The Center of the Universe http://moslereconomics.com The Site of Economist Warren Mosler Mon, 29 Aug 2016 17:42:45 +0000 en-US hourly 1 Personal income and spending, Dallas Fed http://moslereconomics.com/2016/08/29/personal-income-spending-dallas-fed/ Mon, 29 Aug 2016 17:42:45 +0000 http://moslereconomics.com/?p=27786 In line with expectations as real disposable income growth remains at or below ‘stall speed’, as per the charts. And the total growth of that measure of income since the 2008 peak remains very low. On the consumption side, the mini jump in auto sales provided the (small) boost for the month, though down year […]

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In line with expectations as real disposable income growth remains at or below ‘stall speed’, as per the charts. And the total growth of that measure of income since the 2008 peak remains very low. On the consumption side, the mini jump in auto sales provided the (small) boost for the month, though down year over year, and auto sales forecasts for August are all pointing to a resumption of weakness:

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Highlights

Income picked up slightly in July and consumption slowed slightly in what was another constructive month for the consumer.

Personal income rose 0.4 percent in the month with June revised 1 tenth higher to plus 0.3 percent. Income got another solid boost from wages & salaries which rose 0.5 percent for a second straight month. The consumer put some of this money into the bank with the savings rate rising 2 tenths to 5.7 percent.

Consumer spending rose 0.3 percent in the month following 0.4 percent gains in the prior two months. Spending on durables got a big boost from the month’s strong auto sales while non-durables were pulled down by price effects for energy. Service spending was solid but down slightly from prior months.

Price data are not showing any pressure, unchanged in the month for the overall PCE price index and up only 0.1 percent for the core index (ex-food ex-energy). The year-on-year rate for the core PCE, which is the Fed’s central price gauge, is unchanged to extend a long string, stuck at 1.6 percent.

The respectable showings for income and spending are no surprise given the strong employment report for July, strength that is the underpinning of the consumer. The outlook for August will unfold this week, with vehicle sales on Thursday and the employment report on Friday.

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Production up a bit but General Activity Index down:

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Highlights

There’s as many positives as negatives in the August manufacturing report from the Dallas Fed, which is a plus since negatives usually dominate this report. The production index rose more than 4 points to 4.5 while the new orders index jumped more than 13 points and is in positive ground at a modest but still respectable 5.3. Another positive is the future assessment of general activity, in positive ground for three months in a row and at 7.0 in August.

But there are negatives including the current assessment of general activity, falling nearly 4 points to minus 6.2 for the 20th straight negative result. Employment is at minus 5.0 and hours worked edged lower. Price data show pressure for inputs but continued declines for selling prices, all at the same time that wages & benefits continue to rise.

This along with the Kansas City Fed report have been depressed the past 2 years due to the drop in energy prices. But today’s report, though no better than mixed, does show signs of improvement, in a reminder of last week’s solid strength in the durable goods report.

United States Dallas Fed Manufacturing Index

The Federal Reserve Bank of Dallas’ general business activity index for manufacturing in Texas came in at -6.2 in August of 2016 from -1.3 in July, worse than market expectations of -3.9. Production (4.5 from 0.4 in July); new orders (5.3 from -8) and shipments (9.9 from 0.1) improved while job creation (-5 from -2.6) and hours worked (-4.5 from -0.2) worsened. The index of general business activity for the next six months fell to 7 from 18.4.

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Car sales, Bank loans http://moslereconomics.com/2016/08/27/car-sales-bank-loans/ Sat, 27 Aug 2016 14:15:59 +0000 http://moslereconomics.com/?p=27778 More evidence the wheels are coming off, not that there have been any doubts… From WardsAuto: Forecast: U.S. Light Vehicles Sales Weaken in August A WardsAuto forecast calls for August U.S. light-vehicle sales to reach a 17.4 million-unit seasonally adjusted annual rate, less than like-2015’s 17.7 million and July’s 17.8 million, but ahead of the […]

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More evidence the wheels are coming off, not that there have been any doubts…

From WardsAuto: Forecast: U.S. Light Vehicles Sales Weaken in August

A WardsAuto forecast calls for August U.S. light-vehicle sales to reach a 17.4 million-unit seasonally adjusted annual rate, less than like-2015’s 17.7 million and July’s 17.8 million, but ahead of the 17.2 million recorded over the first seven months of this year.

From J.D. Power: August Decline in New-Vehicle Sales Fourth in Last Six Months

The SAAR for total sales is projected at 16.8 million units in August 2016, down from 17.7 million units a year ago.

Read more at http://www.calculatedriskblog.com/#vt6cCRe2JUOvoVoB.99

This chart is through July:

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This keeps decelerating as well:

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This is not about one month’s numbers. It’s been a full retreat ever since the collapse of oil capex at the end of 2014, with no sign yet of anything but more of same until deficit spending- private or public- picks up sufficiently to offset the ‘normal’ amount of unspent incomes.

And as previously discussed, it wouldn’t surprise me if future revisions show that the recession started a year ago or maybe even before that.

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From 1998, Q2 GDP revision, Corporate profits, Trade, Consumer sentiment http://moslereconomics.com/2016/08/26/1998-q2-gdp-revision-corporate-profits-trade-consumer-sentiment/ Fri, 26 Aug 2016 16:53:39 +0000 http://moslereconomics.com/?p=27763 Something I wrote that got published in 1998: Revised down, note how the year over year growth has been continuously decelerating ever since the collapse of oil capex, and the strength in consumer spending looks like it could be about healthcare premiumus, which portends cutbacks elsewhere, hence the weaker q3 retail sales, etc. And with […]

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Something I wrote that got published in 1998:

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Revised down, note how the year over year growth has been continuously decelerating ever since the collapse of oil capex, and the strength in consumer spending looks like it could be about healthcare premiumus, which portends cutbacks elsewhere, hence the weaker q3 retail sales, etc. And with inventories still looking way too high, proactive inventory building doesn’t seem likely. Nor does the most recent housing data bode well for housing in q3:

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Highlights

Second-quarter GDP proved very soft, at only a plus 1.1 percent annualized rate for the second estimate following even softer rates in the prior two quarters of 0.8 and 0.9 percent. But masked in the latest quarter is a very strong 4.4 percent annualized growth rate for consumer spending which is 2 tenths higher than the first estimate. Inventory draw is the quarter’s culprit, pulling down GDP by a very steep 1.3 percentage points. But, in a counter-intuitive twist, lighter inventory in times of slow economic growth is a major positive for future production and employment and is a major plus for the ongoing quarter.

Residential investment is a disappointment in the second-quarter data, falling at a 7.7 percent annualized rate but following large gains in prior quarters. And building strength in new home sales points to a rebound for this reading in the third quarter. The biggest disappointment in the quarter is another decline, at a 0.9 percent rate, in nonresidential fixed business investment which points to business caution and continuing problems ahead for worker productivity. Price data show some pressure tied to oil with the GDP price index up 1 tenth from the first estimate to a year-on-year 2.3 percent.

The major takeaway from the second quarter is not the headline growth rate but the strength of the consumer, evident in the solid 2.4 percent rise in final sales, which is double the pace of the two prior quarters. The early outlook for the third quarter is positive, with estimates trending at about 3 percent growth.

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This one’s the contribution to PCE from July 29 data:

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This is the contribution to GDP from today’s data:

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Decelerating year over year:

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Not quite as bad but still negative:

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United States Corporate Profits

Corporate profits in the United States decreased by 2.4 percent or $36.3 billion to $1469.7 billion in the second quarter of 2016, after rising an upwardly revised 8.1 percent in the previous period, preliminary estimates showed. Dividends decreased 0.9 percent or $8.2 billion in the second quarter (compared to a gain of 0.8 percent or $7.3 billion in Q1) and undistributed profits dropped 5.2 percent or $28.1 billion (compared to a rise of 24.3 percent or $106.1 billion in Q1). Also, net cash flow with inventory valuation adjustment, the internal funds available to corporations for investment, fell 1.1 percent or $22 billion, after going up by 5.7 percent or $112.7 billion in the previous period.

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Highlights

A surge in food exports helped cut the nation’s goods gap in July to $59.3 billion from June’s revised $64.5 billion. Exports of foods, feeds & beverages rose 31 percent in the month though export prices of agricultural goods actually dipped slightly in the month. Other export readings are less favorable including a decline for capital goods, reflecting weak global investment in new equipment, and a small dip for consumer goods. A dip in imports also helped narrow the headline gap in July as capital goods imports and especially consumer goods imports fell sharply. The improvement in today’s headline is a big plus for early third-quarter GDP estimates but it doesn’t point to strength in underlying cross-border demand.

Looks like inventories continue to decline which doesn’t bode well for current output, as previously discussed:

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Highlights

Wholesales inventories are unchanged in the preliminary reading for July following a 0.2 percent build in June. Retail inventories fell 0.4 percent in July vs a 0.3 percent build in June. These results point to the need for inventory rebuilding and are a positive for the economic outlook.

Less than expected and declining, with the move up 4 months ago now completely reversed:

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Highlights

Consumer sentiment is steady and respectable, at 89.8 for the final August reading and a 6 tenths dip from mid-month and a 2 tenths dip from final July. The expectations component edged higher in the month to 78.7 which hints at confidence in the jobs outlook. Hinting at marginal softening in the current jobs market is the current conditions index which is down 2.0 points to a still solid 107.0. Inflation readings are especially weak in this report, reflecting in part this month’s downturn in gasoline prices. One-year expectations are down 2 tenths to 2.5 percent with the 5-year outlook down 1 tenth and also at 2.5 percent.

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PMI services, Durable goods orders, KC Fed http://moslereconomics.com/2016/08/26/pmi-services-durable-goods-orders-kc-fed/ Fri, 26 Aug 2016 13:45:55 +0000 http://moslereconomics.com/?p=27752 Weakness now includes the service sector: United States Services PMI The Markit Flash US Services PMI came in at 50.9 in August of 2016, down from 51.4 in the previous month and below market expectations of 52. It is the lowest reading since February with business activity, new orders and employment all slowing due to […]

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Weakness now includes the service sector:

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United States Services PMI
The Markit Flash US Services PMI came in at 50.9 in August of 2016, down from 51.4 in the previous month and below market expectations of 52. It is the lowest reading since February with business activity, new orders and employment all slowing due to subdued demand conditions and uncertainty ahead of the presidential election.

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Up a bit more than expected for the month, but remains in contraction year over year:

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Highlights

The factory sector, after a frustrating first half of the year, is now definitely showing life. Durable goods orders jumped 4.4 percent in July in a headline gain exaggerated by a swing higher for commercial aircraft but including gains across most readings. Excluding the gain for aircraft and no change for autos, orders rose a very sizable 1.5 percent. And the strength includes core capital goods where orders jumped 1.6 percent to show new demand for business equipment and machinery.

Though the gain for new orders points to future strength for shipments, shipment data for July are soft. Total shipments rose only 0.2 percent in the month with core capital goods shipments, which are an input into the nonresidential investment component of the GDP report, down 0.4 percent to get the third-quarter off to a slow start. And immediate negatives for tomorrow’s second estimate of second-quarter GDP are incremental downward revisions to core capital goods shipments in June and May, now at minus 0.5 and minus 0.7 percent.

Unfilled orders are also a concern in the report, down 0.1 percent in July on top of June’s very steep 0.9 percent decline. Lack of unfilled orders is not only a negative for production but also for employment. On the plus side, inventories broke a long run of contraction with a 0.3 percent rise and are still very lean with the inventory-to-shipments ratio unchanged at 1.64.

Turning back to new orders, other areas of monthly strength include both primary and fabricated metals, electrical equipment, and defense aircraft. A general trend reading underscoring the report’s strength is the year-on-year new order rate for ex-transportation, now at only minus 0.6 percent vs minus 3.4 percent in June.

The 3 month moving average, which smooths out some of the month to month volatility, isn’t looking so good:

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  • Inflation adjusted but otherwise unadjusted new orders are down 9.9 % year-over-year.
  • Backlog (unfilled orders) decelerated 0.2 % month-over-month, but is still contracting 2.2 % year-over-year.
  • The Federal Reserve’s Durable Goods Industrial Production Index (seasonally adjusted) growth decelerated 0.2 % month-over-month, up 0.6 % year-over-year [note that this is a series with moderate backward revision – and it uses production as a pulse point (not new orders or shipments)] – three month trend is decelerating, but the trend over the last year is relatively flat.
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    Remains in contraction, while the head of that Fed keeps calling for rate hikes:

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    Highlights

    Conditions in the Kansas City manufacturing sector, hit as it is by weakness in the energy sector, remain very difficult. The composite index is at minus 4 this month to extend a nearly unbroken string of contraction going back through last year. New orders are at minus 7, backlog orders at minus 4, and employment is at minus 10. Production is down, shipments are down, and inventories are down. Price data are soft with selling prices in a second month of contraction. This morning’s durable goods report is very positive but doesn’t extend to this report which, like other regional Fed reports and to a greater degree, is pointing to weakness this month for the factory sector.

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    Mtg purchase apps, House prices, Existing home sales http://moslereconomics.com/2016/08/24/mtg-purchase-apps-house-prices-existing-home-sales/ Wed, 24 Aug 2016 14:49:48 +0000 http://moslereconomics.com/?p=27745 Bad news for housing today- mtg purchase apps at the lows of the year, prices moderate, and existing home sales weak, so, as previously discussed, not looking like housing will be contributing to growth this year:

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    Bad news for housing today- mtg purchase apps at the lows of the year, prices moderate, and existing home sales weak, so, as previously discussed, not looking like housing will be contributing to growth this year:

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    Euro consumer confidence, Military accounting, ECB thought… http://moslereconomics.com/2016/08/23/euro-consumer-confidence-military-accounting-ecb-thought/ Tue, 23 Aug 2016 20:32:26 +0000 http://moslereconomics.com/?p=27739 The beatings will continue until morale improves… The Collapse of Rome: Washington’s $6.5 trillion Black Hole The Defense Finance and Accounting Service, the agency that provides finance and accounting services for the Pentagon’s civilian and military members, has just revealed that it cannot provide adequate documentation for $6.5 trillion worth of “adjustments” to Army general […]

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    The beatings will continue until morale improves…
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    The Collapse of Rome: Washington’s $6.5 trillion Black Hole

    The Defense Finance and Accounting Service, the agency that provides finance and accounting services for the Pentagon’s civilian and military members, has just revealed that it cannot provide adequate documentation for $6.5 trillion worth of “adjustments” to Army general fund transactions and data. According to a report released July 26 by the by the Inspector General of the US Department of Defense, US military budget practices are out of control. The report notes,

    “The Office of the Assistant Secretary of the Army (Financial Management & Comptroller) (OASA[FM&C]) and the Defense Finance and Accounting Service Indianapolis (DFAS Indianapolis) did not adequately support $2.8 trillion in third quarter journal voucher (JV) adjustments and $6.5 trillion in year-end JV adjustments made to AGF data during FY 2015 financial statement compilation. The unsupported JV adjustments occurred because OASA (FM&C) and DFAS Indianapolis did not prioritize correcting the system deficiencies that caused errors resulting in JV adjustments, and did not provide sufficient guidance for supporting system-generatedadjustments.” (emphasis added)

    (So maybe the ECB should float the idea of replacing Mario Draghi with one of the Governors of the Reserve Bank of Zimbabwe to show they are serious about meeting their inflation target?)

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    Redbook retail sales, PMI, Richmond Fed, New home sales http://moslereconomics.com/2016/08/23/redbook-retail-sales-pmi-richmond-fed-new-home-sales/ Tue, 23 Aug 2016 14:45:22 +0000 http://moslereconomics.com/?p=27729 Still extremely depressed: Down and well below expectations: Highlights Weakness in orders and employment were unfortunate themes of last week’s Empire State and Philly Fed reports and likewise headline the manufacturing PMI report. The PMI, which is based on a nationwide sample of manufacturers, slowed by 8 tenths in the August flash to 52.1, a […]

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    Still extremely depressed:
    8-23-1
    Down and well below expectations:

    8-23-2

    Highlights
    Weakness in orders and employment were unfortunate themes of last week’s Empire State and Philly Fed reports and likewise headline the manufacturing PMI report. The PMI, which is based on a nationwide sample of manufacturers, slowed by 8 tenths in the August flash to 52.1, a reading only modestly above breakeven 50 to indicate no more than limited expansion in composite activity.

    Output is the month’s best strength but one that won’t last very long if orders remain soft. The sample is cutting back on inventories this month which, like the slowing in employment, hints at caution over the business outlook. Price trends are stagnant in yet another sign of softness in demand. One positive in the report is strength in export orders which, after a long run of weak readings, is suddenly near a 2-year high.

    Exports aside, the strength in this report is limited and does not point to second-half strength for manufacturing.

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    Bad:

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    Strong sales, higher than expected, but in any case no homes get built or sold without permits which remain weak, so expect ‘corrections’ with future releases:

    8-23-6
    8-23-5

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    MMT in the news, Chicago Fed, Dividends http://moslereconomics.com/2016/08/22/mmt-news-chicago-fed-dividends/ Mon, 22 Aug 2016 17:27:12 +0000 http://moslereconomics.com/?p=27720 Stephanie Kelton #1, Pavlina Tcherneva #4! http://theweek.com/articles/643874/hillary-clintons-economic-dream-team Up a bit for the month, but the 3 month moving average remains negative:

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    Stephanie Kelton #1, Pavlina Tcherneva #4!
    http://theweek.com/articles/643874/hillary-clintons-economic-dream-team

    Up a bit for the month, but the 3 month moving average remains negative:

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    8-22-2

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    Bank loans, Japan savings, Comments on the economy http://moslereconomics.com/2016/08/21/bank-loans-japan-savings-comments-economy/ Sun, 21 Aug 2016 15:43:39 +0000 http://moslereconomics.com/?p=27715 Accelerated with the shale boom, still decelerating with the shale bust: 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 […]

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

    8-21-1

    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

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    Jobless claims, Philadelphia Fed business survey, Japan trade http://moslereconomics.com/2016/08/18/jobless-claims-philadelphia-fed-business-survey-japan-trade/ Thu, 18 Aug 2016 16:26:51 +0000 http://moslereconomics.com/?p=27709 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: Even with a much higher population and labor force, and with a higher unemployment rate, […]

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    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:

    8-18-2
    Not at all good:

    8-18-3

    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.

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