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Archive for the 'Government Spending' Category

Who’s ‘we’?

Posted by WARREN MOSLER on 30th September 2014

And they still are?

The idea that the deficit is too small remains a non starter for the mainstream. In the face of all evidence to the contrary, including over 2 decades of it in Japan, they continue to believe ‘monetary policy’/low rates and QE supports aggregate demand.


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Case-Shiller housing price index

Posted by WARREN MOSLER on 30th September 2014

Looks to me like this business cycle is over?

This is a lack of demand story.

The FICA hike in Jan 2013, followed by the sequesters in April, and the aggressive automatic fiscal stabilizers doing their thing to reduce govt net spending add up to the walls coming in on the economy:

S&P Case-Shiller HPI


Highlights
Home prices were contracting sharply in July, down 0.5 percent for the third straight decline and the steepest monthly decline in Case-Shiller 20-city seasonally adjusted data going all the way back to November 2011. The reading is below the low end of the Econoday consensus and far below the 0.1 percent gain that was expected. The year-on-year rate, which has been coming down steadily all year from the low double digits, is at plus 6.7 percent for the lowest reading since November 2012 and down sharply from 8.0 percent in June.

Fourteen for the 20-city sample show declines in the month with Chicago and Minneapolis showing the most severe declines, at minus 1.6 percent in the month. Three cities show no change leaving three with gains led by Las Vegas at only plus 0.3 percent.

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The first L shaped US ‘recovery’

Posted by WARREN MOSLER on 22nd September 2014

Some 5 years ago when the talk was about whether the US recovery was going to be V shaped or U shaped, I suggested that it would be more L shaped, as a 0 rate policy requires a larger deficit, etc. That is, after a sharp fall it would go sideways.

Here are a few illustrative charts:

Adjusting this next one for population growth makes the point even more:

The growth rate of personal consumption has leveled off at over half of prior cycles:

And looks like deep down ‘those demon banks’ haven’t fared all that well either:

Posted in Banking, Deficit, Government Spending, Housing | No Comments »

Construction, gasoline prices, manufacturing, state and local contribution to gdp, restaurant performance index, saudi output, sun spots

Posted by WARREN MOSLER on 3rd September 2014

Headlines sound a lot better than the charts look.

Absolute levels and growth rates continue to fall short of prior cycles:

Construction Spending


Highlights
Construction outlays saw a broad-based gain in July. Construction spending rebounded 1.8 percent after a 0.9 percent dip in June. While all broad categories advanced, July’s increase was led by the public sector-up 3.0 percent, following a 1.8 percent decrease in June. Private nonresidential spending rebounded 2.1 percent in July after slipping 0.8 percent the month before. Private residential outlays gained 0.7 percent, following a 0.4 percent dip in June.

On a year-ago basis, total outlays were up 8.2 percent in July, compared to 7.0 percent the month before.

Overall, the latest construction data add to third quarter momentum. Third quarter GDP estimates will likely be nudged up. There is a lot of recent volatility in construction data but the residential gain is encouraging.

Unadjusted Construction Spending – Three Month Rolling Average Compared to the Rolling Average One Year Ago


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This helps consumers some and also puts downward pressure on ‘inflation’:


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Manufacturing continues to do reasonably well, chugging along about the way it always does until the cycle ends:


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Don’t be misled by the talk of state and local govt contributing to GDP. The spending side is only half the story- they also tax. So you need to look at state and local govt deficits to get an idea of their net contribution:

This is the spending side:


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It’s a bit tricky as you don’t want to double count federal $ spent by the states:

Sure enough, tax receipts which tend to be highly cyclical, going up when the economy does better, seem to have stalled, and state and local deficits have gone up. So is that an indicator of growth?

And it looks like state and local deficits did go up a tad, but not a lot:

And this just came out:


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The call on Saudi oil shows no signs of diminishing which they remain as ‘swing producer/price setter’, setting price and letting quantity adjust with demand:


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And this:
;)


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

Charts and data from the last few days

Posted by WARREN MOSLER on 28th August 2014

Down for the cold winter then back up some, and a very weak first half of the year, and Q3 fading from Q2:

GDP


Highlights
The second estimate for second quarter GDP growth came in a little stronger than expected, rising 4.2 percent annualized versus a 4.0 percent forecast and coming off a 2.1 percent weather related drop in the first quarter. With this second estimate for the second quarter, the general picture of economic growth remains the same; the increase in nonresidential fixed investment was larger than previously estimated, while the increase in private inventory investment was smaller than previously estimated.

Real final sales of domestic product-GDP less change in private inventories-increased 2.8 percent in the second quarter, in contrast to a decrease of 1.0 percent in the first. Real final sales to domestic purchasers gained 3.1 percent versus 0.7 in the first quarter.

Chain-weighted prices gained 2.1 percent annualized, compared to the consensus for 2.0 percent and the first quarter number of 1.3 percent.

Overall, the weather-related rebound in the second quarter was stronger than expected. Personal spending made a comeback and inventories were rebuilt. The economy is gradually regaining momentum-emphasis on gradually.

Corporate Profits

Again, for growth this year to exceed last year, all the components on average have to grow more than they did last year:

NAR: Pending Home Sales Index increased 3.3% in July, down 2.1% year-over-year

By Bill McBride

From the NAR: Pending Home Sales Pick Up in July

The Pending Home Sales Index, a forward-looking indicator based on contract signings, climbed 3.3 percent to 105.9 in July from 102.5 in June, but is still 2.1 percent below July 2013 (108.2). The index is at its highest level since August 2013 (107.1) and is above 100 – considered an average level of contract activity – for the third consecutive month.

With purchase apps down 11% year over year and cash purchases down it’s hard to see how total sales can grow?

MBA Purchase Applications

Highlights
Demand for purchase applications picked up in the August 22 week, rising 3.0 percent. But the trend remains stubbornly flat, down 11.0 percent year-on-year. The index for refinancing applications also rose 3.0 percent in the week. Mortgage rates were little changed in the week with the average for conforming loans ($417,000 or less) down 1 basis point to 4.28 percent.

Falling home prices are not a good sign:

S&P Case-Shiller HPI


Highlights
Home price appreciation continues to unwind as S&P Case-Shiller 20-city adjusted data show a 0.2 percent decline in June following a 0.3 percent in May. Year-on-year, the adjusted rate is plus 8.1 percent vs 9.3 percent in May. Monthly declines swept 13 of the 20 cities with Minneapolis, Detroit, Atlanta and Chicago showing special weakness.

Unadjusted data, which are followed in this report, show a monthly gain of 1.0 percent that reflects the relative strength of summer months for sales. But the year-on-year rate, where this effect is offset, tells exactly the same story as the adjusted data, at 8.1 percent vs 9.3 percent in the prior month.

Home prices are weakening, based not only on this report but also on FHFA data, also released this morning, and on yesterday’s new home sales report as well as last week’s existing home sales report. Easing home prices are a plus for sales but a negative of course for homeowner wealth.

Durable Goods Orders


Highlights
Durables orders soared in July due aircraft orders but otherwise came off a moderately strong core number in June. New factory orders for durables soared a monthly 22.6 percent in July, following a 2.7 percent boost in June. Econoday’s consensus called for a 5.1 percent gain in July. The high end of forecasts was 24.5 percent.

Excluding transportation, durables orders slipped 0.8 percent, following a 3.0 boost in June. Analysts forecast a 0.4 percent rise for July. But June earlier had been estimated to be up “only” 1.9 percent from the full factory orders report.

Transportation spiked a monthly 74.2 percent after rising 2.1 percent in June. Nondefense aircraft (Boeing) surged 318.0 percent (that is not a typo) after gaining 11.1 percent in June. Another but more moderate positive was motor vehicle orders which gained 10.2 percent, following a 1.3 percent dip in June. Defense aircraft fell 28.8 percent in July, following a rise of 9.2 percent the month before.

Outside of transportation, gains were limited with “other” gaining. Other categories slipped but followed upward revisions to June.

Orders for equipment investment edged down in July but followed a strong June. Nondefense capital goods orders excluding aircraft declined 0.5 percent, following a spike of 5.4 percent the month before. Shipments of this series, however, were positive, gaining 1.5 percent in July, following an increase of 0.9 percent in June. The latest shipments numbers suggest a favorable number for business equipment in third quarter GDP.

The Boeing order gets filled over approximately the next 10 years:

Posted in GDP, Government Spending, Housing | No Comments »

Real Fiscal Responsibility Today Radio and TV Show pilots

Posted by WARREN MOSLER on 20th August 2014

The Real Fiscal Responsibility Talk Show Pilot Project

This project is for everyone tired of hearing economic commentary from those who got everything wrong. For decades the the doctrine of “Fiscal Responsibility” interpreted as long-term deficit reduction and Government austerity has had a secure place in American politics. The three of us proposing this project believe that this doctrine is the economic equivalent of the medieval notion that patients must be bled to cure them of disease.

The notion that austerity is necessary after running budget deficits caused by economic downturns is false and damaging to economies all over the world. We have opposed targeted deficit reduction and austerity in the blogosphere and in an e-book since 2010. Yet despite our efforts and the efforts of many others who using the Modern Money Theory (MMT) approach to economics, as well as other post-Keynesians, the mythology of austerity still survives, waiting in the wings until the next debt ceiling or budgetary crisis provides an opportunity for austerity partisans to push their nostrums of spending cuts and “Grand Bargains” once again.

We value Real Fiscal Responsibility highly, but that doesn’t lie in targeted deficit reduction, or in spending cuts for their own sake. Instead, it lies in targeting real impacts, real benefits, and real results, and fulfilling the needs of real people. We want to replace the false and damaging austerian accountant’s green eyeshade paradigm of so-called Fiscal Responsibility, evaluated against the arbitrary standards and scare tactics of debt-to-GDP ratios and public debt levels, with the human scale paradigm of Real Fiscal Responsibility, evaluated against the standard of fulfilling public purpose.

We seek funding for a pilot project for a new radio/video series that will present, and advocate for this paradigm change. The project will create six shows that we will then use to get the series picked up by an existing cable network.

Please visit the donation page.

Posted in Deficit, GDP, Government Spending | No Comments »

taking away the punch bowl

Posted by WARREN MOSLER on 20th August 2014


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Pending home sales and why housing matters

Posted by WARREN MOSLER on 28th July 2014

NAR: Pending Home Sales Index decreased 1.1% in June, down 7.3% year-over-year

By Bill McBride

From the NAR: Pending Home Sales Slip in June

The Pending Home Sales Index, a forward-looking indicator based on contract signings, declined 1.1 percent to 102.7 in June from 103.8 in May, and is 7.3 percent below June 2013 (110.8). Despite June’s decrease, the index is above 100 – considered an average level of contract activity – for the second consecutive month after failing to reach the mark since November 2013 (100.7).

The PHSI in the Northeast fell 2.9 percent to 83.8 in June, and is 3.2 percent below a year ago. In the Midwest the index rose 1.1 percent to 106.6, but remains 5.5 percent below June 2013.

Pending home sales in the South dipped 2.4 percent to an index of 113.8 in June, and is 4.3 percent below a year ago. The index in the West inched 0.2 percent in June to 95.7, but remains 16.7 percent below June 2013.

Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in July and August.

So manufacturing is chugging along at it’s usual 4% rate of growth, jobs are chugging along at a 1.9% rate of growth, and for the most part all the surveys are looking pretty good.

Yet GDP year over year looks to be trending down, with the consensus 2014 forecast now down less then 2%.


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So why does housing matter?
Can’t spending simply go elsewhere?

The problem is the oldest of all macro constraints-

If any agent spends less than his income, another must spend more than his income for all of the output to get sold.

It’s also been expressed as ‘the paradox of thrift’- decisions to not spend income and to instead ‘save’ cause sales and income to fall with no increase in net savings.

And it shows up in this discussion- ‘if the banks charge interest, where does the economy get the money to pay it?’ With the response ‘the banks spend the interest income’.

And if the banks don’t spend their income it’s the same unspent income problem as with any unspent income.

Unspent income is also known as a demand leakage.

And in the normal course of business, the US has all kinds of demand leakages going on, many due to tax advantages, including pension contributions (and pension fund earnings), additions to IRA’s, insurance reserves, bank reserves, foreign central bank dollar reserves,
etc. etc. etc.

This means that much output won’t get sold unless other agents spend more than their incomes. This includes the US govt spending more than its income (the dreaded deficit), as well as corporations spending more than their earnings, and consumers borrowing to spend more than their incomes.

Which is where housing comes in. Historically it’s been the engine of ‘borrowing to spend’ to offset the demand leakages, driving the economy even as the automatic fiscal stabilizers work to bring down the govt’s deficit spending. This includes the borrowing to spend that turned into the sub prime fiasco, the Clinton housing boom that combined with the .com and y2k borrowing to spend, and the $1 trillion+ S and L financing/fraud that drove the Reagan years back when that was a lot of money.

Yes, the business sector can materially borrow to spend to close the output gap. It falls under ‘investment’, including construction, and many would argue it’s the preferred way to go. And this would include new equity issues as well as borrowings ‘further up the credit stack’, as long as it’s ‘borrowing to spend’ on real goods and services- the output- GDP. So yes, there’s some of that going on, which is encouraging, but not nearly enough to overcome the demand leakages they way it did in the late 90′s.

So again, historically, it’s been new housing that has been the prime channel for private sector agents to spend more than their incomes.
Yes, they can spend on other things, but it’s highly problematic for that spending to result in anything near the mortgage debt of prior cycles.

That is, instead of a 200,000 mortgage on a house, the same family would have to borrow 200,000 to spend elsewhere to similarly support the economy/accommodate the savings desires of those wishing to spend less then their incomes. Buying a car does some of that, and maybe a few appliances, or a student loan.

But overall, seems to me that kind of thing can’t ever be enough to ‘close the output gap.’

And with the politicians measuring success by their deficit reduction efforts, the macro constraint of unspent income only gets worse.

So housing matters a lot as it looks to be the only available avenue for the economy to spend more than its income in sufficient quantities to overcome the demand leakages.

Posted in Credit, Government Spending, Housing | No Comments »

Federal government tax receipts

Posted by WARREN MOSLER on 14th July 2014

Federal government current tax receipts: Personal current taxes


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Federal government current receipts: Contributions for government social insurance


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The automatic fiscal stabilizers got some help from the FICA hike to cut net govt spending and throw a wet blanket over growth and maybe take a year or two off the duration of this cycle.

Lots of indicators looking very late cycle to me now.

This year’s deficit is now running less than 3% of GDP- about the same as the EU.
:(

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IMF’s Lagarde hints at world growth forecast cut – Reuters

Posted by WARREN MOSLER on 7th July 2014

And remains ‘part of the problem’ vs ‘part of the solution’

Reuters noted comments from IMF chief Christine Lagarde, who said that global economic activity should strengthen in the second half of the year and accelerate through 2015, although momentum could be weaker than expected.

She said that central banks’ accommodative policies may only have limited impact on demand and that countries should boost growth by investing in infrastructure, education and health, provided their debt is sustainable.

She highlighted that the IMF’s update of its global economic outlook, expected later this month, will be “very slightly different” from the forecasts published in April. In addition, she noted that the US economy was rebounding after a disappointing first quarter, while it did not anticipate a brutal slowdown in China but rather a slight slowdown in output.

Posted in Deficit, Government Spending | No Comments »

German unemployment at 6.7%

Posted by WARREN MOSLER on 1st July 2014

Shows how far economic expectations have deteriorated when this kind of a whopping output gap is considered to be an unquestioned success and the envy of the euro zone, as well as most of the world.

Taxation creates unemployment (people seeking paid work), by design, as a simple point of logic.

So what sense does it make for a government to create more unemployed than it wants to hire to provision itself, and then let all those people remain unemployed?

Seems they would either hire the rest of the unemployed their tax created, or lower the tax. But that’s just me…

German Unemployment Unexpectedly Rises for Second Month

By Stefan Riecher and Alessandro Speciale

July 1 (Bloomberg) — German unemployment unexpectedly increased for a second month amid signs of a slowdown in Europe’s largest economy.

The number of people out of work rose a seasonally adjusted 9,000 to 2.916 million in June, the Nuremberg-based Federal Labor Agency said today. Economists forecast a decline of 10,000, according to the median of 24 estimates in a Bloomberg News survey. The adjusted jobless rate was unchanged at 6.7 percent, the lowest level in more than two decades.

Posted in Employment, Germany, Government Spending | No Comments »

Warsaw conference

Posted by WARREN MOSLER on 30th June 2014

Posted in Deficit, GDP, Government Spending, Political | No Comments »

Big snap back in second quarter growth less likely

Posted by WARREN MOSLER on 26th June 2014

No mention yet of the deficit being too small…

At sub 3% we comply with the Maastricht limits.
Maybe the plan is to join the euro?
Why else would we allow this?
;)

Big snap back in second quarter growth less likely

By Patti Domm

(CNBC) — After a shocking contraction in first quarter GDP, economists on Thursday pared back growth forecasts for the second quarter due to weaker consumer spending.

Consumer spending in May rose just 0.2 percent, half of what was expected, after being flat in April. Spending by consumers accounts for more than two-thirds of U.S. economic activity, and the lowered growth forecasts now raise concerns that the economy will not be able to rebound to the more than a 3 percent growth rate widely expected for the balance of the year.

Goldman Sachs economists trimmed second quarter tracking GDP to 3.5 percent from 4.1 percent, and Barclays economists said tracking GDP for the second quarter fell to 2.9 percent from 4 percent. At a pace below 3 percent, the economy could show contraction for the first half due to the steep first quarter decline of 2.9 percent.

The median estimate for second quarter GDP fell by a half percent to 3 percent, according to the CNBC Rapid Update of economists forecasts.

Posted in GDP, Government Spending | No Comments »

charts and comments GDP, durables, mtg apps, etc.

Posted by WARREN MOSLER on 25th June 2014

>   
>   On Wed, Jun 25, 2014 at 8:52 AM, Sheraz wrote:
>   
>   Very weak US numbers
>   

And not one ‘nice call’ email!!!

And yesterday’s stock market action suggests a possible data leak???
:(

US 1Q GDP has been revised lower by far than expected. After having initially been reported as a 0.1% rise, then a 1% contraction, the third release shows that GDP growth is now reported as -2.9 QoQ% annualised, which leaves annual growth at just 1.5%YoY.



The consensus expectation was for a -1.8% reading. The damage was largely done through the private consumption component, which is now reported as rising just 1% versus 3.1% previously.

Also ‘smoothing’ from numbers that looked high to me in H2 and an adjustment to ACA related healthcare expenses previously booked as PCE:


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Gross private investment remained an 11.7% contraction

Maybe after a Q4 surge due to expiring tax credits?


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while government consumption was left at -0.8%. However, exports were revised down and imports revised up meaning that the contribution from net trade is to subtract 1.5% from GDP growth rather than 0.95% as previously announced.

Reversing a similar, prior blip up, as previously discussed:


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Nonetheless, reaction should be fairly muted given widespread expectations of a sharp bounceback in 2Q14 and the fact that the weather had such a damaging impact on 1Q activity. Indeed, we suspect that we could see GDP rise by more than 5% annualised in 2Q.

And if so, H1 would be +1% :(

High frequency numbers for the quarter have looked good while inventories should also make a significantly positive contribution after having been run down sharply.

After having been run up in H2. We’ll see where they go from here.

And, as previously discussed after the jump up in Q3, inventory accumulation seldom leads a boom:


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Mortgage purchase apps still dismal:

According to the MBA, the unadjusted purchase index is down about 18% from a year ago.


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And May durables not so good either:

Highlights
Durables orders were much weaker than expected for May. Durables orders fell 1.0 percent in May after rising 0.8 percent in April. Analysts forecast 0.4 percent. Excluding transportation, orders slipped 0.1 percent, following a 0.4 percent gain in April. Market expectations were for 0.3 percent.

Transportation fell 3.0 percent after a 1.7 percent rise in April. The latest dip was from weakness in nondefense aircraft. Motor vehicles and defense aircraft orders rose.

Outside of transportation, gains were seen in primary metals, fabricated metals, and “other.” Declines were posted for machinery, computers & electronics, and electrical equipment.

On a positive note, there was improvement in equipment investment. Nondefense capital goods orders excluding aircraft rebounded 0.7 percent in May after decreasing 1.1 percent the month before. Shipments of this series rebounded 0.4 percent after a 0.4 percent dip in April.

The good news is this series is muddling along ok:


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The latest durables report is in contrast to recently positive regional manufacturing surveys and also the sharp jump in manufacturing production worker hours of 0.8 percent for May. But durables data are very volatile and we likely need a couple of more months of data before taking a negative tone on this sector.

The next leg to fall may be employment, as the 1.2 million people who lost long term benefits at year end may have been taking menial jobs at the rate of maybe 75,000/month or more for 6 months or so, which may have front loaded the monthly jobs numbers. If so, monthly job gains may fall into the 100,000 range soon.

So in general it was down for the winter, back up some, and we’ll see what happens next.

The ‘survey’ numbers and professional forecasts look promising, however it still looks to me like we are under the macro constraint of a too low govt deficit that’s struggling to keep up with the unspent income/demand leakages, with scant evidence of help from growth in private credit expansion.

And I tend to agree with Fed Chair Yellen here, which would tend to keep rates lower/longer if she gets her way. However I don’t agree that low rates somehow support aggregate demand, so I don’t see the likelihood of any call from the Fed or other forecasters for the fiscal relaxation I’ve been proposing.

Yellen may be poised to rewrite Fed’s rule book on wages, inflation

June 25 (Reuters) — “My own expectation is that, as the labor market begins to tighten, we will see wage growth pick up some to the point where … nominal wages are rising more rapidly than inflation, so households are getting a real increase in their take home pay,” Federal Reserve Chair Janet Yellen said last week, adding: “If we were to fail to see that, frankly, I would worry about downside risk to consumer spending.” Over the last year Fed staff changed their main model for forecasting wage and price inflation to reflect evidence that companies were adjusting prices more slowly than in prior years.

My immediate proposals remain 1) A full FICA suspension, which raises take home pay by 7.6%, and, for businesses that are competitive, lowers prices as well, restoring sales/output/employment in short order 2) A $10/hr federally funded transition job for anyone willing and able to work to promote the transition from unemployment to private sector employment 3) A permanent 0 rate policy with Tsy issuance limited to 3 mo bills. 4) Unrestricted campaign contributions, however, say, 40% of any contribution goes to the opposition…

Posted in Employment, Fed, GDP, Government Spending, Political | No Comments »

housing starts and other charts

Posted by WARREN MOSLER on 17th June 2014

Same pattern- down some for the winter, up some, then backing off some.

If this is in fact what’s happening, Q2 GDP could be up less than 3%, and 2014 sub 2%, or even sub 0, if the demand leakages are allowed to keep the upper hand and a fiscal adjustment isn’t made.

“The Business Roundtable survey showed chief executives forecast GDP growth of 2.3 percent in 2014, down from last quarter’s estimate of 2.4 percent for the year.”

“Federal Reserve Chair Janet Yellen said last month there was a risk a protracted housing slowdown could undermine the economy.”

Housing Starts

Highlights
Housing took a step back in May. Starts fell a monthly 6.5 percent but followed a strong 12.7 percent spike in April. The 1.001 million unit pace was up 9.4 percent on a year-ago basis and fell short of expected 1.036 million units.

Single-family starts dropped 5.9 percent after a 4.6 percent rise. Multifamily starts declined 7.6 percent, following a 29.2 percent spike in April.

Building permits followed a similar pattern, suggesting some moderation in construction. Permits fell 6.4 percent after a 5.9 percent rise in April. Permits posted at 0.991 million units and were down 1.9 percent on a year-ago basis. Analysts forecast 1.062 million units.

Builder was up some, but has remained below 50 for 5 months, and by historical standards remains dismal:


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Industrial production/manufacturing was up some yesterday, but it’s a relatively small part of the economy and seems to chug along at 3-4% annual growth rates.

“The core CPI was lifted by a 0.3 percent rise in rent. There were also increases in medical care costs, apparel, new cars prices and airline fares.”

This doesn’t read to me like an ‘excessive demand problem’ that higher rates would reverse. But that’s just me. I agree the Fed may think otherwise!

Posted in Government Spending, Housing, Inflation | No Comments »

per student funding drops

Posted by WARREN MOSLER on 13th June 2014

Posted in Government Spending | No Comments »

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

Highlights
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:


Full size image

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

Highlights
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 »

New home sales

Posted by WARREN MOSLER on 23rd May 2014

Another uninspiring chart, as sales dipped with the cold weather and only partially recovered, down vs same month last year, and, at best, looking very flat as we enter the ‘prime selling season’

Not to mention inventories are up and the composition of sales was towards condos, last I read:

Highlights



April did provide a spring lift to the housing sector at least compared to March, evident in yesterday’s report on existing home sales and especially evident in today’s 6.4 percent jump in new home sales to a higher-than-expected 433,000 annual rate. Also positive is an upward net revision of 11,000 to the two prior months.

A dip in prices contributed to April’s sales strength with the median price down 2.1 percent to $275,800. Year-on-year, the median price is at minus 1.3 percent for only the second negative reading since July 2012. Prices are now in line with sales where the year-on-year rate is minus 4.2 percent.

But, unlike the existing home sales report that shows a sudden swelling in supply, supply on the new home side remains scarce and will remain a negative for sales. Supply was hardly changed on the month, at 192,000 units for sale, while supply at the current sales rate fell to 5.3 months from March’s 5.6 months.

The new home market got an April bounce but against a very weak March. In context, April’s 433,000 is the second weakest rate of the last seven months. Still, the gain is welcome and should give a slight boost to the housing outlook. The Dow is holding at opening highs following today’s report.

Just landed Portland and still somewhat out of close touch.

My concerns remain that the too small federal deficit is keeping a lid on aggregate demand as the demand leakages continue, and the automatic fiscal stabilizers keep tightening the noose even with modest levels of growth.

It’s also possible the monthly employment numbers have been supported by the 1.2 million who lost benefits at year end taking ‘menial’ jobs, which would ‘front load’ jobs to the first several months of 2014, followed by lower than otherwise increases subsequently.

Early car sales forecasts are coming in just over 16 million, so that chart would continue it’s flattish appearance as well.

I’m thinking June numbers will show whether this economy can keep it’s head up with credit expansion sufficient to replace the reduction in govt deficit spending, or head south.

Posted in Government Spending, Housing | No Comments »

French spending cuts outlined

Posted by WARREN MOSLER on 17th April 2014

French Prime Minister Manuel Valls Outlines Spending Cuts

(WSJ) French Prime Minister Manuel Valls unveiled some details as to how the government aims to extract €50 billion ($69 billion) in savings between 2015 and 2017.

Almost reads like he knows savings comes from deficit spending!
;)

Mr. Valls indicated for the first time that the government is prepared to take aim at politically sensitive areas of France’s welfare state to achieve the savings, including freezing benefit and pension payments at current levels for the next year. He also said a freeze in the basic pay of civil servants would continue.

Since the price level is ultimately a function of prices paid by govt, this type of thing is a highly disinflationary force.

“I am obliged to tell the truth to French people. Our public spending represents 57% of our national wealth. We can’t live beyond our means,” Mr. Valls said.

Which is true under their current institutional arrangements. So seemes no move to ‘change the rules’

Mr. Valls said the central state would account for €18 billion of the savings; local authorities €11 billion; health care €10 billion; and social security €11 billion.

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CBO estimates lower deficits as health subsidies fall

Posted by WARREN MOSLER on 14th April 2014

As suspected Obamacare doesn’t add to the deficit, otherwise the Republicans would have let us know for sure!

However, it also means it’s a pro active contractionary bias that will make it that much harder for GDP growth to meet expectations this year.

CBO estimates slightly lower deficits as health subsidies fall

April 14 (Reuters) — U.S. budget deficits over the next decade will be $286 billion less than previously estimated, the Congressional Budget Office said on Monday, attributing much of the decline to lower estimates of subsidy costs under President Barack Obama’s health insurance reform law.

The non-partisan CBO, in revisions to its annual budget estimates, said the fiscal 2014 deficit would fall to $492 billion from $514 billion estimated in February. The forecasts assume no changes to current tax and spending laws.

The agency attributed the current year’s decline to technical revisions to the way it estimates spending on discretionary programs. But from fiscal 2015 onwards, it estimates a $186 billion decline in outlays for health insurance subsidies under the Affordable Care Act, commonly known as Obamacare.

This reflects a lower projection of premiums charged for health care plans offered through government-run exchanges, CBO said, based on an updated analysis of plans now being offered.

Overall, the budget referee agency now projects cumulative 10-year deficits at $7.62 trillion compared to its previous forecast of $7.9 trillion.

In addition to the lower health insurance subsidy costs, CBO also estimated a $98 billion 10-year reduction in Medicare outlays due to lower spending on prescription drugs and hospital insurance. Medicaid, the health care program for the poor, would see a $29 billion reduction, CBO said.

CBO lowered its 10-year cost estimate for the federal food stamps program by $24 billion, based on new data from the Department of Agriculture on monthly average benefits.

But the CBO left intact its previous economic projections, which envision rising deficits after 2015 as more of the massive “baby boom” generation retires or drops out of the workforce.

Deficits will reach a low point of $469 billion, or 2.6 percent of U.S. economic output, in 2015, then gradually start to rise, topping $1 trillion again in 2023 and 2024.

U.S. deficits exceeded that dollar amount during each of the first four years of Obama’s administration as the economy recovered slowly from the worst recession since the 1930s, falling to $680 billion in fiscal 2013.

Posted in Government Spending | No Comments »