1. US Economy Now Looks Like It Will Disappoint Yet Again

2. US National Debt Swells By $1.42 Trillion in FY2016

3. President Obama’s Weak Legacy Illustrated in One Graphic

4. Justice Clarence Thomas Invisible at New African American Museum

Overview

A few months ago, there was broad optimism that the US economy would shift into a higher gear in the second half of this year. I never bought into it. Now, forecasters are revising their optimistic estimates downward, as it increasingly looks like the economy will disappoint yet again.

The Treasury Department quietly reported last week that the national debt increased by $1.4 trillion in fiscal year 2016 which ended on September 30, the third largest annual increase in history. The official budget deficit for FY2016 was reported at $588 billion, but the real federal deficit was more than double that.

Finally, the Smithsonian’s much-anticipated new African American History Museum opened in late September to great fanfare, headlined by President Obama, former President George W. Bush and their wives. Sadly, we learned that the new museum has hardly even a mention of Supreme Court Justice Clarence Thomas. This is an outrage!

It’s a lot to cover in one E-Letter, so let’s jump right in.

US Economy Now Looks Like It Will Disappoint Yet Again

For the last several months, I’ve been telling you that most forecasters were convinced the US economy was going to surge in the second half of this year. Most estimates for 3Q GDP growth were north of 3%. As I’ve written, I just haven’t seen the economic data to back that up.

Part of the optimism was due to the fact that the Federal Reserve Bank of Atlanta’s popular GDPNow economic model was forecasting growth of 3.5%-3.6% for the 3Q as recently as the end of August, as you will see below.

You may recall that I repeatedly questioned that forecast simply because the variety of economic reports I watch did not support a big rebound in the second half. I predicted that the Atlanta Fed would have to revise its GDPNow estimate significantly lower. That has now happened. GDPNow has plunged to 2.2%. And I’m not sure the downward revisions are over yet.

Evolution of GDPNow

The economists at the Atlanta Fed analyze a lot more reports on the economy than I do, but I’m still not sure what they saw earlier this year to make them so bullish on the second half of 2016. We had anemic growth of just 0.8% in the 1Q followed by a recently revised 1.4% in the 2Q, for a disappointing 1.1% rate for the first half. That was even weaker than the post-recession average of around 2%.

Not to worry, most private forecasters assured us, predicting much stronger growth in the 3Q. Now many of the same prognosticators who expected economic activity to accelerate between July and September are now ratcheting those projections right back down.

The New York Federal Reserve Bank, which tracks the economy separately from the Atlanta Fed, just revised its GDP estimate for the second half of this year to less than 2%. They cited lighter than expected consumer spending in August, which they fear could carry through until at least after the election. I agree.