Category Archives: MMT

Reposting a prior comment

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Here’s a comment I wrote and posted several years ago. I’d like to add that I also see the Transition Job policy, along with a 0 rate policy, as what I call the ‘base case for analysis’ of a state currency:

“With ‘state currency’
There necessarily is,
Always has been,
Always will be,
A buffer stock policy.
Call that the MMT insight if you wish.

So it comes down to ‘pick one’-
1. Gold
2. Foreign Exchange
3. Unemployment
4. Employed/JG/ELR
5. Wheat
Whatever!
I pick employed/JG/ELR
As it works best as a buffer stock based on any/all criteria for a buffer stock.”

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Employment, US PMI’s, Factory orders, Japan sales tax, HK, MMT comments

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Headline number looks promising. The question is whether employment will lag the other indicators that are decelerating, or provide the support that turns them around. And note the .1 drop in the work week is equivalent to maybe to something over 100,000 jobs:

Highlights

That sound you hear is the economy revving up. Nonfarm payroll growth easily beat expectations at 263,000 in April as did the unemployment rate with an outsized 2 tenths decline to a 49-year low of 3.6 percent. Wages didn’t show any immediate jolt from the strength, coming in as expected for the monthly rate, at 0.2 percent, and 1 tenth under expectations for the year-on-year rate at 3.2 percent.

Tightening conditions are the signal from the pool of available workers which continues to be drained, down nearly 500,000 in the month to 10.9 million. The participation rate, reflecting the decline, fell 2 tenths to a lower-than-expected 62.8 percent.

Payrolls are headed by a second sharp gain for construction, up 33,000 in April after 20,000 in March, for a sector where scarcity of labor especially skilled labor has been an ongoing theme. Perhaps topping construction for April’s payroll highlight is a 76,000 surge in professional & business services that includes an 18,000 jump in temporary help. The strength here, which adds to prior gains, indicates that businesses, in an effort to get the people they need immediately, are turning to contractors to fill slots. Government payrolls are also very strong, up 27,000 in April.

The latest unemployment drop was for the wrong reason

The nation’s unemployment rate sank in April to the lowest rate since December 1969, but the milestone comes with a big caveat: The decline stemmed from more people quitting their search for work.

The jobless rate slipped to 3.6% last month from 3.8% in March, continuing a long downward arc from a 27-year high of 10% in 2009. Yet that doesn’t mean there aren’t some potential trouble spots.

Take the size of the labor force. It contracted in April by nearly half a million people and fell for the fourth straight month.

The last time the labor force fell four months in a row was during the waning stages of the 2007-2009 Great Recession. And before that one has to go back to 1950.

As a result, the so-called labor-force participation rate slipped to 62.8% from a six-year high of 63.2% in January. That is, every 63 of 100 able-bodied Americans 16 or older either have a job or are seeking one.

The shrinking labor force “is the primary factor behind the unexpected decline in the unemployment rate,” noted chief economist Richard Moody of Regions Financial.

This is from the household survey. The two surveys tend to converge over time, and the payroll survey is much larger and less subjective:

The household survey shows employment is down for the year:


Up nicely for the month, but year over year growth still heading south, as per the chart:

Highlights

Factory orders rose 1.9 percent in a March report that is widely mixed yet fundamentally favorable. The least favorable reading in the report is a modest 0.3 percent rise when excluding transportation durables where however gains for aircraft, especially during the 737 Max grounding, are very welcome as was a strong gain in car and truck orders. The best news in the report is a 1.4 percent surge in orders of core capital goods (nondefense ex-aircraft) that hints strongly at second-quarter acceleration for business investment.

Inventories rose 0.4 percent in the month and though shipments jumped 0.7 percent, the inventory-to-sale ratio held unchanged at 1.36. Unfilled orders rose 0.2 percent and though a modest rate, is nevertheless welcome given what has been a long flat trend for this reading.

The strength of this report was signaled last week by advance data on the durables side of the manufacturing sector, where March orders growth is revised down 1 tenth to a nevertheless very sharp 2.6 percent gain. Nondurables are the fresh information in the report and they rose a strong 1.1 percent in March in a gain tied in part to higher prices for petroleum and related products.

The President’s tariff war initiated to enhance manufacturing seems to instead be undermining it:

Here we go again. The exporters remain firmly in control, looking to depress domestic consumption and keep wages in check by fear mongering about the public debt has not abated:

Japan sales tax to rise as planned

(Nikkei) Japan will raise the 8% consumption tax to 10% as scheduled in October, barring a major financial crisis, a top official in the ruling party told Nikkei. “I haven’t heard anyone say that we could see something on the scale of the Lehman shock,” Katsunobu Kato, head of the Liberal Democratic Party’s General Council, said Wednesday. “It’s appropriate for us to proceed as planned.” Prime Minister Shinzo Abe decided to delay planned increases in 2014 and 2016. This time, he has said the government will go through with the increase, barring a disruption on par with the 2008 crisis.

Global trade deceleration:

Hong Kong’s Q1 growth slips to slowest in a decade

(Nikkei) Hong Kong’s real gross domestic product rose 0.5% on the year in the January-March quarter. The economy expanded at the slowest rate since July-September 2009, and decelerated markedly from a 1.2% increase reported for the fourth quarter of 2018. Consumption edged up 0.1% on the year last quarter, compared with a 2.7% gain in October-December. Exports of goods fell 4.2%, while imports dropped 4.6%. Rapid growth in January-March 2018, which came to 4.6%, also left less room for improvement, according to the spokesperson.

How about this!!!

https://www.perdue.senate.gov/imo/media/doc/MMT%20Resolution.pdf

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Housing, Freight, Infrastructure, Trump advice, MMT hysteria, Cooling real estate markets

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Tax Reform Exacerbates Sales Cooldown in the U.S.

(WSJ) U.S. tax reform has exacerbated a gradual cooldown in U.S. home sales over the past year in certain parts of the country, according to research from realtor.com. The Tax Cuts and Jobs Act, which went into effect on Jan. 1, 2018, allows homeowners to deduct mortgage interest on a loan up to $750,000—down from $1 million—and caps state and local tax deductions to only $10,000. Home sales fell 6% across a sample of 30 counties where a large proportion of households took the mortgage interest deduction, while home sales rose by a modest 0.3% in a sample of 30 counties where taxpayers didn’t use the deduction.

Sliding Freight Rates Send More Big Bulk Ships to Scrapyards

(WSJ) Ship-broker BTIG said in a report that 107,000 deadweight metric tons of ship steel were recycled in the first three months of this year, up 35% from 78,000 metric tons in the same period a year ago. Of 23 vessels scrapped, 16 were capesize vessels, the biggest cargo ships. Capes now command daily freight rates of around $9,000, well below the average $25,000 needed to break even. The Baltic Dry index was at 726 points on Friday, down 27% in the past 12 months. The ship-breaking industry has annual revenue up to $5 billion and 2018 was one of the busiest years ever.

U.S. Democrats seek up to $2 trillion to invest in aging infrastructure

(Reuters) House of Representatives Speaker Nancy Pelosi and Senate Democratic leader Chuck Schumer said they would try to revive an effort for major investments in public works. The White House said President Trump had spoken recently with Pelosi and “agreed to meet soon to discuss working together on infrastructure,” spokesman Judd Deere said. “I’m all for taking it (infrastructure legislation) up once the president and Democrats, everybody says: ‘OK, here’s how we’re going to pay for it.’ As soon as that magically appears, I think we have a way forward,” Senate Majority Leader Mitch McConnell said.

In case there was any doubt he’s still doing his own tweets:

President Donald Trump encourages France to use “flying water tankers” to put out a raging fire at the Notre Dame Cathedral in Paris as firefighters rushed to save one of the country’s most visited landmarks.

“So horrible to watch the massive fire at Notre Dame Cathedral in Paris,” the president tweets. “Perhaps flying water tankers could be used to put it out. Must act quickly!”
“If you hit that with tons of water from above, that’s going to collapse the entire structure and make the situation worse,” said Wayne McPartland, a retired New York City Fire Department battalion chief. “If you miss, you might hit civilians in the street.”

They are talking about me!
:(

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Earnings, New issuance, UK services, Germany, MMT comments

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Expect Pre-Earnings Frowns to Turn Upside Down

(WSJ) Analysts polled by Refinitiv think earnings per share for companies in the S&P 500 will be down 2% from a year earlier. The number of companies that have had negative first-quarter earnings warnings so far has outpaced those with positive preannouncements by a 2.8-to-1 ratio—well above the ratio of 1.2 to 1 registered at the same time ahead of first-quarter earnings season last year or the 1.9 to 1 ahead of the fourth-quarter earnings season. By this point in the calendar, the earnings bar tends to be low enough for companies to easily clear. Positive surprises typically outweigh negative ones by more than 3-to-1.

Sharp sell-off late last year takes its toll on equity deals

(FT) Proceeds from stock market listings in the region fell 99 per cent in the first quarter compared with the same period last year, with just $144m raised, Refinitiv data show. Including follow-on deals for companies already listed on stock markets in Europe, the number of transactions, at 81, was down by almost half. Proceeds from initial public offerings in the UK dropped a more modest 85 per cent, while US and Chinese companies’ IPO proceeds both halved compared with the first quarter of last year. In total, Refinitiv reported that 404 equity deals were launched around the world in March.

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MMT on CNBC, Oil sale, Growth forecast

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Well done Professor Kelton!

Stephanie Kelton explains Modern Monetary Theory

This is particularly ridiculous:

U.S. offers up to 6 million barrels of oil from emergency reserve

(Reuters) The U.S. Energy Department said on Thursday it is offering up to six million barrels of sweet crude oil from the national emergency reserve in a sale mandated by a previous law to raise funds to modernize the facility. A law U.S. President Donald Trump signed last year requires the department to hold sales to fund $300 million improvements including work on shipping terminals to the Strategic Petroleum Reserve, or SPR, which is held in caverns on the coast of Texas and Louisiana. Previous laws have also mandated sales from the reserve, which currently holds more than 649 million barrels.

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MMT in the headlines, Housing starts

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The notion behind what is called “Modern Monetary Theory,” or MMT, is that as long as the Fed can keep interest rates low without sparking inflation, the national debt and budget deficit won’t be an issue. MMT has been espoused by politicians including Rep. Alexandria Ocasio-Cortez, D-N.Y., and Democratic presidential candidate Sen. Bernie Sanders of Vermont.

Powell conceded that he has not read up on the theory but said he has heard some “pretty extreme claims” about how it might be implemented.

Highlights

Housing starts proved unexpectedly weak in December and will pull back residential investment in Thursday’s GDP report. A strong offset, however, is steady strength in permits which are less impacted by weather or similar one-time effects.

Starts fell 11.2 percent in the month to a 1.078 million rate that is far below Econoday’s consensus range. This compares with a long trend in the 1.200 to 1.300 million range and is the weakest showing since September 2016.

Wildfires in the West may be at play and are likely responsible at least in part for a 26.3 percent monthly drop in starts in the region to a 216,000 rate. But starts were also down 13.2 percent in the Midwest to a 125,000 rate with the South down 6.0 percent to 630,000. The Northeast was unchanged at 107,000.

Starts of single-family homes, down 6.7 percent, fell less severely than multi-units, down 20.4 percent. This should limit the pull lower for residential investment as single units have higher per unit construction costs than multi-units.

Now the good news in the report. Permits rose 0.3 percent in December to a 1.326 million rate that exceeds Econoday’s high estimate for 1.305 million. Here, however, the single-family reading is down 2.2 percent to 829,000 while multi units are up 4.9 percent to 497,000. And here the West shows strength, up 17.1 percent to 383,000.

Bad:

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News headlines- weakness continues, Mtg apps, Pending home sales, Confidence, ADP employment, MMT articles

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Apple says China sales fell 27% last quarter

(Nikkei) Apple’s net sales in greater China, including the mainland, Hong Kong and Taiwan, fell 27% on the year to $13.17 billion for the three months ended Dec. 29 in results announced Tuesday. This marked the first downturn there in six quarters. Combined sales elsewhere, including the U.S., Europe and Japan, grew 1% to $71.1 billion, pointing to China as the central cause of the sluggish quarterly results. Greater China as a share of Apple’s sales shrank to 16% from 20%. Total sales for the quarter dropped 5% to $84.3 billion.

3M Lowers Profit Outlook for 2019

(WSJ) “Some of the things that we were expecting on tariffs haven’t turned out quite as bad as what we were estimating,” Financial Chief Nick Gangestad said. 3M now expects $70 million in higher raw material costs this year, including the effect of tariffs, compared with $100 million previously. But 3M said it was seeing a slowdown in some important markets including China and weaker demand globally in industries such as car and electronics production. The company expects potentially lower revenue growth and earnings of $10.45 to $10.90 a share this year, compared with its prior goal of $10.60 to $11.05 a share.

U.S. auto sales seen down in January: J.D. Power, LMC

(Reuters) U.S. auto sales in January are expected to fall about 1 percent from the same month in 2018, partly due to uncertainty around government shutdown causing some customers to delay purchases, according to industry consultants J.D. Power and LMC Automotive. Total vehicle sales in January are estimated to be about 1,141,300 vehicles, the consultancies said on Tuesday. Retail sales are expected to fall 2.4 percent to 864,300 vehicles in January, while the overall total seasonally adjusted annualized rate for vehicles is expected to be about 16.8 million vehicles, down 2.3 percent from a year ago.

Highlights

Purchase applications for home mortgages fell a seasonally adjusted 2 percent in the January 25 week, continuing the prior week’s cooling from the highest volume since 2010 seen at the start of the year. Year-on-year, unadjusted purchase applications gave up a 13 percent gain recorded in the prior week and plunged back into negative territory to a level 7 percent lower than a year ago. Applications for refinancing fell 6 percent from the prior week, pulling down the refinance share of mortgage activity by 2.5 percentage points to 42.0 percent. The average interest rate for 30-year fixed rate conforming mortgages ($484,350 or less) rose 1 basis point from the prior week to 4.75 percent. Note that results for the week were affected by the Martin Luther King Jr. Holiday, for which adjustments were made but which may still have distorted some comparisons. Despite the cooling in the last 2 weeks, purchase applications remain about 6 percent above the long term average and could give a boost to the housing market in the upcoming spring buying and selling season.

Way below expectations:

NAR: Pending Home Sales Index Decreased 2.2% in December

Still high but softening rapidly:


This forecast for Friday’s employment report is down from last month but still reasonably strong:

Highlights

ADP estimates that private payroll growth in Friday’s employment report for January will rise a higher-than-expected 213,000. Forecasters pegged ADP’s January estimate at 174,000 and see Friday’s private payrolls coming in at 160,000 vs 301,000 in December.

These seem to be popping up everywhere, with none of them getting it right… ;)

The Flamboyant Absurdity of ‘Modern Monetary Theory’

Modern Monetary Theory: A Cargo Cult

MMT Or Bust – A Big Government Fantasy For Leftists

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MMT article, Mtg purchase apps, Pending home sales

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Very friendly article!

Modern Money Theory Explained (Vice)

Nice increase but year over year remains weak:

Highlights

With the rise in mortgage rates taking a pause, purchase applications for home mortgages rose by a seasonally adjusted 6.0 percent in the February 23 week. But unadjusted, purchase applications were down 1.0 percent from the prior week, putting the year-on-year gain in the Purchase Index at a rather slim 3.0 percent, while applications for refinancing, which tend to be more sensitive to the level of interest rates, fell 1.0 percent, taking the refinance share of mortgage activity down 2.6 percentage points to 41.8 percent. The average interest rate on 30-year fixed rate conforming mortgages ($453,100 or less) remained unchanged from the prior week at 4.64 percent, the highest level in 4 years. The week’s results include an adjustment for the Presidents’ Day holiday.

Way down and prior month revised lower as well:

Highlights

Existing home sales appear to be slowing, the latest evidence coming from the pending home sales index which fell an unexpected 4.7 percent in January to a 104.6 level that is the lowest in nearly 3-1/2 years. Today’s result points to a third straight decline for final sales of existing homes which fell very sharply in both January and December.

Lack of supply is a key factor holding down sales along with rising mortgage rates, at an average of 4.64 percent for 30-year mortgages as reported earlier this morning by the Mortgage Bankers Association. Regional sales data show wide declines especially for the Northeast which had been rebounding in prior months.

The housing sector accelerated at the end of last year but, despite strong leadership from the new home market, appears to have slowed so far this year.

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