Bank loans, Japan savings, Comments on the economy

Accelerated with the shale boom, still decelerating with the shale bust:

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Problem is incentives to not spend income, as below, reduce sales, output, and employment. That is, they’ve got it backwards if the goal is increased GDP etc.

Japan mulls longer-term tax break for savers

Aug 18 (Nikkei) — The Japanese government plans to offer a new option for tax-free investment accounts featuring a much longer exemption. More than 10 million of the so-called NISA accounts were opened between the program’s 2014 launch and this past March. But the rate of new sign-ups is slowing, and just over half of the accounts have never been used. Only a handful of people hit the 1.2 million-yen ($11,900) annual investment limit. The NISA accounts allow individuals to accumulate wealth for up to five years without paying taxes on capital gains or dividends on investments in stocks and mutual funds.

Someone agrees with me!

The truth is the economy is most likely already in a recession and there never was a viable economic recovery. Investors need to keep their eyes open as equity prices march further into all-time high territory. And, most importantly, have a strategy to protect their portfolios once sanity returns to the market.
http://www.cnbc.com/2016/08/18/heres-proof-that-the-economic-recovery-is-over-commentary.html

Jobless claims, Philadelphia Fed business survey, Japan trade

Still looks to me like this is perhaps the most misunderstood statistic, as analysts believe it is signaling strength in the labor markets. Instead I’m suggesting claims are extraordinarily low because the unemployment benefits have become much harder to get:

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Even with a much higher population and labor force, and with a higher unemployment rate,
new claims are at 40 year lows:

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Not at all good:

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Highlights
Once again the Philly Fed’s headline tells an entirely different story than the details. At plus 2.0, the headline may be a bit flat but that’s far better than orders or employment which are in deep contraction.

New orders fell back into negative ground, to minus 7.2 from July’s plus 11.8 for the very weakest reading of the year. Backlog orders fell to minus 15.0 from plus 1.9 which is also the weakest reading of the year. At a numbing minus 20.0, employment is down for an 8th month in a row for the weakest showing of the cycle, since July 2009. Inventories are in sharp contraction, the workweek is in sharp contraction, and delivery times are speeding up which is a sign of weakness. The one sign of strength (other than the headline) is shipments, at plus 8.4 in a gain that won’t likely be repeated anytime soon given the weakness in orders.

The headline for this report is not a composite but maybe it should be. If it were, it would be deeply negative.

Exports and imports both dropped substantially, indicating global trade continues to decline:

Japan Balance of Trade
Japan recorded a 513.5 JPY billion surplus in July of 2016, compared to a 261.39 JPY billion deficit a year earlier and beating market consensus of a 283.7 JPY billion surplus, as exports fell less than imports.

Year-on-year, sales dropped by 14.0 percent to 5,728.41 JPY billion in July, following a 7.4 percent fall in June and in line with estimates.

Imports decreased by 24.7 percent to 5,214.90 JPY billion, compared to a 18.8 percent decrease in a month earlier while markets expected a 20.6 percent drop.

In June 2016, the country posted a 692.83 JPY billion trade surplus.

PMI, Commercial and Industrial loan growth, Japan trade

A bit better than expected, and the narrative sounds hopeful, but the chart still looking like there’s a long way to go to get back to where we were before the collapse of oil capex. And no sign of emergence of deficit spending- private or public- to drive top line growth:

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Looks to me like this measure of bank loan growth has been going downhill ever since the collapse in oil capex:

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Japan is rebuilding it’s trade surplus that made the yen the strongest currency in the world and consequently their selling of yen to keep the yen appreciation in check to sustain ‘competitiveness’ allowed them to build their hoard of $ reserves. It was the shutting down of their nuclear power generation after the earthquake that resulted in the increased energy imports which turned trade to deficit. Lower energy prices and a weaker yen have contributed to the reversal. At some point I expect circumstances to pressure the Ministry of Finance to resume yen sales to support their exporters.

Note too that both imports and exports have been declining, evidencing the general weakness in global demand:

Japan Balance of Trade 1963-2016

Japan recorded a 692.84 JPY billion surplus in June of 2016, compared to a 60.90 JPY billion surplus a year earlier and beating market consensus of a 494.8 JPY billion surplus, as exports fell less than imports. Year-on-year, sales dropped by 7.4 percent to 6,025.46, JPY billion in June, following a 11.3 percent fall in May, while markets expected a 11.6 percent decline. Imports decreased by 18.8 percent from a year earlier to 5,332.63 JPY billion, compared to a 13.8 percent decrease in a month earlier and above market estimates of a 19.7 percent drop. In May 2016, the country posted a 40.72 JPY billion trade deficit, the first gap since January. From January to June 2016, Japan posted a 1,810 JPY billion trade surplus, the first surplus since the second half-year of 2010.

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Japan trade, Rail week, Medicare payments

Imports and exports down, as global trade continues to wind down. And the trade surplus remains yen friendly. However intervention will likely prevent any material yen appreciation:

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Rail Again Moves Deeper Into Contraction

Week 19 of 2016 shows same week total rail traffic (from same week one year ago) declined according to the Association of American Railroads (AAR) traffic data. Rolling averages continue moving deeper into contraction.

The deceleration in the rail rolling averages began one year ago, and now rail movements are being compared against weaker 2015 data – and it continues to decline. We do not believe the data is affected this week by the labor issues in the ports one year ago.

Medicare Payment Cuts Continue To Restrain Inflation

from the San Francisco Fed

A steady downward trend in health-care services price inflation over the past decade has been a major factor holding down core inflation. Much of this downward trend reflects lower payments from public insurance programs. Looking ahead, current legislative guidelines imply considerable restraint on future public insurance payment growth. Therefore, overall health-care services price inflation is unlikely to rebound and appears likely to continue to be a drag on inflation.

Empire Survey, Home builder index, Abe on G7

Not good. Raises the specter of May having weakened after some April numbers were looking a bit better:

Empire State Mfg Survey
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Highlights
What little momentum there was in the New York manufacturing sector is fizzling, based on the Empire State index which came in much weaker-than-expected, at minus 9.02 in the May report to end two lonely looking gains in April and March.

New orders are at minus 5.54, also ending two prior months of gains and rejoining a long run of negative readings going back all last year. Inventories, at minus 7.29, are extending their equally long dismal run of contraction as manufacturers, seeing soft demand ahead, work down their stocks. Employment, at plus 2.08, is up for a second month but just barely while shipments turned lower, to minus 1.94. Selling prices are down, the workweek is down, and delivery times are shortening — all signs of weakness.

This together with the Philly Fed, which are the two most closely watched regional reports, have been showing bursts of life the last few months, in what perhaps are early indications of strength tied to dollar depreciation and lower oil prices. But this report is definitely not among this group and will raise talk of another flat year for manufacturing. The Philly Fed, to be posted Thursday, looks to be a major highlight of the week.

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Lower than expected and still seems like the depressed housing industry has most recently been decelerating, as per the chart:

Housing Market Index
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Highlights
Optimism among home builders is solid and steady, at 58 for the May housing market index. This is the fourth straight 58 for this index where anything over 50 is positive. And sales are the most positive component in this report, at 65 for 6-month sales and 63 for present sales. The drag on the index comes from traffic, unchanged at 44 and continuing to reflect unusual lack of interest from first-time buyers.

The West has the highest composite score at 67, befitting the region’s importance for new construction. The South, which is the largest market, is next at 60 with the Midwest right behind at 59. The Northeast, where dense development limits the new home market, trails in the far distance at 36.

The availability of jobs together with low mortgage rates are solid pluses for the new housing outlook. But strength in the housing sector has been less than overwhelming this year and lack of acceleration in this report is part of the story.

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Finally!

Japanese Prime Minister Shinzo Abe said on Monday a majority of Group of Seven leaders agree on the need to deploy fiscal stimulus measures to boost global demand.

Japan will host a G7 finance ministers and central bankers summit on May 20-21, and there are doubts about how much progress policymakers can make in shifting the global economy out of its current spell of slow growth and low inflation.

Earlier this month, Abe traveled to Europe to meet G7 heads in preparation for the meeting in Japan.

Mtg purchase apps, ADP, Trade, Factory orders

Same story, depressed and growing too slowly to matter:

MBA Mortgage Applications
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Highlights
Purchase applications for home mortgages managed to rise 1.0 percent in the April 29 week, but refinancing continued to decline, down 6.0 percent after falling 5.0 percent in the prior week. Though purchase applications are 13 percent higher than the same week a year ago, the year-on-year gain has narrowed sharply from the 30 percent gains seen as recently as March. Rates crept slightly higher, with the average 30-year mortgage for conforming loans ($417,000 or less) up 2 basis points to 3.87 percent.

Weak:
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ADP Employment Report
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Highlights
Consumer spending and economic growth are slowing and now the labor market, at least based on ADP’s estimate, is softening. ADP sees private payrolls rising only 156,000 in April for what would be one of the weakest prints of the economic cycle and the lowest since 142,000 in February 2014. ADP, whose reputation as a leading indicator isn’t perfect, has nevertheless been on a 4-month hot streak and today’s report is certain to raise talk of trouble for Friday’s employment report.

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And here’s the year over year growth chart. Can you spot the point where oil capex collapsed? ;)
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Global trade continues its collapse:

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Highlights
The nation’s trade gap narrowed in March but, unfortunately, is not a positive for the economic outlook. The gap came in at $40.4 billion in March vs a revised $47.0 billion in February and largely reflects a downgrade for imports which fell 3.6 percent in the month vs the prior month’s 1.3 percent rise. Contraction in imports, though a positive for the gap, is however a negative indication for domestic demand, especially in this report as consumer goods show unusual weakness. And indications on foreign demand are also negative with exports, despite the positive effects of this year’s depreciation in the dollar, slipping 0.9 percent vs February’s 1.1 percent rise.

Imports of consumer goods fell a very steep $5.1 billion in the month followed, in yet another major negative, by core capital goods which fell $1.6 billion. The former points to weak consumer demand and the latter points to weakness in business expectations. Oil was not a factor on the import side, averaging $27.68 per barrel vs February’s $27.48 and making for a total petroleum deficit of $3.0 billion vs February’s $3.5 billion deficit.

Weakness on the export side is also concentrated in consumer goods, down $1.6 billion in the month, and includes a separate $0.7 billion decline for autos. Industrial supplies are also down. One positive is a $1.3 billion rise in core capital goods which, however, follows a long string of declines. A solid positive is a further gain for service exports, up 0.5 percent in the month and generally reflecting demand for the nation’s technical and managerial expertise.

The nation’s gap with China, reflecting the decline in imported consumer goods, narrowed very sharply, to $20.9 billion in March from February’s $28.1 billion. The narrowing with China offset widening gaps with the EU, at $13.1 billion, and with Mexico, at $5.4 billion, and also with Japan, at $6.7 billion.

Trade data are always very revealing, in this case pointing unfortunately to declining cross-border demand and showing little benefit, at least so far, from this year’s decline in the dollar.

Factory orders and shipments continue in negative territory on a year over year basis:
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A bit of improvement here but still looking like growth in this sector will be lower this year than it was last year, and may still be trending lower:
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China, Redbook retail sales, UK manufacturing, yen comments

Still in negative territory:
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Still stone cold dead:
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Exporters have serious clout over there.

Intervention on their behalf would be no surprise:

Japan exporters stand to take nearly $10bn hit from rising yen

The yen’s sharp appreciation threatens to undercut profits at major Japanese exporters by more than 1 trillion yen ($9.37 billion) this fiscal year, outweighing any benefits of a stronger home currency for some companies, estimates by The Nikkei show.

Even at exchange rates of 110 yen to the dollar and 125 yen to the euro — levels on which many companies are basing their fiscal 2016 earnings estimates — 25 of the country’s biggest exporters, including Toyota Motor and Komatsu, would see their combined operating profits fall 1.14 trillion yen on the year owing to currency movements alone.

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Tech, Japan trade

3 out of top 4 stories not looking good:
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Global trade still in contraction and larger foreign surpluses most often imply larger US deficits:

Japan Trade Surplus Largest in Over 5 Years

Japan recorded a 754.9 JPY billion surplus in March of 2016, widening sharply from a 223.47 JPY billion surplus a year earlier but below market consensus. It is the largest surplus since October 2010 as exports fell 6.8% yoy while imports dropped by 14.9%.

Employment, Trade

Education employment was mysteriously down big last month and up big this month, so best to average the two months, which would mean about 205,000 new jobs each month, which is about where it’s been.

However, in any case hours worded and average pay were both down, which means personal income and probably output is that much less, which is not good. Additionally, the downward revision in earnings for last month and the negative print this month tell me ‘the market’ is telling us there’s still substantial ‘slack’ in the ‘labor market’:

Employment Situation
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Highlights
The labor market is adding jobs at a very strong rate. Nonfarm payrolls rose 242,000 in February vs the Econoday consensus for 190,000 and a high estimate of only 217,000. Adding to the punch are upward revisions to the two prior months totaling 30,000.

A negative in the report is a 0.1 percent decline in average hourly earnings that follows, however, January’s outsized 0.5 percent gain. Year-on-year, average hourly earnings are down 3 tenths to 2.2 percent. Another negative is a dip in the workweek to 34.4 hours which also, however, follows strength in the prior month when it rose to 34.6 hours.

The unemployment rate remains low at 4.9 percent while the labor participation rate continues to rebound, up 2 tenths in the month to 62.9 percent and boosted by new entrants and re-entrants into the labor market. The U-6 unemployment rate, which is cited frequently by Janet Yellen, is down a full 2 tenths to 9.7 percent.

Payroll strength by industries includes a second straight strong month for retail, up 55,000, and another strong month for trade & transportation, up 53,000. Professional & business services rose 23,000 but temporary help services fell for a second straight month, down 10,000 following a 22,000 decline in January. Government added 12,000 to payrolls while construction, where spending is solid, rose 19,000. Mining and manufacturing contracted, down 19,000 and 16,000 respectively.

The earnings numbers are setbacks but do follow prior strength. Payroll gains are unquestionably impressive and today’s report will very likely revive at least the chance for a rate hike at this month’s FOMC.

This is why using a two month average makes sense this month:
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The chart shows the rate of growth continues the deceleration that began just over a year ago when oil capex collapsed:
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Still some serious ‘slack’ here:
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Worse than expected and so not good for GDP forecasts, and with vehicle sales down from last year’s highs rising auto imports mean even weaker domestic car sales:

International Trade
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Highlights
January was a weak month for cross-border trade with exports down a steep 2.1 percent and imports down 1.3 percent, making for a wider-than-expected trade imbalance of $45.7 billion. Exports of capital goods were especially weak as were imports of capital goods, both pointing to weakness in global business investment. Exports of industrial supplies were also down as were exports of consumer goods and also food products. Imports of industrial supplies were also down as were imports of consumer goods. Imports of autos, however, continue to rise to underscore the ongoing strength in vehicle sales.

The goods gap widened to $63.7 billion from $62.6 billion and when excluding petroleum where the gap narrowed, the goods gap widened to $57.8 billion from $55.5 billion. The nation continues to run a strong surplus on services, at $18.0 billion for a small gain in the month.

The gap with China widened in the month to $28.9 billion for a $1 billion increase while the gap with Europe narrowed sharply, to $8.8 billion from $13.7 billion. The gap with Japan narrowed to $4.9 billion from $6.6 billion while the gap with Canada widened to $2.4 billion from $2.2 billion.

Today’s report will lower early estimates for first-quarter GDP and no less importantly is the latest indication that global traffic is stalling, which is not a plus for global policy efforts to raise inflation.

In past cycles these declines in trade were indicative of recessions:
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Trade also went bad as oil capex collapsed:
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Oil price, Radio interview, Fed Atlanta, Canada

Some commentary on the latest Saudi price changes:

Saudi raises crude price to Europe, Asia, cuts it for US

Saudi Arabia, the world’s largest crude exporter, Wednesday raised the April prices of its oil to Asia and Europe but cut it slightly for shipments to the United States.

My quick WRKO radio interview

Down some more, as previously discussed:
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He’s going the right way, but it’s relatively small and he’s unfortunately still out of paradigm which puts it all at risk of ‘losing the debate’ with critics:

Trudeau’s Message to World: Let Government Spending Do the Work

By Josh Wingrove

March 3 (Bloomberg) — Canadian Prime Minister Justin Trudeau is urging global leaders to rely more on government spending and less on monetary policy to spur growth as he prepares a budget that will push his country into deficit.

In a wide-ranging interview Wednesday in Vancouver, Trudeau highlighted the importance of infrastructure spending and measures to bolster incomes of middle classes he says are critical to driving growth. He also defended his plan to go willingly into the red.

“My message to other government leaders is don’t fall into the trap that thinking that balancing the books” is an end in itself, he said. “It’s a means to an end.”

Trudeau’s arrival on the global scene and his endorsement of deficits marks a sharp about face from his predecessor, Stephen Harper. Along with German Chancellor Angela Merkel and U.K. Prime Minister David Cameron, Harper championed the budget austerity alliance within the Group of Seven that often clashed with the U.S. on fiscal policy.

President Barack Obama will hear a new message next week when he hosts a state dinner for Trudeau at the White House. The Canadian leader’s debut also coincides with an increasing sense in global circles that monetary policy is reaching its limit, fueled in part by Japan’s surprise move to adopt negative interest rates that caused turmoil in currency markets.

“Making sure monetary policy and fiscal policy are aligned and complementary is obviously a benefit to any economy. But at the same time I don’t want to be overly preachy,” Trudeau said. Other countries should consider balanced budgets when feasible “but don’t make it the be-all and end-all because you may be missing out on opportunities to grow your economy — to help citizens prosper — that too much rigidity would actually interfere with.”

G-20 Consensus

At a Group of 20 meeting in Shanghai last week attended by Trudeau’s finance minister, Bill Morneau, officials from the world’s top economies committed their governments to doing more to boost growth amid mounting concerns over the potency of monetary policy.

Trudeau, 44, hinted he is considering expanding on pledges that have his country on pace for a deficit of nearly C$30 billion ($22.3 billion) in the fiscal year that begins April 1. Having promised C$10.5 billion in new spending during the campaign, Morneau delivered a fiscal update last month showing the government is starting from a deficit of C$18.4 billion as Canada grapples with the oil-price shock.

“It’s to me even more of a reason why we need to be investing intelligently in infrastructure, in money in the pockets of the middle class, to grow the economy,” Trudeau said of the fiscal situation he inherited after his majority win in the Oct. 19 election.

Debut Budget

He offered no detail on what new spending may be included in the budget, due March 22, but ruled out big-ticket surprises. “I don’t think we need massive stimulus,” he said. “There’s a limit on how much you can flow infrastructure dollars in a short time frame from a standing start.”

A C$30 billion deficit would be 1.5 percent of gross domestic product. That’s a swing of 1.4 percentage points, from an expected deficit of 0.1 percent of GDP in the current year. Since the end of World War II, there have been only four one-year expansionary fiscal swings of more than 1.4 percentage points of GDP.

Even with C$30 billion in red ink, Canada’s debt-to-GDP ratio would remain among the lowest in the G-7. “That leaves us with more flexibility,” Trudeau said. “If we were sitting at 90 percent debt to GDP, we probably wouldn’t be contemplating the kinds of things we know we’re able to do. If interest rates were radically different — much higher, to take money to invest in our economy — we’d be looking at different kinds of investments.”