2016

Week ending Friday 30th December 2016 The ramifications of the Fed rate rise and associated modest hiking of the rate path projections continued to be felt around markets over the last two weeks. Asset prices were flat during the pre-Xmas week but presaged drops in equities, bond yields and the USD this last week. The reality of active tightening and a continued tightening bias has to be concerning to markets given lacklustre nominal growth prospects. The 2yr bond yield has almost unwound the entire upward move after the Fed’s unexpected extra tightening, the 10yr yield has already done so. The… Read More

Share

Consumer Confidence also reflects “Trump Effect”

Today the Conference Board released its Index of Consumer Confidence. It came in significantly better than expected (113.7 vs. 109) and the previous month was revised up. But market reaction was negligible. The chart pictures both the Conference Board CC Index and the Consumer Sentiment Index from the University of Michigan, released last week. Both indices generally rise until the end of 2014. The Fed´s tightening talk grows louder since then, and both indices flatten. In mid-2016, the Conference Board Index begins to trend up, but that wasn´t followed by the UofM index. Both, however, show a positive reaction to… Read More

Share

Merry NGDP Revisions

GDP revisions came out last week and the last 4 forecast points reflect the new figures. However, in this case, the revision has essentially zero effect on the forecast. This is because GDI,  an alternative, but equally valid measure of GDP, was revised in the opposite direction, leading to negligible change in the series we use to drive our forecast. GDP in Q3 went from 18,657 million to 18,675 million while GDI went from 18,985 to 18,969. Because we average GDP and GDI when making the final income/spending series we use in the forecasting engine, this works out to 18,822 vs… Read More

Share

There´s been no “strongly upward trend”!

Stiglitz: “Trump takes charge of an economy on a strongly upward trend, with third-quarter GDP growing at an impressive annual rate of 3.2%” (!) That´s deceiving. In fact, Trump takes charge of an economy that has been in a “Long Depression” since 2009. That´s courtesy of President Bush and, more significantly, of Bernanke (for some reason named both “Hero” and “Person of the Year”). When Obama took charge, the economy had already been smothered into depression. That has been the status quo since then. Stiglitz is probably right to note that both the incoming president´s character and proposed policies are unlikely to… Read More

Share

The Fed Plans a Monetary Noose? No one speaks more provocatively on monetary policy—at least no one with big credentials—than Lord Adair Turner, former chairman of the British Financial Services Authority, and now affiliated with George Soros’ Institute For New Economic Thinking. Adair has also authored a book Between Debt and the Devil: Money, Credit, and Fixing Global Finance, Princeton University Press, 2016. To combat feeble global aggregate demand, Turner eschews fiscal policy, with the dead-on analogy that, “So you’re caught in a trap where the only solution to the trap is to make the trap a bit deeper. It… Read More

Share

There´s been no recovery, just a long depression

Simon Wren-Lewis writes: “When is an economic recovery not a recovery?” What do we mean when we say the economy is recovering from a recession? Do we mean it has started growing again, or do we mean it is returning to its pre-recession trend? Brief research suggests there is no standard definition, but Wikipedia is clear it is the latter. It is clear that to return to the pre-recession trend, growth has to be higher than average, but showing a growth chart as SWL does is not the most clear way to illustrate if the economy is recovering. In his exercise, SWL… Read More

Share

Will growth improve? Keep hoping.

Today the BEA released the third estimate of Q3 GDP: With this third estimate for the third quarter, nonresidential fixed investment, personal consumption expenditures (PCE), and state and local government spending increased more than previously estimated, but the general picture of economic growth remains the same … And the general picture is that of an economy that never recovered!  

Share

Durable Goods Order confirms the economy remains depressed

In October, Durable Goods orders had jumped 4.8% driven by a surge in aircraft orders. In November, according to data released today by the Commerce Department, Durable Goods orders slumped 4.6% as aircraft orders plummeted! To allow for a less “jumpy analysis”, let´s strip from the headline number orders for aircraft and defense. What results is a less well-known but more effective gauge of consumer confidence. What remains are high-priced consumer products whose purchases are not pressing (i.e. are subject to discretion) to most households (think of furniture, cars, appliances, etc.). Therefore, if this category of durable goods shows a… Read More

Share

No happy Xmas as November GDP looks poor, December iffy

Consumer confidence seems to keep hitting new highs but business confidence is waning if the Markit Services “flash” PMI is anything to go by today. In a way, the “miss’ is a double disappointment given the Trump confidence bounce – at least a disappointment to those who think confidence alone or animal spirits can spur an economy. They can’t. An economy needs steady stable nominal growth management and supply side productivity gains, either from deregulation or tech progress or other investment success. On top of disappointing business confidence, the concrete data for the current quarter is looking less healthy. While October expenditure and income… Read More

Share

The UK: a Market Monetarist crucible

Another day another bit of evidence that UK monetary policy eased hugely on Brexit, offsetting longer-term uncertainty on trade arrangements. This time it is the very strong reading, super-ironically, from the super-gloomy, very pro-Remain CBI in its latest Distributive Trades Survey. As I wrote soon after Brexit and after a further easing by the Bank of England, monetary policy in the UK is most definitely set to relative ease. For a short while after Brexit, surveys of business confidence showed large deterioration but the hard economic data did not agree. It was if business people were reading the FT and The Economist for… Read More

Share