Problem is the private sector is path dependent/pro cyclical. When sales slow incomes slow sales slow, employment slows, etc. etc.
Govt can be/is counter cyclical. When sales slow tax payments fall and unemployment comp. rises, etc. etc. AKA ‘automatic fiscal stabilizers.’
This cycle’s prior slowdowns had a safety net of govt deficit spending of near 10% of GDP, then a year or so later maybe 7%, etc. As the automatic fiscal stabilizers cut back that govt support with the modest recovery raising tax liabilities and cutting transfer payments.
But today, after this year’s proactive deficit reduction measures, we’ve gapped down to maybe a 3% deficit for ‘support’ when things slow. And it feels to me like the demand leakages have begun ‘winning’ when govt proactively stepped back to ‘make room for the private sector’.
What that actually means is the private sector now must (deficit) spend increasingly more than its income on goods and services to offset those agents spending less than their incomes (demand leakages), or the output doesn’t get sold. By identity. To the penny.
Well, sure doesn’t look like it’s going to come from housing. And while cars remain up some it’s not nearly enough. And capex isn’t coming through as hoped for and as needed to fill the spending gap left by the govt cutbacks. And the 126,000 print for NFP private sector job growth fits the same narrative as well- no top line growth = no job/income growth, etc.
Not to mention QE and low rates in general from the Fed remain a source of drag via the interest income channel, and all as Congress continues to fight for bragging rights with regard to deficit reduction.
It’s all nothing that a big fat tax cut and/or spending increase wouldn’t reverse, of course, as the slow motion train wreck continues.