The Center of the Universe The Site of Economist Warren Mosler Fri, 30 Jan 2015 17:24:34 +0000 en-US hourly 1 my comments on comments on the CBO report Fri, 30 Jan 2015 17:24:34 +0000 Continue reading ]]>

STAFF ANALYSIS OF THE CONGRESSIONAL BUDGET OFFICE’S BUDGET AND ECONOMIC OUTLOOK, 2015–2025 “Political differences shouldn’t prevent us from taking bold, decisive action to address America’s dire financial outlook.

Yes, there is an acute shortage of available desired savings as indicated by the slack in the labor market.

Republicans and Democrats agree that being $18 trillion in debt today and facing the prospect of spending more than $800 billion a year on interest payments alone does not lend itself to a prosperous future for our country.

We don’t agree. A prosperous future is not a function of said forecast interest payments.

CBO’s numbers only reinforce this notion.

To the contrary, the inflation forecast and growth forecast together indicate the deficit forecast is far too low-given current institutional structure- to accommodate the nations savings desires, and as a consequence aggregate demand falls short of full employment levels.

The longer we postpone reforms and put off making tough decisions, the deeper the hole we have to climb out of. Let’s not miss the opportunity before us to start down a new path and address our problems head on.”

I agree, the problem of inadequate aggregate demand should be addressed head on, immediately, and decisively with an immediate fiscal expansion- tax cuts and/or spending increases. There is no time to waste as we are sacrificing yet another generation of young Americans on the alter of failed austerity.

– Chairman Mike Enzi “America remains on a financially unsustainable path that threatens the future stability, security, and prosperity of our economy.

The idea of financial sustainability with a non convertible currency, floating exchange rate policy is entirely inapplicable.
What is threatening the future is a deficit that’s far too small to accommodate our savings desires, as evidenced by the low inflation forecast and the low participation rates.

Interest on the debt alone will consume $5.6 trillion of federal spending over the next decade.

This interest is paid routinely by the Fed by simply crediting the appropriate member bank’s reserve account at the Fed.
There are no grandchildren or taxpayers in sight when this routine accounting entry take place.

We have a duty to prevent a clear and present danger, and that means we must take steps now to balance the budget.” – Sen. Jeff Sessions “The new projections released by the CBO should serve as a stark reminder that our country is on an unsustainable economic path. The longer we wait to act, the more difficult it will become to put in place real reforms to control spending and reduce our over $18 trillion national debt.

It is a fact, not theory, that those $18 trillion of net financial assets held by the global economy as ‘savings’ is far less than the desired net savings as evidenced by the unemployment rates and labor participation rates, and an immediate fiscal expansion- lower taxes and/or higher spending- is in order.

This dangerous level of debt remains a drag on the economy and job growth and will only worsen over time if Washington continues to irresponsibly add to the credit card.” – Sen. Mike Crapo “This latest CBO report indicates that we’re headed down an unsustainable path that will put a damper on economic growth and hurt American workers.

Nothing could be further from the truth. When govt cuts taxes and/or increases spending every professional economic forecaster paid to be right increases his GDP estimate and lowers his unemployment forecast.

When a nonpartisan organization like the CBO says that Americans will pay more taxes yet our deficits will rise, something needs to be done.

Yes, we need an immediate tax cut and/or spending increase.

It’s crucial that we get our spending and deficits under control so we can grow our economy and give job creators the certainty they need to expand and hire more workers.” – Sen. Rob Portman “With $18 trillion in debt and the growth of entitlement programs skyrocketing, it is clear the federal government’s current fiscal path is unsustainable. A sluggish economy makes the problem even worse. CBO has warned that this situation could persist if no action is taken.

True! Without an immediate tax cut and/or spending increase the economy will continue to under employ and under pay the American people.

Controlling debt requires making smart choices on spending as well as enacting policies that encourage stronger economic growth.” – Sen. Roger Wicker “I didn’t come to Washington to sit idly by as lawmakers in both parties pretend the deficit is shrinking and that our national debt is not a concern.

True, he came to Washington with no clue as to the functioning of today’s monetary system.

We have a genuine fiscal crisis on our hands. We’re already handing our kids and grandkids a national debt of over $18 trillion and tens of trillions of dollars of unfunded liabilities for entitlement programs. The latest CBO report shows that the deck is stacked to get even worse.

No, in fact their 2% long term inflation forecast is evidence that the built in spending is insufficient to keep the US running at anywhere near full capacity.

We need a sense of urgency to seriously tackle our national debt because of the threat it poses to our economy and national security. As a member of the Budget Committee, I look forward to working with Senate Budget Chairman Mike Enzi and House Budget Chairman Tom Price in the pursuit of a budget that reflects the tough decisions necessary to eliminate wasteful spending, prioritize our resources, and grow the economy.” – Sen. David PerdueSummary CBO projects that the government will collect $3.2 trillion in revenue and spend $3.7 trillion this year, resulting in a deficit of $468 billion in FY 2015 ($15 billion less than recorded in the prior year). Based on current law, CBO projects that the country’s fiscal situation will remain relatively stable for the next few years. After FY 2019, however, CBO projects steadily increasing levels of deficits, debt, and interest payments. By the last year of the budget window, FY 2025, deficits will again surpass the $1 trillion mark, debt held by the public will reach $21.6 trillion, and a single year’s interest payments will total $827 billion.

And the inflation and employment forecasts show that isn’t nearly enough to be adding to savings to support our economy at full employment levels.

According to CBO, federal outlays will total $3.7 trillion in FY 2015, or 20.3 percent of GDP— slightly higher than the 20.1 percent 50-year historical average. Federal outlays are expected to grow to reach $6.1 trillion, or 22.3 percent of GDP by FY 2025, while revenues are expected to remain steady at about 18 percent of GDP. Spending is projected to increase by 2 percentage points of GDP over the budget window. Mandatory spending (primarily Social Security and health care spending) will account for 1.7 percentage points of the increase; net interest costs will contribute another 1.7 percentage points; and discretionary spending will account for a reduction of 1.4 percentage points. CBO projects federal revenues will total $3.2 trillion in FY 2015, or 17.7 percent of GDP—slightly above the 50-year historical average of 17.4 percent. Under current law, total revenues will rise significantly in 2016 to $3.5 billion (18.4 percent of GDP) due mainly to the expiration of business tax provisions that were allowed to lapse at the end of calendar year 2014. After FY 2016, revenue collections will remain steady at approximately 18.1 percent of GDP throughout the duration of the forecast period. In total, over the 10-year budget horizon (FY 2016–2025), CBO expects the federal government will collect $41.7 trillion in revenue. Deficits Over the period FY 2016–2025, annual spending will outpace tax collections by a cumulative total of $7.6 trillion.For the budget year (FY 2016), CBO projects a deficit of $467 billion. Spending will total $3.9 trillion, while revenues total $3.5 trillion. Deficits will begin to climb after FY 2016, reaching $1.1 trillion by FY 2025. Deficits will remain relatively flat at around 2.5 percent of GDP from FY 2015 through FY 2018 (slightly below the 50-year average of 2.7 percent of GDP), then rise steadily to 4 percent of GDP by FY 2025. Debt And Interest CBO projects that debt held by the public will follow a similar path as deficits, remaining relatively stable at about 74 percent of GDP in the near term and then rapidly growing to nearly 79 percent of GDP by FY 2025. In dollar terms, debt held by the public would increase from $13.4 trillion in FY 2015 to $21.6 trillion in FY 2025, a nearly 62 percent increase. CBO notes that while the federal debt increase over the projected window seems modest, it is already high by historical standards—with debt remaining greater relative to GDP than at any other time since the years immediately following World War II.Gross debt, which includes Treasury securities held by federal trust funds, will also continue to rise according to CBO. By the end of FY 2015, CBO projects a gross debt of $18.5 trillion. This number will grow to $27.3 trillion by the end of FY 2025, an increase of 47.7 percent. Gross debt grows less rapidly than public debt because Social Security begins redeeming bonds at a rapid rate toward the end of the projection period.

Yes, and the 2% inflation forecast indicates all of this fall short of providing the savings needed for our economy to sustain full employment.

According to CBO, carrying these high levels of debt has negative consequences for the federal budget and the U.S. economy, including increased government borrowing crowding out private borrowing and leading to increased costs of borrowing for businesses,

That applies only to fixed exchange rate regimes. It is entirely inapplicable to the US with our floating exchange rate policy, as history has clearly demonstrated.

limits to the ability of the government to respond to crises with tax and spending policies,

Any such limit is by political decision, and not an operational constraint with todays floating exchange rate policy.

and increased interest payments.

Yes, which are simply a credit to a member bank account by the Fed.

The federal government is expected to spend $227 billion on interest payments in FY 2015, or about 1.3 percent of GDP. These interest payments will increase to $827 billion (3 percent of GDP) by FY 2025, an increase of 264 percent. These interest costs, a product of continuing to carry such a high debt burden, will put a strain on federal resources and begin to crowd out other priorities.

Interest payments are a matter of the Fed crediting a member bank account. The notion of a strain on federal resources’ is entirely inapplicable. And, in fact, even with those interest payments inflation is forecast at only 2% indicating there is no forecast of excess spending per se.


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Saudi output Fri, 30 Jan 2015 17:19:33 +0000 I see no sign of excess overall supply, which would show up as a drop in Saudi sales, as they set price and let the market decide how much it needs.

The price cut was entirely a Saudi political decision.


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Visa on consumer spending, GDP, Consumer sentiment, Greece update, Personal income, Employment costs Fri, 30 Jan 2015 17:17:22 +0000 Continue reading ]]> Visa quantifies impact to consumer spending from lower gas prices (from its earnings call Thurs night) –

US fuel prices are down ~30% since June. The drop amounts to ~$60/month for the avg. consumer according to our survey. Approximately 50% of the savings are being saved, 25% is being used to pay down debt & ~25% is being spent in other discretionary categories including grocery, clothing & restaurants. As we look forward, we would anticipate the savings will accumulate & ultimately we’ll see more spend in the discretionary categories including higher ticket items (i.e. home improvement, electronics, travel and entertainment)

No sign of ‘acceleration’ here but continues to be operating under the previously discussed macro constraint with regard to the need for agents spending more than their incomes to offset those spending less than their incomes in the context of lower federal deficits. Moreover, the drop in oil prices that has led to a drop in capital expenditures removes what had been the marginal support for even the modest growth we’ve been seeing, and not the reversal of data I highlighted previously as subject to reversal, and the Q4 inventory build should reverse in Q1:

The advance estimate for fourth quarter GDP growth disappointed with a 2.6 percent figure versus analysts’ estimate of 3.2 percent and following 5.0 percent for the third quarter.

Final sales of domestic product slowed to 1.8 percent, following a 5.0 percent jump in the third quarter. Final sales to domestic purchasers eased to 2.8 percent from 4.1 percent in the third quarter.

The increase in real GDP in the fourth quarter reflected positive contributions from personal consumption expenditures, private inventory investment, exports, nonresidential fixed investment, state and local government spending, and residential fixed investment that were partly offset by a negative contribution from federal government spending. Imports, which are a subtraction in the calculation of GDP, increased.

The deceleration in real GDP growth in the fourth quarter primarily reflected an upturn in imports, a downturn in federal government spending, and decelerations in nonresidential fixed investment and in exports that were partly offset by an upturn in private inventory investment and an acceleration in PCEs. PCE growth posted at 4.3 percent in the fourth quarter versus 3.2 percent the prior quarter. Inventories rose $113.1 billion, compared to $82.2 billion in the third quarter.

On the price front, the chain-weighted price index was unchanged, compared to the1.4 percent rise in the third quarter. Market expectations were for a 1.0 percent gain. The core chain index, excluding food and energy, eased to 0.7 percent from 1.7 percent in the third quarter.

From the BEA:


The growth of actual $ spent by people in fact grew at a lower rate, reinforcing the narrative that the ‘consumer savings’ was not being spent. But it also further reinforces my narrative that at the macro level there is no net savings, as for every agent spending less there are other agents getting exactly that much less income.

The first chart is the change in actual $ spent:
This second chart is adjusted for inflation, indicating the slower growth in actual dollars spent none the less resulted in a faster growth of ‘real’ purchases. Keep in mind, however, the inflation adjustment methodology is necessarily highly problematic at best with quite a bit of volatility in the short term, so Q1 will likely show a similar reduction in the growth of ‘real’ PCE if oil prices stabilize at current levels:
It’s service prices that tend to be ‘sticky’ so they show ‘real’ increases when the price deflator falls, so interesting how the annual growth rate actually came down some:
And spending growth on health care remains low enough to not be a political issue:
Again, this is one man one vote, not one dollar one vote, and while more people are saving on fuel than are losing income, which is what is driving the chart, the income losses = the income gains:
Regarding Greece, I have no idea how this translates into actual policy proposals:

Varoufakis said he had assured Dijsselbloem that Athens planned to implement reforms to make the economy more competitive and have balanced budgets but that it would not accept a “self-fed crisis” of deflation and non-viable debt.

Yes, the growth rate is almost about what it was before, but it would have to grow faster to make up for the lost ground shown above.
The only cause for alarm is how low this is:



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Brazil Fri, 30 Jan 2015 13:11:22 +0000 Continue reading ]]> So just maybe the high rates are supporting the inflation?

Brazil Central Bank Signals Further Increase in Interest Rates (WSJ) “Advances achieved in the fight against inflation…aren’t enough yet,” the bank’s monetary-policy committee said in minutes from last week’s meeting, when its policy rate, known as Selic, was raised to 12.25% from 11.75%. The central bank began raising borrowing costs in April 2013, when the Selic stood at a historic low of 7.25% and annual inflation was 6.49%. Brazil’s annual inflation was 6.41% in 2014, above the central bank’s 4.5% target and just below the 6.5% maximum tolerated. The central bank now forecasts a 9.3% increase in controlled prices this year, up from 6% previously. Economic growth, however, will be “below potential” in 2015, the bank said.

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Jobless claims, Pending home sales, Danish CB cuts rate to -.5%, comments on Greece, Canada job losses, Shell capex cut, Gasoline and utility demand soft Thu, 29 Jan 2015 16:19:22 +0000 Continue reading ]]>

Jobless Claims 265k, -43k to 15-Year Low in Holiday Week.

This is the lowest level for initial claims since April 15, 2000 when it was 259,000. The previous week’s level was revised up by 1,000 from 307,000 to 308,000. The 4-week moving average was 298,500, a decrease of 8,250 from the previous week’s revised average.

Pending Home Sales Index
Indications on housing had been turning up — but not after today’s pending home sales index which fell a very steep 3.7 in December. A decline was not expected at all with the result far underneath the Econoday low estimate for plus 0.3 percent. All regions show single digit declines in the month including the two most closely watched regions, the South (down 2.6 percent) and the West (down 4.6 percent).

Final sales of existing homes did pop higher in last week’s report for December but amid a still flat trend. Today’s pending sales report doesn’t point to any improvement, which is a bit of a mystery given how low mortgage rates are and how strong the job market is.

Another CB ‘raises taxes':


Reads like a showdown brewing.

Greece won’t be able to fund itself in euro and will bounce checks without at least implied ECB support. That leaves going back to their own new currency, which carries the usual high risks of mismanagement by leadership that gets in it way over their heads, etc. That is, even with its own currency Greece has been ‘in crisis’ with unemployment, inflation, and interest rates all in double digits along with the corresponding currency depreciation. And it would fundamentally be a ‘strong euro’ bias, as Greek euro debt and bank deposits would likely vanish.

Eurozone May Not Blink First in Confrontation With Greece (WSJ) Alexis Tsipras has been prime minister of Greece for only 48 hours and has done little to back his claim of wanting to keep his country in the eurozone. His strategy appears to be to put himself at the head of a Europe-wide leftist assault against “austerity,” playing to an anti-German gallery in the hope of isolating Berlin. Mr. Tsipras and his finance minister have already been in contact with leftist governments in France and Italy. Madrid is clear that any deal with the Greek leader must be based on reform commitments at least as tough as those demanded of former Prime Minister Antonis Samaras. Anything less would represent a win for Mr. Tsipras and fuel support for Spain’s own new radical leftist party, Podemos.

Greece Moves Quickly to Roll Back Austerity (WSJ) Prime Minister Alexis Tsipras said “our priority is to support the economy, to help it get going again. We are ready to negotiate with our partners in order to reduce debt and find a fair and viable solution.” Government ministers said that the planned sale of the state’s 67% stake in the main port of Piraeus had been halted, that Greece would freeze the planned restructuring and sell off the country’s dominant, state-controlled utility company, and that the government would reverse some of the thousands of layoffs imposed as part of the bailout. Labor Minister Panos Skourletis also said that an increase to Greece’s basic wage will be among the first bills the government will submit to parliament.

Oil capex cuts continue:

Canada December Job Losses Deeper After Revisions (WSJ) The Canadian economy shed 11,300 net jobs last month instead of the 4,300 decline reported earlier in January, Statistics Canada said. December’s jobless rate was 6.7%, compared with the previously estimated 6.6%. Adjusted to U.S. concepts, the jobless rate was 5.7% last month, compared with 5.6% south of the border, Statistics Canada said. Net job creation in Canada for all of 2014 totaled 121,300 positions, the lowest level since the country posted a net loss in jobs in 2009, at the height of the global recession.

Shell oil:

The $15 billion spending cut, which will involve cancelling and deferring projects through 2017, which would represent a 14 percent cut per year from 2014 capital investment of $35 billion.

Reflecting the new oil price environment, Shell, having said in October it would keep its 2015 spending unchanged, announced it would have to cut what is one of the largest capital investment programmes in the industry.

“Shell is considering further reductions to capital spending should the evolving market outlook warrant that step, but is aiming to retain growth potential for the medium term,” it said in a statement.

No sign yet of US gasoline or electric consumption materially increasing:



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mtg purchase apps Wed, 28 Jan 2015 17:39:58 +0000 Continue reading ]]> Now up 1% vs last year which was hit by the cold weather:

MBA Purchase Applications
Mortgage applications for home purchases were flat in the January 23 week, down 0.1 percent for a year-on-year rate of plus 1.0 percent. Refinancing applications fell 5.0 percent in the week. Rates remain very low but did edge higher in the week, up 3 basis points for an average 30-year fixed loan to 3.83 percent for conforming balances ($417,000 or less).


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durable goods, Case Shiller, new home sales, Consumer Confidence, Richmond Fed, PMI services flash, GDP comments, 10 yr vs Fed Tue, 27 Jan 2015 15:47:30 +0000 Continue reading ]]> Down hard and revisions down hard as well, and year over year growth up less than 1%:

Durable Goods Orders
Durables orders unexpectedly fell 3.4 percent in December after dropping 2.1 percent in November. Analysts projected a 0.7 percent rise.

Excluding transportation, the core slipped 0.8 in December following a decline of 1.3 percent in November. Market expectations were for a 0.8 percent boost in December. Transportation plunged a monthly 9.2 percent after dropping 3.9 percent in November. Motor vehicles rose 2.7 percent, nondefense aircraft plunged 55.5 percent, and defense aircraft fell 19.9 percent.

Outside of transportation, weakness was mixed. Industries posting gains were fabricated metals, electrical equipment, and “other.” Declines were seen in primary metals, machinery, and computers & electronics.

Nondefense capital goods orders excluding aircraft dropped 0.6 percent after a decline of 0.6 percent in November. Shipments of this series eased 0.2 percent in December after dropping 0.6 percent the month before.

Overall, manufacturing is soft. The outlook is questionable with the recently sharp boost in the value of the dollar.

Equity futures dropped very sharply on the news. However, earnings concerns also weighed on futures.

Housing still looking like it’s rolling over?


New home sales better than expected!

New Home Sales

Consumer confidence up as well! But don’t forget this is about ‘head count’. That is, consumer confidence can be up for the hundreds of millions saving $11/week on gas, while the cutbacks from those losing high paying jobs and from capex reductions reduce the confidence of far fewer people initially, but the spending lost to the economy is far higher.

Consumer Confidence

Richmond Fed- DC area doing better than Texas…

Richmond Fed Manufacturing Index
Recent History Of This Indicator
The Richmond Fed manufacturing index for December picked up to 7 from 4 in November. New orders showed relative strength, at 4 versus November’s 1, but were still on the soft side. Order backlogs, however, showed outright contraction for a second month, at minus 5 vs minus 2 in November. Shipments showed relative strength to November, at 5 vs 1, but, like new orders, were still on the soft side. A definitive sign of strength, however, came from employment which was up 3 points to a very solid 13 in a reading that points to underlying confidence among the region’s manufacturers. Price data were soft in line with declining fuel costs.

PMI Services Flash
Growth in the nation’s service sector is accelerating but only very slightly this month based on Markit’s sample where the flash index is at 54.0 vs December’s final reading and 10-month low of 53.3 and December’s flash reading of 53.6. The report ties the gain in part to a pick up in consumer spending though new business growth this month continues to moderate and is at a new low in the 5-year history of the report. Amid the slowing, service providers in the sample continue to add to payrolls though at the slowest rate in 9 months. Growth in backlogs is at a 6-month low. Price data show only fractional pressure for inputs and only fractional pricing power for outputs.

Look what spiked up in Q3, and could come down in Q4?


And the 10 year note is now down to 1.75%, which you could say is at odds with the Fed’s forecasts for higher rates.

Wonder who will be correct?




Norfolk Southern Revenue Slips on Coal Weakness (WSJ) Norfolk Southern Corp. profit totaled $511 million, off from $513 million in the same quarter a year earlier. Demand for electricity in the railroad’s territory fell 1% last year, executives said. The railroad’s coal revenue fell 15% to $543 million, while its coal volume declined 6%. In the fourth quarter, Norfolk Southern’s fuel-surcharge revenue declined $45 million compared with the same quarter in 2013.

Siemens Profit Hurt by Weak Economy, Oil (WSJ) Net profit in the three months to Dec. 31 fell to €1.08 billion ($1.21 billion) from €1.43 billion in the same period last year, Siemens said on Tuesday. Revenue rose 5% to €17.42 billion, helped by the euro’s weakness against major currencies. Siemens reiterated that it expects to notch up 15% growth in earnings per share in the year to end-September on unchanged revenue. Still, an 11% decline in new orders to €18.01 billion underscored the pressure Siemens is facing as customers placed fewer large orders at its mobility, wind power and renewables business as well as its process industries and drives unit. The power and gas division’s profit margin shrank to 11.3% from 18.2% in the same period last year, Siemens said.

Aso seeks swift passage of extra budget to expand economy (Kyodo) Finance Minister Taro Aso on Monday called for swift passage of the fiscal 2014 supplementary budget to eradicate prolonged deflation and allow Japan’s economy to move onto an expansionary path. “The economy remains on a moderate recovery track, but weakness can be seen in private spending and economic recovery is uneven across regions,” Aso said in a speech. “Immediate passage of the extra budget is necessary,” Aso said, pledging to spur domestic demand by bolstering local economies and supporting households — both plagued by price rises following last April’s consumption tax hike and the weaker yen.

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Dallas Fed Mon, 26 Jan 2015 16:36:07 +0000 Continue reading ]]> who would have thought?…

Dallas Fed Mfg Survey
Texas factory activity was flat in January. The production index, a key measure of state manufacturing conditions, came in at 0.7, indicating output was essentially unchanged from December.

Other survey measures also reflected sluggish activity during the month. The capacity utilization index fell to 5.1, its lowest reading in five months. The shipments index plunged from 20.8 to 6, due to a much higher share of respondents noting a decline in shipments in January than in December. The new orders index moved down from 2.7 to minus 7.7, registering its first negative reading since April 2013.

Perceptions of broader business conditions worsened this month, with both the general business activity index and the company outlook index dropping below zero for the first time in 20 months. The general business activity index dropped to minus4.4, and the company outlook index fell 13 points, coming in at minus3.8.

Labor market indicators reflected unchanged workweeks but continued employment increases. The employment index was 9.0 in January, slightly below last month’s level but close to its average reading over the past two years. Twenty percent of firms reported net hiring compared with 11 percent reporting net layoffs. The hours worked index edged down from 0.7 to minus 0.1, indicating no change in hours worked in January. Wage pressures eased, while input and selling prices declined in January.

Indexes reflecting future business conditions fell notably in January. The index of future general business activity plummeted from 13 to minus 6.4. The index of future company outlook plunged from 21.8 to 2.5, its lowest reading in more than two years. Indexes for future manufacturing activity also declined this month but remained in positive territory.

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Credit check, euro slipping on Greece Mon, 26 Jan 2015 00:01:06 +0000 Continue reading ]]> Yes, bank lending is growing some, but it’s just back to where it was a couple of years back when it took a step back, and below the prior cycle’s growth rate:


No action here:

And commercial paper is down about $85 billion since Dec 3, which means the rise in bank lending has been at the expense of shadow bank lending, and total lending is going nowhere:


Meanwhile, the euro has fallen a bit further vs the dollar after the Greek election results. I still don’t see this leading to any kind of fiscal expansion, and the proposed debt restructuring is functionally just a tax on bondholders that if anything further removes aggregate demand.

Additionally, the ECB’s latest moves, while actually contractionary/deflationary, are perceived as the reverse and Greece and others will likely give them time ‘kick in’ and spur growth. And while lower oil costs are a plus for most euro consumers, the lower cost of imports adds to the trade surplus, which is a force for a stronger euro.

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Existing home sales Fri, 23 Jan 2015 23:29:47 +0000 Continue reading ]]> Yet another report falls short, and with energy capex on the decline something needs to step up soon if there’s going to be any GDP growth:

Existing Home Sales
Existing home sales popped up in December as expected, up 2.4 percent to an annual sales rate of 5.04 million vs a slightly revised 6.3 percent decline in November to 4.92 million. December’s gain, underscoring Wednesday’s housing starts report, was led by single-family homes which rose 3.5 percent to a 4.47 million rate. Condos declined 5.0 percent in the month to a 570,000 rate. The gain for single-family homes is an important signal of strength for first-time home buyers.

The gain in sales drew down available homes on the market to 1.85 million from 2.08 million, in turn sharply lowering supply on the market to 4.4 months from 5.1 months. Lower supply points to sales troubles in next month’s report.

A plus in the report, and underscoring strength in yesterday’s FHFA price report, is a 1.1 percent gain in the median price to $209,500. Year-on-year, the median price is up 6.0 percent in a reading that also points to building strength in the housing sector.

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