Posts Tagged ‘deflation’
The US Economy: Starting To Look Like Exactly One Year Ago
The big monthly number was yesterday’s employment report, showing 120,000 jobs added to the economy in November.
September and October were also revised up by a total of 72,000, continuing the string of upward revisions. The household survey was even more impressive, up 278,000 jobs.
The last 4 months in this survey have shown gains averaging 321,000 a month. Unemployment declined to 8.6%, the lowest since March 2009. Only half of the 0.4 decline was due to participants leaving the workforce, as to which the phrase “retiring baby boomers” assumes ever-increasing importance.
Two important internals were weak: manufacturing hours, one of the 10 LEI, declined by .2. Wages actually decreased by $.02 continuing the ominous real wage deflation of this year.
In other monthly news, manufacturing improved (although vendor deliveries, another of the LEI, decreased). Auto sales were up, and at their strongest level ex cash for clunkers since August 2008. Consumer confidence rebounded strongly, taking back over half of its decline since the end of June. New home sales were flat, and the Case-Shiller index of home prices declined more than expected, although its YoY% decline continues to lessen.
Before turning to the high frequency weakly data, let me remind new readers that this post is not designed to be a “big picture” look at the economy. Quite the reverse: if we think of the economy like a motion picture with 24 frames per second, this post compares the most recent frame with the frame just preceding. In other words, it is a snapshot of as close as we can get to the present moment. Before any change in direction in monthly data is confirmed by two successive reports, there will be at least 8 weekly datapoints, which will show the change first.
Let’s start with the small sea-change in housing. For the first time since the inception of the series over 4 1/2 years ago, YoY weekly median asking house prices from 54 metropolitan areas at Housing Tracker were positive, up +0.1% YoY for the last full week of November. The areas with YoY% increases in price decreased by 1 to 20. Only Chicago continued to have a double-digit YoY% decline. The monthly number for all of November was still down -0.7% YoY, which is still the smallest monthly YoY decline since the series began. Housing Tracker’s asking prices have generally led sales prices at turning points and in the second derivative by 4 to 6 months over the history of the series, so this suggests that the Case-Shiller index YoY decrease will continue to lessen in coming months, and may turn positive nominally by next summer.
Meanwhile, the Mortgage Bankers’ Association reported that seasonally adjusted purchase mortgage applications decreased -0.5% last week. On a YoY basis, purchase applications were down -8.2%. This primarily reflects a multi-week spike last year vs. flatness this year. The actual reading remains firmly within the range that purchase mortgage applications have been in since May 2010. Refinancing fell -15.3% w/w. Refinancing continues to be extremely volatile.
Turning to jobs, the BLS reported that Initial jobless claims rose 9000 to 402,000. This is 14,000 above the 388,000 low of 2 weeks ago. The four week average rose 1500 to 395,750.
The American Staffing Association Index remained at 92 last week. This series continues its slight upward trajectory, but remains slightly below last year’s levels.
Tax withholding for the 20 reporting days of November was significantly down from last year’s levels. Adjusting +1.07% due to the 2011 tax compromise, the Daily Treasury Statement showed that for this November, $135.5 B was collected vs. $138.9 B a year ago, a decline of -2.4 B. Before concluding that the economy has suddenly weakened, however, note that this November began on a Tuesday whereas November 2010 began on a Monday. That means that this November only had 4 Mondays vs. last November’s 5. Tax collections are typically stronger on Mondays and much stronger on the first of the month. Usually the 20 day moving average takes care of that issue (4 x each weekday), but because of holidays in November, that didn’t apply. When I correct for this by measuring 20 days beginning Monday October 31, 2011 or Tuesday November 2, 2010, the anomaly disappears, and tax collections for the 20 day period are up $1.8 B or $1.7 B respectively, or about +1.3% YoY.
Retail same store sales remained positive as they have been all year. The ICSC reported that same store sales for the week of November 26 increased 4.0% YoY, and 1.7% week over week. Shoppertrak reported that YoY sales rose 4.4% YoY.
The American Association of Railroads reported that total carloads increased 3.9% YoY, up about 17,000 carloads YoY to 456,200. Intermodal traffic (a proxy for imports and exports) was up 6700 carloads, or 3.7% YoY. The remaining baseline plus cyclical traffic increased 10,200 carloads or 4.0% YoY. Total rail traffic has staged an impressive rebound in the last couple of months.
Money supply continues to stabilize after its Euro crisis induced tsunami. M1 decreased -0.5% last week, and is up a slight 0.2% month over month. It remains up 18.7% YoY, so Real M1 remains up 15.1%. This is about 5% under its peak YoY gain several months ago. M2 also decreased -0.4% w/w. It remained up 0.3% m/m, and 9.4% YoY, so Real M2 was up 5.8%.
Weekly BAA commercial bond rates declined .05% to 5.11%. Yields on 10 year treasury bonds fell even more, down .08% to 1.94%. In the last couple of weeks, spreads have started to widen again, representing increasing weakness.
Finally, the Oil choke collar is tightening, as Oil closed just below $101 a barrel on Friday. This about $6 above the recession-trigger level calculated by analyst Steve Kopits. Gas at the pump, however, decreased $.06 to $3.31 a gallon. Measured this way, we probably are only about $.05 to $.10 above the 2008 recession trigger level. Gasoline usage was off YoY, but by considerably less, at 8769 M gallons vs. 8867 M a year ago, or -1.1%. The 4 week moving average is off -2.9%, which is also less of a decline compared with recent weeks.
With the vital exception of real wage deflation, the picture now is very similar to that of a year ago. Having dodged a double-dip recession, the economy then showed signs of becoming a self-sustaining recovery, only to be strangled by the Oil choke collar (with an assist by the tsunami in Japan) in March. It looks like we’ve dodged another bullet, but the Oil choke collar is tightening again.
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See Also:
- FEDEX: The Economy Is Still Growing, And Will Grow Next Year As Well
- Fears Of A Hard Landing Have Made These 5 Chinese ETFs Cheap
- Pipeline Changes To Fix WTI /Brent Spread Are Likely To Add New Problems
The US Economy: Starting To Look Like Exactly One Year Ago
The big monthly number was yesterday’s employment report, showing 120,000 jobs added to the economy in November.
September and October were also revised up by a total of 72,000, continuing the string of upward revisions. The household survey was even more impressive, up 278,000 jobs.
The last 4 months in this survey have shown gains averaging 321,000 a month. Unemployment declined to 8.6%, the lowest since March 2009. Only half of the 0.4 decline was due to participants leaving the workforce, as to which the phrase “retiring baby boomers” assumes ever-increasing importance.
Two important internals were weak: manufacturing hours, one of the 10 LEI, declined by .2. Wages actually decreased by $.02 continuing the ominous real wage deflation of this year.
In other monthly news, manufacturing improved (although vendor deliveries, another of the LEI, decreased). Auto sales were up, and at their strongest level ex cash for clunkers since August 2008. Consumer confidence rebounded strongly, taking back over half of its decline since the end of June. New home sales were flat, and the Case-Shiller index of home prices declined more than expected, although its YoY% decline continues to lessen.
Before turning to the high frequency weakly data, let me remind new readers that this post is not designed to be a “big picture” look at the economy. Quite the reverse: if we think of the economy like a motion picture with 24 frames per second, this post compares the most recent frame with the frame just preceding. In other words, it is a snapshot of as close as we can get to the present moment. Before any change in direction in monthly data is confirmed by two successive reports, there will be at least 8 weekly datapoints, which will show the change first.
Let’s start with the small sea-change in housing. For the first time since the inception of the series over 4 1/2 years ago, YoY weekly median asking house prices from 54 metropolitan areas at Housing Tracker were positive, up +0.1% YoY for the last full week of November. The areas with YoY% increases in price decreased by 1 to 20. Only Chicago continued to have a double-digit YoY% decline. The monthly number for all of November was still down -0.7% YoY, which is still the smallest monthly YoY decline since the series began. Housing Tracker’s asking prices have generally led sales prices at turning points and in the second derivative by 4 to 6 months over the history of the series, so this suggests that the Case-Shiller index YoY decrease will continue to lessen in coming months, and may turn positive nominally by next summer.
Meanwhile, the Mortgage Bankers’ Association reported that seasonally adjusted purchase mortgage applications decreased -0.5% last week. On a YoY basis, purchase applications were down -8.2%. This primarily reflects a multi-week spike last year vs. flatness this year. The actual reading remains firmly within the range that purchase mortgage applications have been in since May 2010. Refinancing fell -15.3% w/w. Refinancing continues to be extremely volatile.
Turning to jobs, the BLS reported that Initial jobless claims rose 9000 to 402,000. This is 14,000 above the 388,000 low of 2 weeks ago. The four week average rose 1500 to 395,750.
The American Staffing Association Index remained at 92 last week. This series continues its slight upward trajectory, but remains slightly below last year’s levels.
Tax withholding for the 20 reporting days of November was significantly down from last year’s levels. Adjusting +1.07% due to the 2011 tax compromise, the Daily Treasury Statement showed that for this November, $135.5 B was collected vs. $138.9 B a year ago, a decline of -2.4 B. Before concluding that the economy has suddenly weakened, however, note that this November began on a Tuesday whereas November 2010 began on a Monday. That means that this November only had 4 Mondays vs. last November’s 5. Tax collections are typically stronger on Mondays and much stronger on the first of the month. Usually the 20 day moving average takes care of that issue (4 x each weekday), but because of holidays in November, that didn’t apply. When I correct for this by measuring 20 days beginning Monday October 31, 2011 or Tuesday November 2, 2010, the anomaly disappears, and tax collections for the 20 day period are up $1.8 B or $1.7 B respectively, or about +1.3% YoY.
Retail same store sales remained positive as they have been all year. The ICSC reported that same store sales for the week of November 26 increased 4.0% YoY, and 1.7% week over week. Shoppertrak reported that YoY sales rose 4.4% YoY.
The American Association of Railroads reported that total carloads increased 3.9% YoY, up about 17,000 carloads YoY to 456,200. Intermodal traffic (a proxy for imports and exports) was up 6700 carloads, or 3.7% YoY. The remaining baseline plus cyclical traffic increased 10,200 carloads or 4.0% YoY. Total rail traffic has staged an impressive rebound in the last couple of months.
Money supply continues to stabilize after its Euro crisis induced tsunami. M1 decreased -0.5% last week, and is up a slight 0.2% month over month. It remains up 18.7% YoY, so Real M1 remains up 15.1%. This is about 5% under its peak YoY gain several months ago. M2 also decreased -0.4% w/w. It remained up 0.3% m/m, and 9.4% YoY, so Real M2 was up 5.8%.
Weekly BAA commercial bond rates declined .05% to 5.11%. Yields on 10 year treasury bonds fell even more, down .08% to 1.94%. In the last couple of weeks, spreads have started to widen again, representing increasing weakness.
Finally, the Oil choke collar is tightening, as Oil closed just below $101 a barrel on Friday. This about $6 above the recession-trigger level calculated by analyst Steve Kopits. Gas at the pump, however, decreased $.06 to $3.31 a gallon. Measured this way, we probably are only about $.05 to $.10 above the 2008 recession trigger level. Gasoline usage was off YoY, but by considerably less, at 8769 M gallons vs. 8867 M a year ago, or -1.1%. The 4 week moving average is off -2.9%, which is also less of a decline compared with recent weeks.
With the vital exception of real wage deflation, the picture now is very similar to that of a year ago. Having dodged a double-dip recession, the economy then showed signs of becoming a self-sustaining recovery, only to be strangled by the Oil choke collar (with an assist by the tsunami in Japan) in March. It looks like we’ve dodged another bullet, but the Oil choke collar is tightening again.
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See Also:
- FEDEX: The Economy Is Still Growing, And Will Grow Next Year As Well
- Fears Of A Hard Landing Have Made These 5 Chinese ETFs Cheap
- Pipeline Changes To Fix WTI /Brent Spread Are Likely To Add New Problems
Greek Newspaper Lashes Out At German Hypocrisy, Selective Amnesia, And Drift Into Malevolence
Want to get a great sense of how the German position on Europe is seen in the periphery?
Check out this editorial from Nikos Xydakis, the Editor-In-Chief of Greek newspaper Kathimerini.
It’s called German Demons.
…Germany behaves as if it has no knowledge of its past, or as if it does not care, as if it were suffering from selective amnesia. It appears to have forgotten the 65 years of peace and growth following the devastating Second World War. It is constantly evoking the demons of the interwar years, the humiliation of the Treaty of Versailles, the inflated Deutsche mark, Nazism.
Germany appears to be drifting into malevolent territory, asking every one of its allies, partners and neighbors, everyone who is now suffering from this ongoing crisis of the eurozone, to repent and become more like, well, Germany. Or they shall be punished, condemned to hell — even if the hell of others also becomes its own.
Germany insists that redemption can only come through punishment for one’s sins. However, behind the German calls there is self-interest and hypocrisy.
This is an observation that Paul Krugman recently made, that for some reason, the sins of Weimar Germany’s hyperinflationary collapse loomed larger in the German psyche than the subsequent period of unemployment and deflation, which actually gave rise to the Nazis.
What’s remarkable here isn’t just that Germany is once again being put on the couch, with its current actions viewed through the lens of past sins, but how much the whole Eurozone crisis is revolving around ethnic and national stereotypes. The Germans are austere taskmasters who like to dole out punishment. Meanwhile, German publications like Bild promote the “lazy Greeks” view of the crisis.
Even if you can solve the immediate economic equation, it’s hard to see how the cultural problem gets solved. Maybe it can just get swepts under the rug again.
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See Also:
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This 2006 Blog Post By Roubini Really Was Incredibly Prophetic
In light of the crisis in Italy, Nouriel Roubini’s comments on the Eurozone back in 2006 have been getting a fair amount of buzz. And in fact this buzz is well deserved.
He recently reposted the blog post he wrote in 2006, after speaking at Davos, and apparently offending the Italian Finance Minister Tremonti (who is still the finance minister for the time being), by calling for Eurozone doom.
The key thing here is how spot-on his assessment of the pain points were.
And unfortunately, the lack of serious economic reforms in Italy implies that there is a growing risk that Italy may end up like Argentina. This is not a foregone conclusion but, if Italy does not reform, an exit from EMU within 5 years is not totally unlikely. Indeed, like Argentina, Italy faces a growing competitiveness loss given an increasingly overvalued currency and the risk of falling exports and growing current account deficit. The growth slowdown will make the public deficit and debt worse and potentially unsustainable over time. And if a devaluation cannot be used to reduce real wages, the real exchange rate overvaluation will be undone via a slow and painful process of wage and price deflation. But such deflation will keep real rates high and exacerbate the growth and fiscal crisis. Without necessary reforms, eventually this vicious circle of stagdeflation would force Italy to exit EMU, return to the Lira and default on its Euro debts. Some argue that Italy or other EMU laggards would not exit EMU because a sharp devaluation of the new Lira – needed to regain the lost competitiveness – would make the real value Euro debt much higher and unsustainable for the government, the private sector and households. But look at what happened to Argentina: it devalued and given the balance sheet effects of the depreciation on their US debts it was forced to pesify its dollar debts. Similarly, Italy would be forced to liralize its Euro debts. If Italy were to exit EMU this effective default on domestic and external – public and private – Euro debt obligation would become unavoidable. And a sovereign nation is able to follow such policies – EMU exit, return to national currency and effective default on Euro debt – regardless of any legal or formal constraints that the EMU treaty imposes in terms of no exit clauses. This is not science fiction as Argentina was forced to do the same.
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Goldman Advises The Fed To Go Nuclear, And Set A Target For Nominal GDP
In his latest US Economics Analyst note, Goldman’s Jan Hatzius offers up his suggestion for the next phase of Fed policy.
With short-term interest rates near zero and the economy still weak, we believe that the best
way for Fed officials to ease policy significantly further would be to target a nominal GDP path such as the one shown in the chart on the right, indicating that they will use additional asset purchases to help bring actual nominal GDP back to trend over time. The case would strengthen further if deflation
risks reappeared clearly on the radar screen.
More specifically:
The specific path in Exhibit 1 is calculated as the level of nominal GDP in 2007 extrapolated forward at a rate of 4½% per year. We can think of this number as the sum of real potential GDP growth of 2½% and inflation as measured by the GDP deflator of about 2%. The specific numbers matter less than the Fed’s willingness to a target path that is anchored at a point like 2007, when the economy was near full employment, and that they indicate that they will pursue this target aggressively.
Why this move? Basically, Goldman sees it as a natural extension of the Fed’s dual mandate — price stability and full employment — but with a greater bent towards full employment.
It happens to be a pretty sexy idea among economists.
Here’s The Economist talking about the benefits of NGDP targeting:
Advocates of nominal GDP targeting claim that it would achieve greater macroeconomic stability. When recession hits, real output falls but prices tend to adjust more slowly. This means that by targeting nominal GDP, central banks could actually smooth output fluctuations better. They could also react more appropriately to supply shocks. Take the example of an economy that is hit by a negative supply shock through high oil prices depressing output and raising inflation. An inflation-targeting central bank may feel compelled to tighten policy, worsening the slump in output, whereas one mandated to hit NGDP could be more flexible. There could be advantages, too, in the opposite case where a positive supply shock through productivity-enhancing new technology boosts real GDP growth while lowering inflation. An inflation-targeting central bank would respond by easing monetary policy, which could produce asset bubbles, whereas an NGDP-targeting central bank would hold steady. Certainly inflation would be more volatile, but the overall economy would not be.
Even in some inside the Fed are talking about tilting the mandate more towards jobs (at the moment), as the Fed’s Eric Rosengren did at a speech in Sweden last month.
Ultimately, says Hatzius, a shift towards this kind of Fed policy could bring down unemployment much faster than the current path foresees.
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