This kind of deceleration has always been associated with recession:
Bending the curve:
Actual lending continues to decelerate:
So for the last 6 months the Fed is seeing a steep decline in credit growth and a softening in price pressures, wage growth, employment growth, auto sales, home sales and permits, retail sales, and personal income. Apart from that things are looking up!
;)
So the Fed is failing to meet its inflation target, wage growth remains weak, and all measures of credit expansion have been decelerating for more than 6 months:
Highlights
Consumer prices remain very soft, failing to match what were modest Econoday expectations for July. Total prices edged 1 tenth higher in July as did the core (less food & energy) which are both no better than the low estimates. Year-on-year rates are also at the low estimates, at 1.7 percent each. Moderation in housing costs remains a major disinflationary force, inching only 0.1 percent higher for a yearly 2.8 percent which is down 2 tenths from June. And wireless services, in keeping with the telecom revolution, continue to move lower, falling 0.3 percent on the month for a yearly decline of 13.3 percent.
Vehicle sales have been weak this year and it’s being reflected in prices which fell 0.5 percent in the month. Lodging away from home is another major negative in the July report, falling a record 4.2 percent as motels and hotels cut prices. On the plus side, apparel prices, which had been on a long negative streak, rose 0.3 percent though the year-on-year rate remains in the negative camp at minus 0.4 percent. Medical care is a plus in the report, rising 0.4 percent for the second straight month with the year-on-year rate, however, edging lower to 2.6 percent. Energy prices are a negative in the report, at minus 0.1 percent, offset by a 0.2 percent rise for food.
Is the dip in inflation the result of one-time effects that will soon pass? Or is it the result of weak wages and general global disinflation? Lack of inflation remains the central trouble in the Federal Reserve’s policy efforts. Today’s results will not be improving expectations for the beginning of balance-sheet unwinding at the September FOMC.
Interesting how both core and headline CPI growth reversed and began deceleration just over 6 months ago as well:
Crude production has leveled off? Gas as well?
Competition from Air B%B?
From HotelNewsNow.com: STR: US hotel results for week ending 5 August
The U.S. hotel industry reported mostly negative year-over-year results in the three key performance metrics during the week of 30 July through 5 August 2017, according to data from STR.
In comparison with the week of 31 July through 6 August 2016, the industry recorded the following:
Occupancy: -1.5% to 74.5% Average daily rate (ADR): +0.7% to US$129.00 Revenue per available room (RevPAR): -0.8% to US$96.08
Read more at http://www.calculatedriskblog.com/#Abl5O3RLz78wWYJb.99
Thanks to all for your support for this year’s PMC!
Looking like $48 million will be donated to Dana Farber for cancer research this year!
Not too late if you haven’t contributed… ;) http://www2.pmc.org/profile/WM0015
I make my personal donation as a sponsor to insure every $ you donate goes to cancer research and not to expenses:
‘Mosler Economics/MMT’ was featured on the back pocket of the jersey. Hard to see in this picture so I circled it in red:
The start in Wellesley:
Our team taking a break one mile from the end of the first day:
Quite the buffet after the first day’s ride:
The tent at the Provincetown Inn after the second day’s ride:
Monday morning at the Provincetown Inn after the ride:
Cliff, Sada, and Warren maybe 1984:
Thanks again!
Warren
This is reflected in the deceleration of commercial real estate lending:
From Dodge Data Analytics: Dodge Momentum Index Stumbles in July
The Dodge Momentum Index fell in July, dropping 3.3% to 135.0 (2000=100) from its revised June reading of 139.6. The Momentum Index is a monthly measure of the first (or initial) report for nonresidential building projects in planning, which have been shown to lead construction spending for nonresidential buildings by a full year. The move lower in July was due to a 6.6% decline in the institutional component of the Momentum Index, while the commercial component fell 1.1%.This month continues a recent trend of volatility in the Momentum Index where a string of gains is interrupted by a step backwards in planning intentions.
Not just the US!
This is slowing things down as well:
China’s capital controls apply brakes on ‘go out’ drive
Aug 9 (Nikkei) — China’s outbound direct investment plunged 46% on the year to $48.1 billion in the six months through June, trailing foreign direct investment of $65.6 billion. Foreign acquisitions, remittances, money exchanges and other outbound transactions of more than $5 million became subject to mandatory pre-screening by regulators starting last November. Regulators also said real estate, hotel, entertainment, film, sports club and other “irrational” overseas investments would be tightly monitored. In June it was learned Chinese bank regulators had told lenders to more strictly examine overseas investments by Dalian Wanda Group, HNA Group and three other major conglomerates.
Good chance the inventories are ‘unwanted’ due to low sales as retail sales were a lot lower than expected:
Highlights
Wholesale inventories rose a sharp 0.7 percent in June in what was a wanted build given a likewise 0.7 percent rise in sales. The stock-to-sales ratio is unchanged at a lean 1.29. If there is an imbalance, it’s inventories of autos which rose 1.4 percent while sales fell 0.5 percent. Otherwise this a very positive report, pointing at the same time to sales growth and inventory growth.
Inventories still look elevated to me:
This is the sales chart they think is so good- still short of 2014 levels and this chart isn’t adjusted for inflation:
No sign of Trumped up expectations fading here:
Hires fell, which most are saying indicates a lack of supply of workers. But the low wage growth and low participation rates tell me it’s more likely about low aggregate demand:
Highlights
Job openings rose sharply in June, to 6.163 million from 5.702 million in May. Hires, however, fell sharply, to 5.356 million from 5.459 million. This data set can be volatile but the underlying theme is a separation between openings and hiring which points to tightness in the labor market and the risk, at least theoretically, of wage inflation.
Looks to me like ‘hires’ tend to lead openings:
Less than expected as the deceleration continues. I read this as reflecting a drop in consumer spending.
The savings rate has been down, and the personal income curve has been bent lower as well, and retail sales have also slowed.
So it can all be read this way:
The consumer has less real disposable income, has cut back on spending, and has been ‘forced’ to put some of that reduced spending on his credit card, though less than the prior month, which doesn’t bode well for future spending:
Highlights
Though growth in headline consumer credit, at $12.4 billion, came in lower than expected, the component for revolving credit posted another sizable increase, at $4.1 billion vs $6.9 billion in May. This component, which is where credit card debt is tracked, has been on the rise this year raising the question whether financial firms are beginning to lend to less qualified borrowers. Whether or not gains here are good for credit quality, they are a plus for short-term consumer spending. The soft headline in June is due to a lower-than-usual increase in non-revolving credit where growth, at $8.3 billion, is nevertheless substantial. Vehicle financing and student loans are tracked in non-revolving credit.
Debt service looks historically low so seems this isn’t what’s holding back the consumer:
Possibly bottoming at much lower rates of growth:
Still heading lower:
Is the deceleration in borrowing reflecting a deceleration in spending?
More than the entire gain in civilian employment seems to have been via part time work:
Highlights
The second half of the year opens on a strong note as nonfarm payrolls rose 209,000 in July, far above Econoday’s consensus for 178,000. The unemployment rate moved 1 tenth lower to 4.3 percent while the participation rate rose 1 tenth to 62.9 percent, both solid positives. And a very strong positive is a 0.3 percent rise in average hourly earnings though the year-on-year rate, at 2.5 percent, failed to move higher. The workweek held steady at 34.5 hours.
Factory payrolls are coming alive, up 16,000 in July following a 12,000 increase in June. This points to second-half momentum for manufacturing and is a positive wildcard for the economy in general. A similar standout is professional & business services, up 49,000, and within this temporary help services which rose 15,000. Gains here suggest that employers, pressed to find permanent staff, are turning to contractors to keep up with production. Government was a big factor in June, up 37,000, but was quiet in July at a gain of 4,000. Total revisions are a wash with nonfarm payrolls revised 9,000 higher in June and 7,000 lower in May.
Employment has by far been the strongest factor in the economy and the strength in today’s report will firm conviction among Federal Reserve policy makers that increasing wage gains, and with this increasing inflation, are more likely to hit sooner than later.
From the household survey:
If there was a blemish in the month’s numbers, it came from the distribution of jobs to lower-income sectors. Job creation was strongly titled to part-time, which gained 393,000 positions, while full-time fell by 54,000.
https://www.cnbc.com/2017/08/04/us-nonfarm-payrolls-july-2017.html
No hint yet of this trend reversing:
Highlights
At $43.6 billion, the nation’s trade deficit came in below Econoday’s consensus for $44.4 billion which will prove a plus for second-quarter GDP revisions. The goods gap fell 3.2 percent to $65.3 billion (vs the advance reading of $63.9 billion) while the services surplus, which is the economy’s special strength, rose 2.9 percent to $21.6 billion.Exports show a bounce higher for capital goods despite a dip in aircraft. Exports of cars and food were also strong offsetting a decline for consumer goods. Imports of industrial supplies and within this crude oil fell as did imports of consumer goods. This helped offset a sharp rise in car imports. Imports of capital goods were flat.
The trade gap with China widened nearly $1 billion in June to $32.6 billion and narrowed slightly with the EU to $12.5 billion. The gap with Japan also narrowed slightly, to $5.6 billion, and narrowed sharply with Mexico, by $1.3 billion to $6.0 billion. The gap with Canada also narrowed, to $0.6 billion.
Except for the widening with China and weakness in consumer-goods exports, this is a positive report showing that cross-border trade ended the quarter with solid improvement.
M2 includes bank deposits at the Fed and commercial banks, and as loans create deposits, it’s a proxy for bank loan growth. And while it is ‘distorted’ by QE most recently the Fed’s portfolio has be relatively constant. So note the same pattern of deceleration as with bank lending:
So Trump is winning on this one- more new public sector workers than Obama! ;)
The public sector grew during Mr. Carter’s term (up 1,304,000), during Mr. Reagan’s terms (up 1,414,000), during Mr. G.H.W. Bush’s term (up 1,127,000), during Mr. Clinton’s terms (up 1,934,000), and during Mr. G.W. Bush’s terms (up 1,744,000 jobs).
However the public sector declined significantly while Mr. Obama was in office (down 268,000 jobs).
During the first six months of Mr. Trump’s term, the economy has gained 47,000 public sector jobs.
Read more at http://www.calculatedriskblog.com/#bXBCMVBXZXBLuHDB.99
Rig counts seem to have leveled off at current prices. Yes, a bit more is being spent on drilling, and output is up, but oil related capital spending is nowhere near the 2014 growth in oil related spending that was subsequently lost:
Highlights
The Baker Hughes North American rig count is down 7 rigs in the August 4 week to 1,171, interrupting its upward climb for only the second time in the last 14 weeks. The U.S. count is down 4 rigs to 954 but is up 490 rigs from the same period last year. The Canadian count is down 3 rigs to 217 but is up 95 rigs from last year.
For the U.S. count, rigs classified as drilling for oil are down 1 rig to 765 and gas rigs down 3 to 189. For the Canadian count, oil rigs are down 5 rigs to 124 but gas rigs are up 2 to 93.
Up nicely but not so good excluding aircraft orders, which are highly volatile:
Highlights
Factory orders surged 3.0 percent in June but were skewed higher by a more than doubling in monthly aircraft orders. Excluding transportation equipment, a reading that excludes aircraft, orders actually fell 0.2 percent in the month following a 0.1 decline in May and no change in April. June orders for capital goods (nondefense ex-aircraft) were also weak, unchanged in the month.
Shipments fell 0.2 percent while inventories rose 0.2 percent, lifting the inventory-to-shipment ratio to a less lean 1.38. A major positive in today’s report is a 1.3 percent surge in unfilled orders which had been flat but are now getting a lift from transportation equipment as well as capital goods industries including machinery and fabrications.
Turning to nondurable goods, orders slipped 0.3 percent on declines for petroleum and coal. Aircraft are an important part of the factory sector and have been a big plus so far this year, yet outside aircraft the sector is still struggling to get in the air this year.
This is not inflation adjusted and still well below the highs of the last cycle and below the 2014 highs:
Less than expected as trumped up expectations fade further:
Highlights
Slowing is the call from ISM’s non-manufacturing sample where July results show their least strength since August last year. The composite index slowed by an abrupt 3.5 points in July to 53.9 with new orders down 5.4 points to 55.1 and business activity down 4.9 points to 55.9. Employment is also down, to 53.6 from 55.8 in a reading that does not point to acceleration for tomorrow’s employment report. But strength is still the clear message of this report with inventories rising, delivery times slowing and, very importantly, backlog orders still rising.
Yet the July edition is a surprise for this report which is usually very consistent with the headline composite in the high to mid 50s and new orders and business activity in the low 60s. The contrast with this morning’s PMI services report is noticeable, one slowing and one accelerating, but the story of the two samples together is positive: moderate growth for the bulk of the economy.
This could slow things down:
China issues rules to curb state firms’ overseas investment risks
Aug 3 (Reuters) — China’s giant SOEs have been leading the country’s “go out” drive with growing overseas investments, but they have encountered low returns on investment and weak profitability, the ministry said. The guidelines will help “strengthen financial management of overseas investment of state-owned enterprises, prevent financial risks and improve investment efficiency,” the ministry said. “The lack of accountability of senior executives for poor or failed investment is one of the reasons that lead to radical decision-making and loss-making deals,” Xu Baoli, director of the research centre at China’s state-owned assets regulator said.
ISM NY:
The chart is consistent with the deceleration in real estate lending as previously discussed:
Highlights
June’s construction spending report has much in common with June’s personal income and outlays released earlier this morning: lack of any apparent life. Spending fell an unexpected 1.3 percent in June with a 3 tenths upward revision to May only a minor offset.
Residential spending in June fell 0.2 percent as a setback for multi-family units offset a respectable 0.3 percent gain for the important single-family category.
Private nonresidential spending inched 0.1 percent higher though public components all show sharp declines including highways & streets. Manufacturing was weak on the private side though offices, among the few consistently strong components in this report, did post a 2.9 percent gain for a year-on-year increase of 12.6 percent.
Year-on-year rates are mixed with single-family up 9.0 percent but multi-family up only 0.6 percent. Overall spending is up only 1.6 percent. Housing data have been hit and miss all year with the second-half likely turning on permits which, after a run of declines, did show life in June.
Econintersect analysis:
Growth decelerated 3.0 % month-over-month and up 1.2 % year-over-year. Inflation adjusted construction spending down 0.1 % year-over-year. 3 month rolling average is 3.3 % above the rolling average one year ago which is a 1.8 % deceleration month-over-month. As the data is noisy (and has so much backward revision) – the moving averages likely are the best way to view construction spending. Backward revision for the last 3 months were strongly downward
% change from a year ago:
Personal income is also decelerating in line with the credit aggregates:
Econintersect analysis:
Analyst Opinion of Personal Income and Expenditures
This is an annual update month, and everything seems to have been revised downward.
Consumer spending with this revision shows it is far outpacing income – not good news. And the savings rate has been significantly revised downward.
Inflation grew this month.
The backward revisions this month SIGNIFICANTLY affected the year-over-year rate of growth for income and expenditures.
Personal income was revised up $8.5 billion, or 0.1 percent, in 2014; $94.5 billion, or 0.6 percent, in 2015; and revised down $58.0 billion, or -0.4 percent, in 2016.
For 2014, revisions to personal income and its components were generally small, and primarily reflecteda $21.6 billion downward revision to nonfarm proprietors’ income that was partly offset by a $15.8 billion upward revision to personal dividend income.
For 2015, the revision to personal income primarily reflectedupward revisions of $68.7 billion to personal dividend income and $64.5 billion to personal interest income that were partially offset by a downward revision of $71.7 billion to nonfarm proprietors’ income.
For 2016, the revision to personal income primarily reflectedan upward revision of $100.8 billion to personal interest income that was more than offset by downward revisions of $94.3 billion to compensation of employees and $91.0 billion to nonfarm proprietors’ income.
June 2017 Headline Personal Income Unchanged. Very Weak Data.
Interesting how goods sales were down so much after the initial q2 data showed a large increase for goods sales,
perhaps indicating a downward revision:
Highlights
It’s hard to detect much life in any part of the personal income & outlays report. Income couldn’t muster a gain in June, coming in unchanged with May revised 1 tenth lower to a 0.3 percent gain. Consumer spending did make the plus column but with only a 0.1 percent gain though May gets a 1 tenth upgrade to 0.2 percent. Price data are flat, unchanged in the month with the core rate (less food and energy) up 0.1 percent for a second weak month in a row. Year-on-year, overall prices are up only 1.4 percent with the core little better at 1.5 percent.
The weakness in income, at least for June, isn’t due to weakness in wages & salaries which rose 0.4 percent following, however, only a 0.1 percent gain in May. Propreitor income fell in the month with interest income flat and rental income and transfer receipts up. The breakdown for spending shows a second straight 0.3 percent gain for the largest component which is services but 0.4 percent declines for both durable and non-durable goods.
What little spending did appear in June may have come from savings, at least slightly, as the savings rate fell 1 tenth to a thin 3.8 percent rate. There are plenty of jobs in the economy but wage growth is sub par and with it both consumer spending and inflation are flat. These results do not point to much consumer momentum going into the third quarter.
The lower savings rate indicates people have been ‘overspending’ based on their incomes,
even as consumer borrowing has been decelerating, all of which translates into spending reductions:
Yet another weak month as the deceleration continues:
Highlights
Vehicles have declined in 4 of the last 5 retail sales reports but there may be at least some hope for July as unit sales edged higher to a 16.7 million annualized rate overall and a 13.2 million rate for domestic made. But there’s a fair warning: unit sales, which also include sales to businesses as well as consumers, don’t always translate neatly into dollar sales. Domestic cars and imported light trucks showed the most life in the month.
