photo by Tomas Williamson Unsplash - https://unsplash.com/photos/sailing-ship-p-_RJY6hN3E

Trade between the U.S. and China ticked up in April 2024 over March 2024's level, but not by enough to reverse its falling trend.

Year-over-year, the trailing twelve month average of the combined nominal value of goods exchanged between the U.S. and China fell to $47.4 billion, down $6.7 billion from April 2023's level. With inflation increasing the value of those exchanged goods, the decline in real terms is greater.

These changes don't yet reflect the new series of anti-free trade tariffs announced by the Biden admininstration on 14 May 2024. Most of the announced new tariffs will take effect on 1 August 2024, while others will be delayed to either 1 January 2025 or 1 January 2026, so the negative impact to trade between the two nations can be expected to continue in the months ahead.

The following chart shows the trends in U.S.-China trade from January 2017 through April 2024.

Combined Value of U.S. Exports to China and U.S. Imports from China, January 2017 - April 2024

Visual Capitalist's Kayla Zhu, Noccolo Conte, and Sabrina Lam provide a chart showing the new and increased tariffs being imposed by President Biden's administration and when they're set to take effect:

Visual Capitalist: America's Tariff Increases on China - https://www.visualcapitalist.com/comparing-new-and-current-u-s-tariffs-on-chinese-imports/

Meanwhile, the Biden administration has not announced any new expansion of its anti-free trade measures with the rest of the world's nations.

The combined level of goods imported by and exported from the United States with the rest of the world (not including China) rose in April 2024. Here, the trailing twelve month average of combined value of those goods shows more convincing signs of beginning to recover after bottoming in January 2024.

Combined Value of U.S. Exports and U.S. Imports to World (With and Without China) Trailing Twelve Month Averages, January 2017 - April 2024

The trailing twelve month average of the combined goods exchanged between the U.S. and the rest of the world, not including China, rose $2 billion to $380 billion between March and April 2024. That figure is $34.3 billion below the level it would otherwise be in April 2024 had the trend that existed before the Biden administration's 2023 anti-free trade measures continued.

The trailing twelve month average of the goods exchanged between the U.S. and the entire world (including China) was $428.1 billion in April 2024. That figure is $46.5 billion below the counterfactual provided by the trend in that trade that existed before the Biden administration's 2023 anti-free trade actions.

References

U.S. Census Bureau. Trade in Goods with China. Last updated: 6 June 2024.

U.S. Census Bureau. Trade in Goods with World, Not Seasonally Adjusted. Last updated: 6 June 2024.

Image Credit: Sailing Freighter Photo by Tomas Williams on Unsplash.

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11 June 2024
An editorial cartoon of a boy pointing at a wolf with the word 'RECESSION' written on it and sheep in the background Image generated by Microsoft Copilot Designer.

In a lot of ways, using the inversion of the U.S. Treasury yield curve to forecast recessions has become a lot like the old folk tale of the shepherd boy who cried wolf.

The curve itself first inverted when the yield of the 3-month Constant Maturity U.S. Treasury first rose above the level of the 10-year Constant Maturity U.S. Treasury in October 2022. Since then, predictions that recession would follow have been frequently made without any official declaration by the National Bureau of Economic Research to that effect in the months since. Whenever it might make that determination, the NBER will identify the month in which economic expansion in the U.S. peaked before beginning to contract, which will be Month 0 of that newly declared recession. After which, we'll have to wait longer for them to get around to determining when it ended.

We've been tracking a recession forecast model developed for the Federal Reserve Board by Jonathan Wright in 2006, which utilizes the U.S. Treasury yield curve as an input, while also factoring in the level of the Federal Fund Rate. That model first projected a greater-than-50% probability of recession being someday officially determined to have begun sometime between March 2023 and March 2024. In following months, the model's recession forecast went on to rise above an 80% probability, which would apply for the months between July 2023 and July 2024.

Since then, the model's calculated probability of recession has retreated but still remains elevated. As the following chart tracking the history of the Wright model's recession forecast shows, it has recorded a double-top and has been hovering around the 70% threshold for several months. Please note the chart is time-shifted forward by twelve months to show the indicated recession probability at the end of the forecast period to which it applies.

Recession Probability, 30 April 1983 through 10 June 2024

In recent weeks, the spread between 10-year and 3-month constant maturity U.S. Treasuries has been rising, which points to the likelihood the downward trend in the recession probability's trajectory may soon reverse. If that happens, we could see a triple-top pattern form with the forecast recession probability continuing to hover near 70%. We had considered the possibility of a triple-top to be unlikely in our previous update six weeks ago.

With the Federal Reserve increasingly expected to delay any changes in the Federal Funds Rate until later in 2024, the latest update Recession Probability Track shows the recession probability hovering between 67% and 77% while the Federal Funds Rate has been held at an average of 5.33%.

Recession Probability Track, 20 January 2021 through 10 June 2024

As for what else these charts show, the probability of recession peaked at nearly 81% on 25 July 2023, making the period from July 2023 through July 2024 the mostly likely period in which the National Bureau of Economic Research will someday identify a point of time marking the peak in the U.S. business cycle before it entered a period of contraction. The prolonged elevation of the Federal Funds Rate combined the deepened inversion of the U.S. Treasury yield curve in recent weeks has made the period between 18 March 2024 and 18 March 2025 the second most-likely period that will include the peak of a business cycle that marks when a recession began.

The double-top pattern however can be considered to extend the period in which the highest probabilities of recession applies. Under that interpretation, the period in which the probability of an official recession starting would be greater than 70% is running from 25 July 2023 through at least 10 June 2025.

Analyst's Notes

The Recession Probability Track is based on Jonathan Wright's yield curve-based recession forecasting model, which factors in the one-quarter average spread between the 10-year and 3-month constant maturity U.S. Treasuries and the corresponding one-quarter average level of the Federal Funds Rate. If you'd like to do that math using the latest data available to anticipate where the Recession Probability Track is heading, we have provided a tool to make it easy to do.

We will continue following the Federal Reserve's Open Market Committee's meeting schedule in providing updates for the Recession Probability Track until the U.S. Treasury yield curve is no longer inverted and the future recession odds retreat below a 20% threshold. We're curious to see how this forecasting method performs.

For the latest updates of the U.S. Recession Probability Track, follow this link!

Previously on Political Calculations

We started this new recession watch series on 18 October 2022, coinciding with the inversion of the 10-Year and 3-Month constant maturity U.S. Treasuries. Here are all the posts-to-date on that topic in reverse chronological order, including this one....

Image Credit: Microsoft Copilot Designer.. Prompt: "An editorial cartoon of a boy pointing at a wolf with the word 'RECESSION' written on it and sheep in the background".

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10 June 2024
An editorial cartoon in the style of Charles Schulz featuring Charlie Brown trying to kick a football while Lucy pulls it away – Generated with Microsoft Copilot Generator

The S&P 500 turned in a solid performance during the trading week ending Friday, 7 June 2024. The index closed up by 1.53 over its previous week's close and even recorded a new record high of 5,354.03 in the middle of the week. It slipped just a bit from that level to close the week at 5,346.99.

The prospects for rate cuts dominated the week's marking-moving headlines. The European Central Bank pulled the trigger on implementing a new series of rate cuts in a move aimed at boosting a weak Eurozone economy, while an unexpectedly "hot" jobs report pushed back the expected timing for when the Federal Reserve will follow suit in the U.S.

The CME Group's FedWatch Tool now projects Fed will hold the Federal Funds Rate steady in a target range of 5.25-5.50% until 7 November (2024-Q4), 12 weeks later than expected a week earlier. The tool anticipates the Fed will start a series of 0.25% rate cuts on that date that will occur at 12 week intervals well into 2025.

The latest update of the dividend futures-based model's alternative futures chart shows the S&P 500's trajectory most closely pacing the projection associated with investors focusing their forward-looking attention on 2024-Q4. Which not coincidentally, is the quarter in which the Fed is expected to start a series of rate cuts.

Alternative Futures - S&P 500 - 2024Q2 - Standard Model (m=+1.5 from 9 March 2023) - Snapshot on 7 Jun 2024

The curious thing is investors shifted their attention to 2024-Q4 a week earlier, ahead of the news that moved the FedWatch Tool's projections this week. Speaking of which, here are the past week's headlines:

Monday, 3 June 2024
Tuesday, 4 June 2024
Wednesday, 5 June 2024
Thursday, 6 June 2024
Friday, 7 June 2024

The Atlanta Fed's GDPNow tool's forecast of annualized real GDP growth rate during 2024-Q2 rose to +3.1% from the +2.7% growth anticipated just a week earlier.

Image credit: Microsoft Copilot Designer. Prompt: "An editorial cartoon in the style of Charles Schulz featuring Charlie Brown trying to kick a football while Lucy pulls it away". We added the text to create the parody of the Fed pulling away the rate cut football from U.S. markets and tweaked parts of the image to address some of the more peculiar AI-generated artifacts.

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07 June 2024

As a recognizable invention, the table been around for thousands of years. Believe it or not, even such a profoundly old and well-established invention can inspire new innovations.

Consider the example of U.S. Patent 5,421,499, in which inventor Alan C. Bauer identified an application where having a table could be really useful, but where no table had gone before - everywhere a person goes. His solution: the wearable table. Here's a colorized version of Figure 1 from the patent's illustrations:

U.S. Patent 5,421,499 Figure 1

Here's how Bauer describes the gaps he found in existing table technology for which his wearable table invention provides a solution:

Prior to this invention, tray type devices have primarily been directed at gathering food and beverages while in a seated position without the danger of spills and subsequent damage to a user's clothing. Most such inventions have been oriented toward a basket type device somehow suspended about the neck and often supported by the user's lap. For example, Bezdek, U.S. Pat. No. 4,985,932, discloses a Food Spill Catching and Serving Device; essentially a foldable basket for holding food while sitting in an automobile. Zemke, U.S. Pat. No. 5,056,139, discloses a Combination Food Tray and Bib which, provides a bib and lap-supported, spill catching depression. Stang, U.S. Pat. No. 5,062,558, discloses a wearable basket holder and removable basket, again for gathering food and catching spills while sitting.

In contrast, Brown et al, U.S. Pat. No. 5,094,343, discloses a combination hat, sun visor and multiple beverage can holder. While the device can be used while standing and in a hands free position, it is in essence an article of clothing with a clever built in storage rack.

One disadvantage of these devices is that their proposed purpose is limited to gathering food and beverage items, primarily in a contained form, for immanent consumption. None is designed to provide sturdy, table-like support for extended use despite eventual body repositioning. None provides a table-like tray surface for other needs, such as supporting papers while writing. Rather each provides a single purpose, bodily reinforced holder. A second disadvantage is that none, with the possible exception of Brown, is readily adaptable to, let alone designed for standing applications. In such applications a rigid, essentially flat and well supported tray of proper height and vertical orientation is crucial.

Thus there is clearly a need for a rigid, well supported and positioned tray device that can be worn and support needed materials in a useable, hands-free manner while standing.

Since Bauer patented his wearable table solution in 1994, the technology of wearable tables has been refined as we discovered in our search for commercial products resembling his invention available for sale today. The most common product category deploying wearable table technology is the laptop harness desk, where this shoulder-strapless example is perhaps the closest in spirit to Bauer's patented invention in providing a rigid work surface.

From the Inventions in Everything Archives

The IIE team has previously covered just one other table-related innovation:

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06 June 2024
A Well-Balanced Bungalow in San Antonio, TX which cost $6,000 in April 1924

One hundred years ago, it was possible to buy a newly-built home for $6,000. With conventional mortgage rates averaging about six percent during the 1920s, it would only have taken an annual income of $1,540 to afford the monthly mortgage payment for such a home. Well over half the Americans who filed income tax returns that year could easily afford to buy that new home.

One hundred years later, with interest rates for conventional fixed-rate 30-year mortgages hovering at seven percent, April 2024 saw the affordability of new homes remain out of reach for most American households. Mainly because the typical new home sold has become much more costly, but also because mortgage rates are higher. Even so, new homes were last as relatively affordable as they were in 1924 for a majority of American households in the months from May 2019 through March 2021.

The initial estimate of the median sale price for a new home in April 2024 is $433,500. With an estimated median household income of $77,760, the monthly mortgage payment for a new home would consume 44.5% of the income earned by a typical American household.

That is well above the long-established 28/36 rule that most traditional mortgage lenders use to determine the maximum amount of money they will lend to home buyers.

Those thresholds are shown in the following chart, which also verifies that new homes have been consistently above that upper affordability threshold for more than half of American households starting in April 2022.

Mortgage Payment for a Median New Home as a Percentage of Median Household Income, January 2000 - April 2024

Speaking of elevated mortgage rates, we now have 53 full years worth of monthly average mortgage rates in the United States. We've made that data available in the following interactive chart, if you're accessing this article on a site that republishes our RSS news feed, you may need to click through to our site to access the fully-functional chart, which is also accessible here and at Datawrapper.

The average interest rate for a conventional fixed-rate 30-year mortgage in May 2024 is 7.06%, which is slightly higher than the 6.99% average for April 2024. We anticipate the relative affordability of new homes in May 2024 will be similar to what it has been in recent months. Which is to say that most American households will continue to not be able to afford to buy a new home anytime soon.

References

U.S. Census Bureau. New Residential Sales Historical Data. Houses Sold. [Excel Spreadsheet]. Accessed 23 May 2024. 

U.S. Census Bureau. New Residential Sales Historical Data. Median and Average Sale Price of Houses Sold. [Excel Spreadsheet]. Accessed 23 May 2024. 

Freddie Mac. 30-Year Fixed Rate Mortgages Since 1971. [Online Database]. Accessed 1 May 2024. Note: Starting from December 2022, the estimated monthly mortgage rate is taken as the average of weekly 30-year conventional mortgage rates recorded during the calendar month.

Political Calculations. Median Household Income in April 2024. [Online article]. 4 June 2024.

Image credit: San Antonio Light. [Vol. XLIV - No. 99.] (San Antonio, Tex.), Sunday, 27 April 1924. Chronicling America: Historic American Newspapers. Lib. of Congress. <https://chroniclingamerica.loc.gov/lccn/sn85060004/1924-04-27/ed-1/seq-60/>.

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About Political Calculations

Welcome to the blogosphere's toolchest! Here, unlike other blogs dedicated to analyzing current events, we create easy-to-use, simple tools to do the math related to them so you can get in on the action too! If you would like to learn more about these tools, or if you would like to contribute ideas to develop for this blog, please e-mail us at:

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