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Archive for the 'Economic Releases' Category

Retail sales, credit expansion review, Empire manufacturing

Posted by WARREN MOSLER on 15th July 2014

Still looking like a macro constraint/fading aggregate demand. Strong auto sales, for example, coincides with less of something else:

And this is the so called retail sales ‘control group’ that excludes food, gas, building materials and autos:

This market for loans overall remains subdued indicating banks getting a share of what was the ‘shadow bank’ business.

And the growth rates are generally well below prior cycles:

Meanwhile, manufacturing, a relatively small part of the economy, keeps chugging along, with overall output/industrial production most often growing at about 3-4% year over year:

Manufacturing activity is accelerating sharply, at least in the New York region based on the Empire State index which is at a very strong 25.60 in the July reading. New orders are very strong at 18.77, up from an already strong 18.36 in June, as are shipments at 23.64. Employment is a special positive, at 17.05 vs 10.75 in June.

Other readings, however, are less favorable with unfilled orders in contraction at minus 6.82. Price readings show some pressure with input prices at plus 25.00 and finished prices up about 2.5 points to 6.82. Optimism is also down as the 6-month general conditions index fell more than 10 points to 28.47.

Posted in Credit, Economic Releases | No Comments »

Public sector payroll jobs

Posted by WARREN MOSLER on 8th June 2014

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Charts on recent releases

Posted by WARREN MOSLER on 8th June 2014

(not saying that any of this is in the Fed’s reaction function- that’s another story)

See the ‘down, up some, then leveling off of the red line?
Still growing but ‘leveled off’ at a bit less than 1.8%.

Employment/population ratio collapsed from 2008-2010 and for
all practical purposes has never recovered, and the participation rate
remains at the lows as well:

And the unemployment rate is now down to the peak of the last cycle!

Mortgage Equity Withdrawal still a bit negative:

Nice move up for the ISM survey

The trade deficit seems to be ticking up a bit, meaning that much less GDP, but it’s volatile month to month:

Motor vehicle sales were up and better than expected, but with the winter dip and the subsequent recovery are still averaging a bit less than 16 million for the year. And the longer term pattern looks like the rate of growth flattened some early in 2013. And inventories are still elevated, though not as much as earlier in the year.

We’ll see what comes next:

Construction spend was below expectations but chart does’t look too bad:

Mtg purchase apps remain depressed, coming in at about 17% below last year:

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Review of last weeks data

Posted by WARREN MOSLER on 2nd June 2014

So my narrative is:

The Federal budget deficit is too small to support growth given the current ‘credit environment’- maybe $400b less net spending in 2014. The automatic fiscal stabilizers are ‘aggressive’, as they materially and continually reduce the deficit it all turns south. The demand leakages are relentless, including expanding pension type assets, corporate/insurance accumulations, foreign CB $ accumulation, etc. etc.

The Jan 2013 FICA hike and subsequent sequesters took maybe 2% off of GDP as they flattened the prior growth rates of housing, cars, retail sales, etc. etc. Q3/Q4 GDP was suspect due to inventory building, a net export ‘surge’, and a ‘surge’ in year end construction spending/cap ex etc. I suspected these would ‘revert’ in H1 2014. It was a very cold winter that slowed things down, followed by a ‘make up’ period. The question now is where it all goes from there. For every component growing slower than last year, another has to be growing faster for the total to increase.

The monthly growth rate of durable goods orders fell off during the cold snaps and the worked it’s way back up, though still not all the way back yet, and the ‘ex transportation’ growth rate was bit lower:

And of note:

Investment in equipment eased after a robust March. Nondefense capital goods orders excluding aircraft dipped 1.2 percent, following a 4.7 percent jump in March. Shipments for this series slipped 0.4 percent after gaining 2.1 percent the prior month.

In general the manufacturing surveys were firm.

Mortgage purchase applications continued to come in substantially below last year, even with the expanded, more representative survey:

According to the MBA, the unadjusted purchase index is down about 15% from a year ago.

MBA Mortgage Applications

Mortgage applications for home purchases remain flat, down 1.0 percent in the May 23 week to signal weakness for underlying home sales. Refinancing applications, which had been showing life in prior weeks tied to the dip underway in mortgage rates, also slipped 1.0 percent in the week. Mortgage rates continue to edge lower, down 2 basis points for 30-year conforming loans ($417,000 or less) to 4.31 percent and the lowest average since June last year.

And then there was the Q1 revised GDP release:

What drove it negative was a decline in inventories, net exports, and construction/cap ex:

The largest revisions to the headline number were from inventories (revised downward by -1.05%) and imports (down -0.36%), and although exports improved somewhat from the prior report, they still subtracted -0.83% from the headline. Fixed investments in both equipment and residential construction continued to contract.

PCE growth was revised up to +3.1% (adding 2.09% to GDP) but seems over 1% of that came from ACA (Obamacare) related and other non discretionary expenditures like heating expenses, etc. The question then is whether the increases will continue at that rate and whether the increased ACA related expenses will eat into other, discretionary expenditures.

The contribution made by consumer services spending remained essentially the same at 1.93% (up 0.36% from the 1.57% in the prior quarter). As mentioned last month, the increased spending was primarily for non-discretionary healthcare, housing, utilities and financial services – i.e., increased expenses that stress households without providing any perceived improvement to their quality of life.

And seems this Chart is consistent with my narrative:

And not that it matters, but just an interesting observation:

And lastly, for this report the BEA assumed annualized net aggregate inflation of 1.28%. During the first quarter (i.e., from January through March) the growth rate of the seasonally adjusted CPI-U index published by the Bureau of Labor Statistics (BLS) was over a half percent higher at a 1.80% (annualized) rate, and the price index reported by the Billion Prices Project (BPP – which arguably reflected the real experiences of American households while recording sharply increasing consumer prices during the first quarter) was over two and a half percent higher at 3.91%. Under reported inflation will result in overly optimistic growth data, and if the BEA’s numbers were corrected for inflation using the BLS CPI-U the economy would be reported to be contracting at a -1.52% annualized rate. If we were to use the BPP data to adjust for inflation, the first quarter’s contraction rate would have been a staggering -3.64%.

And looks like this will be limiting the next quarter:

Real per-capita annual disposable income grew by $95 during the quarter (a 1.03% annualized rate). But that number is down a material -$227 per year from the fourth quarter of 2012 (before the FICA rates normalized) and it is up only about 1% in total ($359 per year) since the second quarter of 2008 – some 23 quarters ago.

And remember this?

So the question is, how strong will the Q2 recovery be, and where does it go from there?

Again, looks to me like the deficit is having trouble keeping up with the demand leakages, and it keeps getting harder with time?

Jobless claims continue to work their way lower, but they are a bit of a lagging indicator and even with 0 claims there aren’t necessarily any new hires, either, for example.

And there’s another couple of issues at work here.

First, 1.2 million people lost benefits at year end, and it’s expected up to half of them will find ‘menial’ jobs during H1. However, corporations don’t add to head count just because unskilled workers lose benefits, so the employment numbers may thus be ‘front loaded’ with higher numbers of hires in H1, followed by fewer hires in H2.

Second, seems the new jobs don’t pay a whole lot, and a lot of higher paying jobs continue to be lost, so the increased employment isn’t associated with the kind of subsequent growth multipliers of past cycles.

Corporate profits were down over 10% in the Q1 GDP report, and mainly in the smaller companies as the S&P earnings saw a modest increase. Hence the small caps under performing, for example? Not mention earnings also tend to up and down with the Federal deficit:

This year over year pending home sales chart speaks for itself:

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Another series following the pattern- down for the winter weather, then back up some, and this time then backing off some:

Personal income & spending, up 0.3 percent and down 0.1 percent, fell back in April following especially strong gains in March. Wages & salaries slowed to plus 0.2 percent vs a 0.6 percent surge in March while spending on durables, reflecting a pause in auto sales, fell 0.5 percent vs gains of 3.6 and 1.3 percent in the prior two months. Spending on services, however, also fell, down 0.2 percent on a decline in utilities and healthcare after a 0.5 percent rise in March. In real terms, spending fell 0.3 percent following the prior month’s 0.8 percent surge. Price data remain muted, up 0.2 percent overall and up 0.2 percent ex-food and energy. Year-on-year price rates are at plus 1.6 percent and 1.4 percent for the core.

And again, the ACA and other non discretionaries added about 1% in Q1. So, again, it’s down for the winter, then up and this time back down to begin Q2 (with the growth of healthcare expenses backing off some):

Posted in Deficit, Economic Releases, Employment, GDP, Government Spending, Housing | No Comments »

Charts from the last few days

Posted by WARREN MOSLER on 3rd April 2014

Total vehicle sales year over year showed some post winter bounce.

The narrative was that March started off slow but picked up due to large incentives for the last week.

We’ll see if it all holds up for April.

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Factory orders ‘bounced’ from large declines but not yet enough to ‘make up’ for the declines.

And regarding capital goods, as with construction measures, I remain concerned that what looked like a year end spike was tax driven and ‘borrowed’ from this year.

Factory orders bounced back strongly in February, up 1.6 percent to edge above the high end of the Econoday consensus. The month got a major lift from a 13.4 percent upswing in commercial aircraft orders. A 3.0 percent gain in motor vehicle orders also helped the total. But the total excluding transportation orders, which is a closely tracked reading, is also healthy, up 0.7 percent following 0.1 percent declines in the prior two months.

There is, however, a negative in the February numbers and that’s a sizable 1.4 percent decline in nondefense capital goods orders excluding aircraft. This is considered a core reading on the outlook for business investment. February’s decline more than reverses a 0.8 percent rise in January. Orders for this reading were especially weak in December, at minus 1.6 percent.

Other data include a weather-related bounce in shipments, to plus 0.9 percent following January’s 0.7 percent decline. Inventories rose 0.7 percent, in line with shipments and keeping the factory sector’s inventory-to-shipment ratio unchanged at 1.30. Unfilled orders are a positive, up 0.3 percent.

This report is mostly positive if it weren’t the decline underway in core capital goods orders, a decline that points to weakness in the business outlook. Early indications on the manufacturing for March have also been mostly positive, with the exception of yesterday’s slowing in the ISM employment index.

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Global manufacturing has softened in recent months. At 52.4 in March, down from 53.2 in February, the J.P.Morgan Global Manufacturing PMI fell to a five-month low, but remained above its average for the current 16-month sequence of expansion.

Global manufacturing production increased for the seventeenth consecutive month in March. However, the rate of expansion eased to a five-month low, mainly on the back of a slowdown in Asia. Growth of total new orders also eased slightly, despite improved inflows of new export business.

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Employment, generally a lagging indicator, was up some, but the chart still seems ‘uninspiring’ at best:

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Not to give this all that much weight, and they are limited surveys with Easter distortions as well, but the year over year lines aren’t showing any rebound yet:

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Purchase Mortgage applications up 1% for the week but down 19% vs last year.

What I’m saying is that Jan and Fed were weather depressed. And with the federal deficit now running maybe below 3% of GDP, down several % from last year, some pro active and some from the auto stabilizers, my concern is that the underlying support for a bounce is no longer there and the rate of growth continues to decelerate. Yes, lending is up some, but it could be the financing of utility bills and inventory/reduced cash flow growth, which takes away from future sales.

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Mtg purchase apps, New Home Sales, Durable goods orders still not performing

Posted by WARREN MOSLER on 26th March 2014

MBA Purchase Applications

Purchase applications rose 3.0 percent in the March 21 week but failed to lift the year-on-year rate which is down a very sharp 17.0 percent. The year-on-year rate is a reminder of how important cash buyers are right now in the housing market and also a reminder that mortgage rates this year are less favorable than this time last year. The refinance index fell 8.0 percent in the week. Rates rose in the week with the average 30-year mortgage for conforming loans ($417,500 or less) up 6 basis points to 4.56 percent.

Durable Goods Orders

The latest durables orders report was mixed with the headline strong and the core slowing. New factory orders for durables in February rebounded 2.2 percent, following a decrease of 1.3 percent in January. Analysts projected a 1.0 percent rise. Excluding transportation, durables orders slowed to a 0.2 percent rise in February, following a 0.9 percent boost the prior month.

The transportation component jumped a monthly 6.9 percent after dropping 6.2 percent the month before. Within transportation, the gain was led by increases in orders for defense aircraft although nondefense aircraft and motor vehicles also were strong.

Outside of transportation, orders were up slightly but very mixed by subcomponents. Gains were seen in primary metals, fabricated metals, computers & electronics, and “other.” Notably offsetting were declines in machinery and electrical equipment.

There was slippage in investment plans. Nondefense capital goods orders excluding aircraft decreased 1.3 percent in February, following a rebound of 0.8 percent the month before. Shipments for this series advanced 0.5 percent, following a 1.4 percent drop in January.

The latest durables report suggests that manufacturing is not as strong as indicated by recent manufacturing surveys.

Note the year over year line:

From yesterday, the charts looks like sales were rising nicely before being flattened by the tax hikes and spending cuts:

Still too early to tell, but so far charts aren’t showing much of a ‘bounce’ from the weather yet.

Posted in Economic Releases, GDP, Housing | No Comments »

A few comments on overnight news

Posted by WARREN MOSLER on 27th February 2014

The threshold may be high but there is one somewhere up there:

Fed should be ‘very patient’ in cutting stimulus: Rosengren (Reuters) The high number of part-time workers who would rather work full-time, the still-high unemployment rate, and very low inflation suggest significant “slack” in labor markets and “call for a very patient approach to removing monetary policy accommodation, particularly given the softness in recent economic data,” Boston Federal Reserve Bank President Eric Rosengren said. Rosengren said that it has been difficult for economists to determine whether weak employment reports for the past two months have been influenced bad weather or if they reflect an economic slowdown, and predicted that harsh winter weather will make the February jobs report similarly difficult to interpret. “In my view, this uncertainty provides an additional strong rationale for taking a patient approach to removing the monetary policy accommodation that the Federal Reserve has been deploying.”

These are closings from contracts signed months earlier:

New home sales hit five-and-a-half year high in January (Reuters) Sales of new U.S. single-family homes jumped 9.6 percent to a seasonally adjusted annual rate of 468,000 units. December’s sales were revised up to a 427,000-unit pace from the previously reported 414,000-unit rate. Sales in the Northeast soared 73.7 percent to a seven-month high, while the South recorded a 10.4 percent rise in transactions to a more than five-year high. Sales tumbled 17.2 percent in the Midwest last month, while rising 11 percent in the West. New home sales rose 2.2 percent compared with January 2013. For all of 2013. Last month, the supply of new houses on the market was unchanged at 184,000 units. The median price of a new home last month rose 3.4 percent to $260,100 from January 2013. At January’s sales pace it would take 4.7 months to clear the supply of houses on the market.

I still suspect some of the q4 activity was ahead of expiring tax credits:

Hope on Horizon for Home-Supply Crunch: Builder Borrowing Picks Up (WSJ) Data released Wednesday by the Federal Deposit Insurance Corp. show that the outstanding balance on loans for land acquisition, development and construction rose in the fourth quarter to $209.9 billion, compared with $206 billion in the third quarter. Last year, the average price of a new U.S. home was $322,100, up 10.2% from 2012. The latest increase in construction lending “is an encouraging signal,” said David Crowe, chief economist for the National Association of Home Builders. But lending remains far from peak, as outstanding land and construction loans topped out at $631.8 billion in the first quarter of 2008. According to the FDIC, outstanding loans solely for construction of homesexcluding development, land acquisition and commercial projectsincreased to $43.7 billion in the fourth quarter, up from a recent low of $40.7 billion in last year’s first quarter.

This helps support prices but doesn’t directly add much to GDP apart from commissions etc. unless it’s new construction:

Foreign appetite for US properties remains strong (FT) Last year the US maintained its position as the top destination for direct commercial property investment by foreigners with $38.7bn pouring into the country, according to a report from brokerage Jones Lang LaSalle. The total was up 44 per cent on 2012. Canadian, Chinese and Australian investors led the charge, with investors targeting top-tier areas such as Manhattan, Los Angeles and Chicago as well as secondary markets including Houston, Dallas and Seattle. Almost half all investments were in office buildings, 16 per cent in apartment blocks, 15 per cent in retail, while hotels, industrial properties and land development made up the rest. Foreign money comprises about 10 per cent of all capital for commercial property investment in the US, which JLL has said could accelerate if international investors expand beyond core assets to riskier deals that deliver higher returns.

The lack of domestic credit expansion and only very modest export growth leaves only govt. to spend more than its income and they keep pressing the wrong way on that as well:

Euro zone lending contraction compounds ECB headache (Reuters) Loans to the private sector fell by 2.2 percent in January from the same month a year earlier, ECB data released on Thursday showed. That compared to a contraction of 2.3 percent in December. Euro zone M3 money supply grew at an annual pace of 1.2 percent, picking up slightly from 1.0 percent in December. The ECB has set out two scenarios that could trigger fresh policy action: a deterioration in the medium-term inflation outlook and an “unwarranted” tightening of short-term money markets. Before the ECB gets to quantitative easing a cut in interest rates is one option for dealing with low euro zone inflation, or tight money markets. Another option the ECB has discussed is to suspend operations to soak up the money it spent buying sovereign bonds under its now-terminated Securities Markets Programme (SMP) during the euro zone’s debt crisis.

6.8% unemployment considered a successful economy?

Lowest number of Germans out of work in Feb since Sept 2012 (Reuters) The number of people out of work in Europe’s largest economy decreased by 14,000 to 2.914 million, data from the Labour Office showed. That meant there were fewer unemployed people in Germany than at any time since September 2012. It was the third consecutive monthly drop in joblessness. Separate data from the Federal Statistics Office on Thursday showed employment climbing to a record high of almost 42 million. Berlin expects private consumption, which boosted growth in 2013, to increase by 1.4 percent as workers benefit from an increase in employment to an expected record of 42.1 million this year and a nominal 2.7 percent jump in earnings. The jobless rate held steady at 6.8 percent, its lowest level since German reunification more than two decades ago.

Germany’s wealth distribution most unequal in euro zone (Reuters) Private wealth is more unevenly distributed in Germany than in any other euro zone state. While the richest one percent of people in Germany have personal wealth of at least 800,000 euros ($1.09 million), over a quarter of adults have either no wealth or negative wealth because of debt, the study by Germany’s DIW think tank showed. According to the study, Germany’s Gini coefficient, a measure of income inequality, was 0.78 in 2012. That compared with 0.68 in France, 0.61 in Italy and 0.45 in Slovakia. A score of 0 indicates minimal inequality and 1.0 maximal inequality. Germans have total net assets worth 6.3 trillion euros, with land and real estate accounting for 5.1 trillion euros, and the average German adult has net assets worth around 83,000 euros, according to DIW. In the study, private wealth includes owned real estate, financial assets, valuables and debt.

French jobless total rises to record in January (Reuters) The number of people out of work in France rose by 8,900 in January to reach a record, as President Francois Hollande’s goal of taming unemployment eluded him yet again. Labour Ministry data showed on Wednesday that the number of people registered as out of work reached 3,316,200 in mainland France, up 0.3 percent over a month and 4.4 percent over a year. Hollande’s popularity has plummeted to record lows. He struggled and ultimately failed to live up to a pledge to get unemployment falling by the end of last year. With that promise in tatters despite at least 2 billion euros ($2.73 billion) spent on subsidized jobs, Labour Minister Michel Sapin said earlier on Wednesday that the jobless total should fall this year. Hollande offered last month to phase out 30 billion euros in payroll charges that companies have to pay, in exchange for committing to targets to create jobs.

Spanish Economic Growth Slower Than Expected (WSJ) Gross domestic product grew by 0.2% in the fourth quarter compared with the third, the country’s national statistics institute INE said Thursday. The figure was lower than the INE’s and the government’s preliminary reading, which had pegged quarterly growth at 0.3%. Public spending fell 3.9% compared with the third quarter. Household consumption was up 0.5% in the same period. Strong export growth helped Spain’s economy emerge from a nine-quarter recession in the second half of 2013, but the recovery has so far been anemic, because households remain highly indebted, unemployment still stands around 26% and the government can’t raise public spending because it is struggling to lower its budget deficit. According to the INE, economic output shrunk by 0.2% in the fourth quarter of 2013 compared with the fourth quarter of a year earlier.

Private rental surge hits benefits bill (FT) Englands housing market is seeing a seismic shift towards private rented property and away from home ownership. Figures from the official English housing survey published on Wednesday show the number of households living in the private rented sector overtook those in social housing for the first time last year. Almost 4m households now live in privately rented homes, and a quarter of the tenants are now subsidised by housing benefit, according to the annual survey. Private renting is now the second-largest tenure in England, behind home ownership. Under two-thirds of households now own their own home down from 71 per cent a decade ago. The number of households in the private rented sector receiving the benefit has risen by two-thirds in the past five years, with 390,000 more households in this category beginning to claim, the English housing survey found.

Does China want their currency to adjust to the yen the way other EM currencies have done?

China dismisses concern over sudden renminbi fall (FT) The recent movement of the renminbi exchange rate is the result of market players adjusting their near-term renminbi trading strategies, the State Administration of Foreign Exchange, an agency under the central bank, said. It added that the currencys movement was nothing unusual: The degree of exchange rate volatility is normal by the standards of developed and emerging markets. There is no need to over-interpret it. China faced immense capital inflows at the start of this year, according to data published on Tuesday by the central bank. Banks bought a net $73bn of foreign currency in the onshore market from their clients who wanted renminbi in January, the biggest monthly amount on record. Inflows have been accelerating since the middle of last year when Chinas mountain of foreign exchange reserves grew $500bn to $3.8tn.

China’s Central Bank Engineered Yuan’s Decline (WSJ) China’s central bank engineered the recent decline in the country’s currency to shake out speculators as it prepares to allow a wider trading range for the tightly tethered yuan, according to people familiar with the central bank’s thinking. In the past week, the People’s Bank of China has been guiding the yuan lower against the dollar. It has done so by setting a weaker benchmark against which the yuan can trade. It has also intervened in the currency market by directing state-owned Chinese banks to buy dollars, according to traders. China’s central bank and commercial banks purchased nearly $45 billion worth of foreign exchange in December, the fifth consecutive month of net purchases. The PBOC decided to tamp down expectations for one-way appreciation in the yuan and curb speculative trading during two-day currency-policy meeting that ended on Feb. 18, the people said.

Posted in Currencies, Economic Releases, Emerging Markets, Employment, EU, Housing | No Comments »

tv interview

Posted by WARREN MOSLER on 17th February 2014

Posted in Deficit, Economic Releases, Employment, GDP | No Comments »

Retail sales and jobless claims

Posted by WARREN MOSLER on 13th February 2014

From CS:

JAY FELDMAN : Q4 GDP revision is now tracking 2.4 on our estimates. It was tracking 2.7 before retail sales… and down from the initially reported 3.2.

Note October/November/December all marked down lower as well in US retail sales…and even prior to this period as well – will bring down Q4 GDP tracking for consumption.

Again, the income to support sales just doesn’t seem to be there, as the sub 3% federal deficit doesn’t seem to have been providing the spending needed to offset the demand leakages (unspent income):

Retail Sales

Overall retail sales in January fell 0.4 percent, following a decrease of 0.1 percent in December (originally up 0.2 percent). The market consensus was for a 0.1 percent dip.

Autos pulled down the total. Motor vehicle & parts declined 2.1 percent, following a decrease of 1.8 percent in December. Excluding autos, sales were unchanged after gaining 0.3 percent the month before (originally up 0.7 percent). Analysts called for a 0.1 percent rise. Gas station sales increased 1.1 percent after jumping 1.5 percent in December. Excluding both autos and gasoline, sales slipped 0.2 percent after rising 0.1 percent in December. The consensus was for a 0.2 percent rise.

In the core, strength was seen in electronics & appliance stores; building materials & garden equipment; and grocery stores. Declines were seen in furniture & home furnishings; health & personal care; clothing; sporting goods, hobby, et al; department stores; nonstore retailers; and food services & drinking places.

The latest report suggests that fourth quarter GDP may be revised down and that first quarter GDP could be soft. Again, atypically adverse weather likely affected the data. Equity futures declined on the news.

When I squint at this chart if anything it seems to have bottomed and nudging irregularly higher:

Posted in Economic Releases, Employment, GDP | No Comments »

Fed is not swayed by any single number, Fisher tells CNBC

Posted by WARREN MOSLER on 10th February 2014

What about 2 consecutive numbers, like Dec and Jan jobs?

Fed is not swayed by any single number, Fisher tells CNBC

February 7 (Reuters) — The U.S. central bank is unlikely to reverse its decision to wind down its bond-buying program in reaction to the weaker-than-expected January jobs report released on Friday. “I will say this about the rest of our committee, is they are not swayed by a single number. They are thoughtful people,” Dallas Federal Reserve Bank President Richard Fisher said on CNBC, referring to the Fed’s policy-setting Federal Open Market Committee.

Posted in Economic Releases, Employment, Fed | No Comments »

Trade, Claims, Unit labor costs

Posted by WARREN MOSLER on 6th February 2014

Dec trade deficit larger than expected= downward revisions to Q4 GDP

International Trade

The trade deficit in December reversed course but still was relatively low. The trade gap widened to $38.7 billion from $34.6 billion in November. Market expectations were for a $36.0 billion deficit. Exports declined 1.8 percent in December, following a gain of 0.8 percent the month before. Imports edged up 0.3 percent after dropping 1.3 percent.

The expansion of the trade gap was led by goods excluding petroleum which jumped to $42.0 billion from $37.9 billion in November. The petroleum deficit worsened slightly to $15.6 billion from $15.3 billion in November. The services surplus improved to $19.8 billion from $19.5 billion.

Not impossible that claims have bottomed and are turning up.

Jobless Claims

A clean look at initial jobless claims points to improvement. Initial claims for the February 1 week fell a sharp 20,000 to a lower-than-expected 331,000. The 4-week average, at 334,000, is trending 15,000 below the month-ago comparison.

Continuing claims, however, are not showing improvement. Continuing claims for the January 25 week rose 15,000 to 2.964 million with the 4-week average up 26,000 to a 2.986 million level that is more than 100,000 above the month-ago trend. The unemployment rate for insured workers, which had been at 2.1 percent as recently as November, is unchanged for a 4th week at 2.3 percent.

Doesn’t look like the Fed has much to worry about regarding ‘inflation’ from unit labor costs just yet:

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Another look at Q3 GDP

Posted by WARREN MOSLER on 23rd December 2013

Third-Quarter Growth in U.S. Revised Higher on Services

By Victoria Stilwell

Decmeber 20 (Bloomberg) — The economy expanded in the third quarter at the fastest rate in almost two years as Americans stepped up spending on services such as health care and companies invested more in software.

Jump in healthcare??? And the software gain was the new ‘intellectual’ category.

Gross domestic product climbed at a revised 4.1 percent annualized rate, the strongest since the final three months of 2011 and up from a previous estimate of 3.6 percent, Commerce Department data showed today in Washington. The gain exceeded the most optimistic projection in a Bloomberg survey.

Inventories accounted for a third of the increase in GDP in the third quarter, showing companies were confident about the prospects for demand. Stronger retail sales in October and November underscore the Federal Reserves view that the worlds largest economy is improving.

Right, a boom in unsold inventories. Especially cars, where the inventory was on the high side even for the November spike in sales to 16.4 million (annual rate) from a shutdown depressed 15.2 million for October. And it looks like December total vehicle sales are back down below the two month average, which means the inventory to sales ratio is even worse. No surprise Jan auto production cutbacks have already been announced.

You have equity markets supporting household net worth, rising home values and also payroll gains and falling unemployment, so we do really look for consumption to start picking up, said Robert Rosener, associate economist at Credit Agricole CIB in New York, whose forecast for growth of 3.8 percent was the highest in the Bloomberg survey. This is a very good sign for momentum going into the fourth quarter.

The median forecast of 72 economists surveyed by Bloomberg projected a 3.6 percent gain in GDP, the value of all goods and services produced in the U.S. Forecasts ranged from 3.3 percent to 3.8 percent. Stocks rose after the figures, with the Standard & Poors 500 Index advancing 0.6 percent to 1,820.78 at 11:46 a.m. in New York.

Services Spending

Consumer purchases, which account for almost 70 percent of the economy, increased 2 percent, more than the previously reported 1.4 percent, the revised data showed.

Better but still weak year over year, and, again, healthcare spending of some sort accounted for much of the upward revision.

Spending on services contributed 0.32 percentage point to third-quarter growth, up from a previously reported 0.02 percentage point. In addition to the pickup in outlays for health care, Americans spent more on recreational services.

Outlays for non-durable goods climbed at a 2.9 percent rate in the third quarter, led by more spending on gasoline.

Inventories increased at a $115.7 billion annualized pace in the third quarter, the most in three years, after a previously reported $116.5 billion annualized rate. In the second quarter, they rose at a $56.6 billion pace.

Stockpiles added 1.67 percentage points to GDP last quarter, little changed from the 1.68 percentage-point contribution in the previous reading.

More Optimistic

While economists grew more optimistic about demand in the fourth quarter, GDP will nonetheless be restrained as the pace of inventory growth cools.

JPMorgan Chase & Co. economists project the economy will grow 2 percent from October through December, up from the 1.5 percent rate they had penciled in prior to the Commerce Departments Dec. 12 retail sales report. Barclays Plc has raised its fourth-quarter tracking estimate to 2.3 percent from 2 percent before the retail figures.

Domestic final sales, which exclude inventories, increased 2.5 percent in the third quarter compared with a previously reported 1.9 percent increase.

Corporate spending on equipment rose 0.2 percent, compared with a previous reading of no change. Business investment in intellectual property was revised up to a 5.8 percent increase from 1.7 percent, reflecting more spending on software.

Further investment will depend on how much confidence companies have that the economy will accelerate.

Capital Spending

Honeywell International Inc., whose products range from cockpit controls to thermostats, expects capital expenditures in the range of $1.2 billion or more in 2014, up about 30 percent from this year.

Were very disciplined in terms of cap-ex, Chief Financial Officer David Anderson said on the companys 2014 guidance call on Dec. 17, referring to capital expenditures. We really have to see the whites of the eyes of the economic return characteristics to really commit.

Economic indicators are pointing to just a continued resilience, not exuberance, but resilience and expansion in the U.S. economy, Anderson added.

Todays report also included corporate profits. Before-tax earnings rose at a 1.9 percent rate after climbing at a 3.3 percent pace in the prior period. They increased 5.7 percent from the same time last year.

Profit growth continues to slow, even with the higher GDP.

Residential real estate is underpinning the economy, as rising prices boost household wealth and growing demand helps the industry overcome rising mortgage rates.

Home Construction

Home construction increased at a 10.3 percent annualized rate in the third quarter. While slower than the 13 percent pace previously reported, the figure primarily reflected revisions to brokers commissions and other ownership transfer costs, todays report showed.

Data from the Commerce Department this week showed that housing starts jumped 22.7 percent to a 1.09 million annualized rate, the most since February 2008, while permits for future projects also held near a five-year high, indicating that the pickup will be sustained into next year.

Slower growth in home construction and most homebuilders reporting flattish sales, especially after mortgage rates went up, and mortgage purchase apps continue to be down about 10% from last year as well. Let me suggest that 22% jump of the initial release of November housing starts seems suspect as there are no reports of a leap higher in home sales or construction from the housing companies or mortgage originators. And permits were in fact down.

Other signs show that fiscal drag, which weighed on growth during 2013, will start to ease. U.S. lawmakers this week passed the first bipartisan federal budget produced by a divided Congress in 27 years, easing $63 billion in automatic spending cuts and averting another government shutdown.

Yes, it could have been worse, but a variety of tax cuts do expire at year end, as do extended unemployment benefits. But the bottom line is the federal deficit (the ‘allowance’ the economy gets from Uncle Sam) is likely to fall to under $500 billion in 2014, after falling from just under $1 trillion in 2012 to just over 600 billion in 2013. And worse, the automatic stabilizers are extremely aggressive this time around, where 2% growth cuts the deficit maybe by as much as 4% growth cut it in past cycles.

Government outlays increased 0.4 percent in the third quarter, led by a 1.7 percent gain in state and local spending that was the same as the previous reading. Federal spending decreased 1.5 percent.

They fail to mention that state and local tax receipts also rose, so overall the closing of the state and local budget deficits from the recession means there is less fiscal support from the states.

Tighter fiscal policy has made stimulating the U.S. economy even more of an uphill battle for the Fed. The central bank this week announced it would scale back its bond-purchase program by $10 billion, to $75 billion a month, after seeing an improved outlook for the labor market.

This has been done in the face of a very tight, unusually tight fiscal policy for a recovery period, Chairman Ben S. Bernanke said Dec. 18 during a press conference at the conclusion of a meeting of the Federal Open Market Committee.

I’m hoping for a good economy as well, but with housing and cars- the main engines of domestic credit growth- coming off the boil, and Uncle Sam’s allowance payments to the economy (deficit spending) down to less than $50 billion/mo (3% of GDP%) and falling from closer to $80 billion/mo not long ago, seems to me the jury is still out.

A few of last week’s charts:

Posted in Credit, Deficit, Economic Releases, Employment, Equities, GDP | No Comments »

U.S. Light Vehicle Sales decline to 15.2 million annual rate in September

Posted by WARREN MOSLER on 1st October 2013

U.S. Light Vehicle Sales decline to 15.2 million annual rate in September

Posted in Economic Releases | No Comments »

China Beige Book Shows Slowdown, Opposite Official Data

Posted by WARREN MOSLER on 25th September 2013

So it’s a mixed message?
Western educated kids turning China into Japan as well?

China Beige Book Shows Slowdown, Opposite Official Data

September 25 (Bloomberg) — China’s economy slowed this quarter as growth in manufacturing and transportation weakened in contrast with official signs of an expansion pickup, a private survey showed.

Increases in business-investment and real estate revenue also slowed, while service industries picked up and employees became tougher to find, the survey from New York-based China Beige Book International said yesterday. The report is based on responses from 2,000 people from Aug. 12 to Sept. 4 as well as 32 in-depth interviews conducted later in September.

The quarterly report, which began last year and is modeled on the U.S. Federal Reserve’s Beige Book business survey, diverges from government figures showing faster factory-output gains in July and August that have spurred analysts from Citigroup Inc. to Deutsche Bank AG to raise expansion estimates. Nomura Holdings Inc. is among banks skeptical that any rebound will be sustained next year.

The results “show the conventional wisdom of a renewed, strong economic expansion in China to be seriously flawed,” China Beige Book President Leland Miller and Craig Charney, research and polling director, said in a statement.

The data “reveal weakening gains in profits, revenues, wages, employment and prices, all showing slipping growth on-quarter — no disaster, but certainly not the powerful expansion suggested by the consensus narrative.”

The benchmark Shanghai Composite Index of stocks fell 0.4 percent at the close, while the MSCI Asia Pacific Index was down 0.2 percent at 4:50 p.m. in Tokyo.

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Comments on research report

Posted by WARREN MOSLER on 30th August 2013

From DB,
Comments below:

Commentary for friday: the second print on Q2 GDP growth showed a significant upward revision to +2.5% from +1.7% as previously reported. Recall that growth was only +1.1% in Q1.

After the 3rd downward revision

Given that the deflator was revised a tenth higher (0.8% vs. 0.7% as previously reported), the magnitude of the overall revision is even more impressive. Personal consumption was unrevised at +1.8% in Q2,

Down from 2.3% in Q1 if I recall correctly

While business fixed investment was only modestly softer (+4.4% vs. +4.6%). Residential investment was also reduced slightly (+12.9% vs. +13.4%). The big changes to Q2 growth were in inventories and international trade. Inventory accumulation was lifted to $62.6b from $56.7b as first reported, thereby adding 0.6 ppt to growth compared to 0.4 ppt previously.

The question is voluntary to restock from a Q1 dip or sales growth forecast, or involuntary due to lower than expected sales.

In terms of trade, firmer exports and softer imports drove net exports to improve; as a result, the original -0.8 ppt drag from trade was revised up to zero.

Question is whether exports can be sustained through Q3 as the dollar spike vs Japan and then the EM’s hurts ‘competitiveness’

The government drag on Q2 was revised to become slightly larger (-0.2 ppt vs. -0.1 ppt as first reported). Nonetheless, the federal government drag on economic activity has diminished significantly compared to the impact in Q1 (-0.7 ppt) and Q4 2012 (-1.2 ppt). A diminished drag from the public sector should enable overall GDP growth, which was +1.6% year-on-year in Q2, to close the gap with private sector growth, which was +2.5% over the same period.

I see it this way- the govt deficit spending is a net add of spending/income. So with the deficit dropping from 7% of GDP last year to maybe 3% currently, with maybe 2% of the drop from proactive fiscal initiatives, some other agent has to be spending more than his income to sustain sales/incomes etc. If not, output goes unsold/rising inventories and then unproduced. The needed spending to ‘fill the spending gap’ left by govt cutbacks can come from either domestic credit expansion or increased net exports (no resident credit expansion/savings reductions. I don’t detect the domestic credit expansion and net export growth/trade deficit reduction seems likely given the dollar spike and oil price spike?

If we achieve +3.0% growth in the current quarter and +3.5% in Q4, this will push the year-on-year rate to +1.7% in Q3 and +2.5% by yearend. (this is in line with the Fed’s central tendency forecasts, which are due to be updated at the september FOMC meeting.)

In order for our growth forecast to come to fruition, we will need to see a pickup in consumer spending,

Hard to fathom, as personal consumption has been slipping from 2.3 in Q1 to 1.8 in Q2, and walmart and the like sure aren’t seeing any material uptick in sales? Car sales are ok, but further gains from the June high rate seems doubtful as July has already posted a slower annual rate.

homebuilding and business investment relative to first half performance. The first two series are likely to be boosted by sturdier employment gains, and hence faster household income growth.

Seems early Q3 reports show falling mtg purchase applications, home sales falling month to month, and lots of anecdotals showing the spike in mtg rates has slowed things down. So growth from Q2 seems unlikely at this point?

We are confident that the pace of hiring will pick up in the relatively near term, because jobless claims continue to hold near cyclical lows.

New jobs dropped to 160,000 in july, and claims measure people losing their jobs, not new hires. Also, top line growth, the ultimate driver of employment, remains low, so assuming actual productivity hasn’t gone negative a spike in jobs is unlikely?

Given the usefulness of jobless claims as a payroll forecasting tool, it should come as little surprise that they are also significantly correlated with wage and salary growth. In fact, over the past 25 years, the current level of jobless claims has typically coincided with private wage and salary growth above 6% compared to 3.8% in Q2.

As above, claims may have correlated with all that in the past, but the causation isn’t there. Looks to me like claims are more associated with ‘time from the bottom’ as with time after the economy bottoms firings tend to slow, regardless of hiring?

Meanwhile, the third growth driver noted above—business investment—will largely depend on the corporate profit trend. Yesterday’s second print on GDP provided the first look at economy-wide corporate profits, which rose +3.9% in Q2 vs. -1.3% in Q1. Many analysts fretted the decline in profits in Q1, because they tend to drive business investment and hiring plans. We dismissed the Q1 weakness as a temporary development which occurred in lagged response to the growth slowdown in Q4 2012 and Q1 2013. The fact that profits are reaccelerating (+5.0% year-on-year versus +2.1% in Q1) is an encouraging development in this regard.

Profits also are a function of sales, which are a function of ‘deficit spending’ from either govt or other sectors, as previously discussed. And, again, i see no signs of ‘leaping ahead’ in any of those sectors.

Faster GDP growth through yearend should result in even stronger corporate profit growth.

Agreed! But didn’t he just say that the GDP growth would come from business investment that’s a function of profits (and in turn a function of sales/GDP)?

To be sure, the additional growth momentum now evident in the Q2 GDP results makes our 3% target for current quarter growth more easily attainable. –CR

I don’t see how inventory growth is ‘momentum’ and seems there are severe headwinds to Q3 net exports as drivers of growth?

And govt is there with a deficit of only 3% of GDP to help offset the relentless ‘unspent income’/demand leakages inherent in the global institutional structure.

Posted in Comodities, Currencies, Economic Releases, Employment, Fed, GDP, Government Spending, Oil | No Comments »

GDP and Jobs

Posted by WARREN MOSLER on 16th July 2013

GDP measures domestic spending on output, and when it falls for any reason there is that much less reason to employ, unless productivity is falling fast enough, which generally isn’t the case.

When govt ‘gets out of the way’ with sequesters, income and jobs vanish, as does spending that depended on that income and employment. Likewise, tax increases remove funds that were supporting spending, output, and employment. Of note I just read that consumer spending is now forecast to decelerate further to something under 3% for Q2.

What ‘remains’ is an economy with that much less ‘external funding’, which is then relying on ‘internal’ increased deficit spending to fund its ongoing demand leakages. Not to forget the ‘automatic fiscal stabilizers’ which means to grow the ‘forces of growth’ have to be strong enough (enough credit expansion) to accommodate govt incrementally removing funding via higher tax payments and reduced transfer payments associated with growth.

Meanwhile, markets are supported by confidence that QE is the ‘Bernanke put’/safety net that can reverse any decline by simply increasing it as needed, when in fact we are flying without a net.

And the trajectory, to me, at the moment, continues to look downward- the stuff of bursting bubbles.

Today’s industrial production releases, attached, support the same continuing modest deceleration theme.

So let’s hope mtg apps are up sharply tomorrow, and claims down sharply Thursday!

Real GDP QOQ SA vs Non Farm Payrolls MOM

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Industrial Production Monthly and YOY

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Posted in Economic Releases, Employment, GDP, USA | No Comments »

Consumer Credit Year Over Year

Posted by WARREN MOSLER on 9th July 2013

I keep looking for domestic credit expansion, to fill the ‘spending gap’ left by the tax hikes and sequesters.

The headline uptick in consumer credit looked promising, but seems there’s some kind of ‘seasonal’ factor at work, as it’s done this every year for the last three years, so the year over year change isn’t showing any signs of life.

Nor is mortgage debt outstanding or any other measure of lending that I’ve seen showing any material growth.

I’m now hearing Q2 GDP growth estimates are down to +1 to + 1.5% or so. This is to be expected when the federal deficit reduction measures aren’t being ‘offset’ by domestic credit expansion and/or increased net exports. In fact, the higher than expected trade deficit was the latest thing to pushing down GDP estimates.

Worse, with a bit of a lag, lower GDP growth = lower sales growth= lower job growth (presuming ‘productivity’ doesn’t collapse) and then the lower job growth feeds back into lower sales, etc.

So yes, more jobs mean more income for those working, but without sales and earnings growth their paychecks reduce corporate incomes which then drives ‘negative adjustments’ in hiring policy, etc.

The answer, as always, is quite simple- cut taxes and/or increase govt spending, depending on one’s politics.

Unfortunately govt- and not just our govt, but all govt that I know of- is still going the other way and continuing to make things worse.

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Posted in Credit, Economic Releases, Government Spending, Uncategorized, USA | No Comments »

uh oh…

Posted by WARREN MOSLER on 16th May 2013

>   (email exchange)
>   On May 16, 2013 8:31 AM, wrote:
>   Weak data and lower CPI, bond positive


Very bad news
Confirming my fears



Credit accelerator going into reverse?
Too small deficit to get larger the ugly way?

Posted in Economic Releases | No Comments »

another one rolling over

Posted by WARREN MOSLER on 7th May 2013

April Caps Off Continuing Weak Rail Trends

By Cullen Roche

Posted in Economic Releases | No Comments »

Today’s numbers

Posted by WARREN MOSLER on 3rd May 2013

Yes, payrolls were better than expected, and the past was revised up some.

But looking at the charts as they now stand, looks to me like they are all down and decelerating?

Non-manufacturing ISM:

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Factory Orders:

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Posted in Economic Releases, Employment | No Comments »