Huh?
Has he seen his own Atlanta Fed’s forecast?
Might make more sense to say no rate hike unless prospects improve…
;)
Fed’s Lockhart sees interest rate ‘liftoff’ by September
March 20 (CNBC) — Atlanta Federal Reserve President Dennis Lockhart said Friday he expects the U.S. central bank to raise interest rates at either its June, July or September policy meetings, barring a significant downturn in the U.S. economy.
Still no sign of life here:
MBA Mortgage Applications
Highlights
Despite low mortgage rates, demand for mortgage purchase applications continues to be weak, down 2.0 percent in the March 13 week for a year-on-year rate of only plus 1.0 percent. Refinance applications fell 5.0 percent in the week. Rates moved lower in the week with the average 30-year mortgage for conforming loans ($417,000 or less) down 2 basis points to 3.99 percent.
Not looking good here either:
Washington, D.C. – March 18, 2015 – After its first negative score in ten months, the Architecture Billings Index (ABI) showed a nominal increase in design activity in February, and has been positive ten out of the past twelve months. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the February ABI score was 50.4, up slightly from a mark of 49.9 in January. This score reflects a minor increase in design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 56.6, down from a reading of 58.7 the previous month.
More evidence this was the source of credit expansion, now gone, that picked up the slack when taxes were raised and spending cut in 2013. BIS chart on left shows growth of energy sector debt that offset the 2013 tax hikes and spending cuts.
The subsequent cutbacks explains the sudden collapse of US GDP:
Debt in the #oil and gas sector surged to $2.5 trillion last year from $1 trillion in 2006 http://t.co/xxwmCDj5Dp pic.twitter.com/HcnInCF7Jw
— Pedro da Costa (@pdacosta) March 18, 2015
Atlanta Fed GDPnow:
Unless some other agents steps up to spend more than its income GDP growth will not recover, and, as in prior cycles, the ‘automatic fiscal stabilizers’ will do their thing to reduce tax collections and increase transfer payments, thereby increasing the federal deficit in the ensuing slowdown until the deficit gets large enough reverse the downturn and support the next growth cycle.
That’s when I was saying L shaped recover rather than V or even U shaped:
Janet Yellen, 2009:
My forecasts for output and employment are similar to the Greenbook’s, so I won’t go into the details. I do want to emphasize that I anticipate a rather sluggish recovery, not the rapid V-shaped recovery we have frequently seen following deep recessions in the past. The process of balance sheet repair that households and financial institutions are undergoing will result in subdued spending for an extended period, and monetary policies here and abroad are not able to play as big a role as usual in promoting recovery because of the constraint of the zero lower bound on short-term interest rates.
Still no sign of a surge in spending here, as apps remain below even last years winter depressed numbers:
MBA Purchase Applications
Highlights
A dip in mortgage rates failed to give much lift to the purchase index which slipped 0.2 percent in the February 27 week for a year-on-year rate that is also at minus 0.2 percent. The refinance index did rise but not by much, up 1.0 percent. The average rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 3.96 percent from 3.99 percent.
The lonely dove:
Fed’s Evans, citing low inflation, wants no rate hikes until 2016
March 4 (Reuters) — The Federal Reserve should wait until the first half of 2016 before raising interest rates, a top U.S. central banker said on Wednesday, or risk undermining the very recovery it has helped engineer.
“Given uncomfortably low inflation and an uncertain global environment, there are few benefits and significant risks to increasing interest rates prematurely,” Chicago Federal Reserve Bank President Charles Evans said in remarks prepared for delivery to the Lake Forest-Lake Bluff Rotary Club. “I think we should be patient in raising interest rates.”
Even if the Fed keeps rates at their near-zero level until next year, he said, inflation probably won’t reach the Fed’s 2-percent goal until the end of 2018. And if his forecast proves wrong and the economy begins to run too hot too fast, he said, the Fed would have “ample time” to raise rates moderately to head off excessively high inflation.
Evans, a voting member this year on the Fed’s policy-setting panel, stands nearly alone at the central bank in calling for rates to stay near zero for another year or so. Many of his colleagues have said they are open to, if not eager for, rate hikes to begin as soon as June.
For his part, Evans expects the U.S. economy to grow at a 3-percent pace over the next couple of years, generating job gains of over 200,000 a month for some time.
But that is not enough to justify raising rates, he said. Unemployment, at 5.7 percent, is still above the 5 percent he now believes is sustainable for the economy in the longer run.
More importantly, the Fed’s core gauge of inflation is at just 1.3 percent, and inflation expectations based on prices in Treasury markets have fallen dramatically.
Before raising rates, he said, he would like to see not only a rise in core inflation and in market-based inflation expectations, but also a rise in wages, now averaging around 2 percent a year, to between 3 and 4 percent.
Anyone mention that, like car sales, this is the 3rd consecutive monthly decline?
ADP Employment Report
Highlights
ADP sees slowing for Friday’s February payrolls, estimating that private payrolls rose 212,000 which is 8,000 below consensus for the ADP report. But ADP’s data also includes a big upward revision for January, to 250,000 vs an initially reported 213,000. The results aren’t likely to shift expectations for Friday’s government data where the corresponding Econoday consensus is 225,000 vs January’s 267,000.Breaking down ADP’s estimate, service-providing industries are up 181,000 in February vs 206,000 in January with goods-producing industries up 31,000 vs 45,000. Further detail shows professional services up 34,000 vs January’s 49,000 with construction up 31,000 vs 45,000. Growth in trade & transport is 31,000, down from 50,0000. Financial activities are up 20,000 vs 15,000 with manufacturing up only 3,000 vs a gain of 15,000 in January.
This survey remains firm:
ISM Non-Mfg Index
Highlights
Growth remains very solid in ISM’s non-manufacturing sample where the composite index is up 2 tenths to 56.9 in the February report. Employment is a stand-out positive, jumping nearly 5 points to a 4-month high of 56.4.Not so strong are new orders where growth is down nearly 3 points to 56.7 for the lowest reading since March last year. Nevertheless, this is still a very healthy and sustainable rate of growth.
Supplier deliveries slowed further in February which added to the composite for the month. But the slowing is likely tied, not to demand factors, but to the port slowdown on the West Coast, a slowdown which has since been resolved. The slowing in deliveries is the likely reason behind a rise in inventories and a build in backlog orders. Cost pressures, as they are in most reports, are flat, the result of course of low fuel costs.
A big plus in today’s report is wide breadth of strength with 14 of 18 industries reporting growth in the month led once again by accommodation & food services which are likely getting a boost from discretionary consumer spending, itself the result of the strong jobs market and low gasoline prices. In the contraction column are both construction and mining, two sectors that remain weak.
Interesting what’s up and what’s down:
Wells pulling back some on sub prime auto loans:
Wells Fargo Puts a Ceiling on Subprime Auto Loans
And banks in general fighting this:
A bit worse than expected. Fewer dollars spent, but more ‘real things’ purchased due to lower prices, but any calculation of a deflator with the large drop in oil prices is problematic:
Personal Income and Outlays
Highlights
In January, personal income was moderately healthy as was spending after price effects are discounted. Personal income posted a gain of 0.3 percent after growing 0.3 percent in December. January fell short of analysts’ forecast for a 0.4 percent boost. The wages & salaries component jumped 0.6 percent, following a rise of 0.1 percent the prior month.
Personal spending decreased 0.2 percent, following a decline of 0.3 percent in December. Durables slipped 0.1 percent, following a 1.4 percent drop in December-due to sluggish auto sales. Nondurables plunged 2.2 percent in January after decreasing 1.4 percent the month before—with lower gasoline prices pulling this component down. Services advanced 0.5 percent after a 0.2 percent gain in December.
But weakness in current dollar spending was price related as chain-weighted (price adjusted) personal spending came in at 0.3 percent, following a 0.1 percent dip in December. January actually is a good start for first quarter GDP in the PCE component.
Prices at the headline level fell again, down 0.5 percent in January after a 0.2 percent dip the month before. The core PCE price index firmed to up 0.1 percent from flat in December. On a year-ago basis, headline inflation eased to 0.2 percent from 0.8 percent in December. The year-ago core rate was steady at 1.3 percent.
Income growth was moderately healthy in January. The consumer sector has fuel for spending-especially in the important wages & salaries component. Inflation is low and well below the Fed’s target of 2 percent year-ago inflation, meaning the Fed likely will stick with no rate hike before June.
From the GDP report, through Q4:
The monthly number shows January 2015 did better than January 2014 when the winter was particularly cold:
Construction Spending
As previously discussed, and relayed to the finance minister in Greece, there is no reason to assume the ECB will cut off liquidity to Greek banks.
First, those banks are private institutions, and regulated and supervised by the ECB, who has deemed them ‘solvent’ and ‘adequately capitalized’ and therefore eligible for liquidity support as members in good standing.
Think of it this way, if NY went rogue, would the Fed cut off Citibank?
ECB extends liquity for Greek banks: Report
Seems the last thing the Fed wants to do now is engineer higher mtg rates and set back the anemic housing markets.
Sort of like Bernanke did just before housing turned south and has yet to recover…
Federal Reserve minutes indicate no rush to raise interest rates
Below 50, not good:
Heaps stronger than expected:
Employment Situation
Highlights
Today’s employment situation was heavily positive even though the unemployment rate edged up. Payroll jobs gained 257,000 in January after strong increases of 329,000 in December and 423,000 in November. December and November were revised up a net 86,000. With the revision, November is the strongest month since May 2010. Today’s report may tip the balance for the Fed to think about a first increase in policy rates this year rather than next-although still at a slow pace.
The unemployment rate nudged up to 5.7 percent from 5.6 percent in December. The rise was due to a sharp rebound in the labor force. The labor force participation rate rose to 62.9 percent from 62.7 percent in December. It appears that some discouraged workers are returning to the labor force—a positive sign for how workers view the economy.
Turning back to the establishment survey, private payrolls increased 267,000 in January after a 329,000 boost the month before.
Goods-producing jobs increased 58,000 after a 73,000 boost in December. Manufacturing increased 22,000 after rising 26,000 in December. Construction jumped 39,000 in January after gaining 44,000 the month before. Mining slipped 4,000 after rising 3,000 in December. These numbers offer hope that the manufacturing and construction sectors are improving. In recent months, they have been sluggish.
Private service-providing industries posted a 209,000 increase after a gain of 247,000 in December. Government jobs declined by 10,000 in January after a rise of 9,000 the month before.
The labor force may be tightening a bit as average hourly earnings rebounded 0.5 percent, following a 0.2 percent dip in December. However, part of the boost in wages was due to increases in some states’ minimum wage. The average workweek held steady at 34.6 hours.
Overall, the latest employment situation suggests that the consumer sector is still the current backbone of the recovery. Also, the labor market has been given an upgrade with upward revisions to November and December. A caveat for the latest report is that seasonal factors for cold weather months can be volatile.
So anyone remember what that big spike in November was all about?
I don’t recall anything at the time in the news, etc. that would have indicated any kind of hiring surge was happening?
Anyway, whatever it was seems to be unwinding?
Currency wars, deflation fights, and with all the guns shooting backwards. As the carpenter said, ‘no matter how much I cut off it’s still too short.’
History will not be kind to these people…
Currency war a worry ahead of G-20 finance gathering (Nikkei) With a number of countries loosening monetary policy, avoiding competitive currency devaluation has emerged as a key issue for the meeting of Group of 20 finance ministers and central bankers that kicks off Monday in Istanbul. The communique released after the September G-20 meeting in Cairns, Australia, included language that in effect tacitly condoned monetary easing aimed at economic improvement. “Monetary policy in advanced economies … should address, in a timely manner, deflationary pressures where needed,” it read in part. The IMF, in January, projected growth of 1.2% in the eurozone, down 0.2 point from the October 2014 edition. The IMF cut its outlook for emerging markets by 0.6 point as well.
Fed’s Rosengren: Weak inflation is key challenge for central banks (WSJ) “The problem of significantly undershooting inflation—a dynamic which could well keep interest rates at the zero lower bound—is likely to be a key challenge to central bankers in the first two decades of the 21st century,” Federal Reserve Bank of Boston President Eric Rosengren said. “As with the oil shock in the 1970s, the current shock has served to accentuate a potential monetary policy pitfall—in this case, the failure to quickly and vigorously address a significant undershooting of inflation targets,” the central banker said. “We still are a long way from normalizing either short-term interest rates or our balance sheet,” the official said.
Benefits of aggressive Fed policy still to peak (WSJ) “The net stimulus to real activity and inflation was limited by the gradual nature of the changes in policy expectations and term premium effects, as well as by a persistent belief on the part of the public that the pace of recovery would be much faster than proved to be the case,” according to a new Fed board paper. “The peak unemployment effect—subtracting 1¼ percentage points from the unemployment rate relative to what would have occurred in the absence of the unconventional policy actions—does not occur until early 2015, while the peak inflation effect—adding ½ percentage point to the inflation rate—is not anticipated until early 2016,” write the authors.
Denmark Cuts Rates Again to Protect Currency Peg (WSJ) Denmark’s central bank scrambled to defend its under-pressure currency peg Thursday, cutting its benchmark interest rate for the fourth time in less than three weeks. The decision to cut the interest rate on deposits—to -0.75% from -0.5%–marks the latest effort to maintain the peg. Last week, the central bank, known as Nationalbanken, announced the surprise suspension of government bond auctions, and the bank said Tuesday it sold record amounts of kroner in January to weaken its currency. Nationalbanken Governor Lars Rohde tried to calm any fears about the future of the policy cornerstone. The central bank “has the necessary instruments to defend the fixed exchange rate policy for as long as it takes,” he said in a statement.
China cuts bank reserve requirement to spur growth (Reuters) China’s central bank made a system-wide cut to bank reserve requirements on Wednesday, the first time it has done so in over two years, to unleash a fresh flood of liquidity to fight off economic slowdown and looming deflation.
Greek leadership assures policy is good for its banks, while real economy and real people are devastated:
Greek central bank says ‘absolutely no problem’ with banks (Reuters) Greek central bank governor Yannis Stournaras said on Thursday that Greek banks were solid and under control. “Deposits and liquidity are absolutely safe,” Stournaras, who is also a member of the European Central Bank’s Governing Council, told reporters. “There is absolutely no problem with the banks. We are under control. It was a calm day today,” he said referring to bank deposits. Greek Prime Minister Alexis Tsipras and Finance Minister Yanis Varoufakis have been seeking support for a new deal with Greece’s international lenders that would allow an end to years of imposed austerity. “The ECB’s decision can be taken back if there is a deal from the Greek government (and its EU partners),” he said.
Not a good sign:
Baltic Dry Freight Index Plummets Amid Commodities Slump (WSJ) The Baltic Dry Index fell to 577 this week, a far cry from its peak of 11,793 in 2008. The size of the world’s fleet of dry-bulk ships far exceeds demand for the vessels which carry commodities, with over capacity estimated at around 20% above demand over the past few years. Many ships ordered at a time of booming global trade before the 2008 financial crisis have come into service as economic growth has spluttered in the years since. Rui Guo, a freight analyst at ICAP Shipping, said the tonnage in the water of dry-bulk vessels has gone up 85% since 2008, even as demand has fallen. Mr. Guo said daily freight rates for a 150,000-ton freight vessel are now around $5,500, with the break-even point around $7,500.
The Korea International Trade Association reported that exports of general machinery to China declined 7.1% in the January-November period of 2014, in contrast to a 2.0% increase in 2013.
Down hard and revisions down hard as well, and year over year growth up less than 1%:
Durable Goods Orders
Highlights
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
Highlights
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?
FYI:
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.
This traditional source of total personal income growth hasn’t been there this time around due to Fed
‘easing’. The economy is a net receiver of interest, the govt. a net payer:
And net interest income hasn’t been growing much for banks, for example:
Production up, Business activity down:
Dallas Fed Mfg Survey
Highlights
Texas factory activity increased again in December, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose strongly from 6 to 15.8, indicating output grew at a faster pace in December.Other measures of current manufacturing activity reflected continued growth during the month. The capacity utilization index rose from 9.8 to 12.4, due to a higher share of respondents noting an increase in December than in November. The shipments index climbed to 19.6, its highest reading in five months. The new orders index moved down from 5.6 to 1.3, suggesting moderating demand growth, but more than a quarter of firms noted increases in new orders over November levels.
Perceptions of broader economic conditions remained positive this month. The general business activity index fell from 10.5 to 4.1. The company outlook index was almost unchanged at 8.4, with 21 percent of respondents noting an improved outlook.
The average of all Fed surveys, in blue, is lower so far for December:
