February 2017

GDP Unchanged

Markets expected a small upward revision from the preliminary release, to 2.1% annualized growth. Unfortunately, the number remained the same: 1.9% both annualized and on a year-over-year basis. The negative and positive effects from the Fed are illustrated. Unfortunately, the Fed insists it will do its best efforts to keep the economy in a slump. It might slip, however, and bring about a recession! To this and other, supposedly positive data released today, the markets reacted negatively; stocks and the dollar fell, as did long-term yields. Not too surprising, because ahead of his speech to Congress later today Trump´s budget… Read More

Share

Words matter

Kaplan joins Harker and Williams: Kaplan repeated his view that he would prefer the Fed to move “sooner rather than later,” but without explicitly calling for a rate increase next month. “We want to guard against a situation where we get behind the curve” on inflation, he said. Helped by Kaplan´s words, now the markets are pricing in a probability of 52 percent, up from less than 40 percent last week. That´s not surprising. With so many utterings of “sooner rather than later” and “upcoming”, the odds of a rate hike in the upcoming meeting naturally increases. However, that´s just a… Read More

Share

The picture of a depressed economy through the lenses of durable goods orders

The “Pollyanna’s”: “The weakness of underlying orders is probably just some payback after strong gains in previous months rather than the start of a renewed downward trend,” said Andrew Hunter, U.S. economist at Capital Economics, in a note to clients. The U.S. manufacturing sector has gained traction in recent months following a weak stretch caused by falling oil prices, which squeezed the domestic energy industry and a strong dollar that weighed on exports by making U.S. products more expensive for foreign customers. Firming global growth and stabilized energy prices have helped bolster the industrial side of the economy. Unfortunately, there´s… Read More

Share

Mixed signals but bond yields dropping dominate as likely rate rises recede

Week ending Friday 24th February 2017 Another weekend of reflection and another excellent start of the week for equities. Some FOMC noise and some administration mis-steps quietened the excitement down over the next few days. The USD was flat over the week but bond yields came tumbling back to near term lows. These contrasting trends imply to me that markets still believe in the Trump trade and, typically that confidence has resulted in a stronger USD. But not just yet. The bond market moves indicate that the administration (confirmed by the FOMC’s “fairly soon” comment) will keep rates lower for… Read More

Share

The growth Mnuchin wishes

Steven Mnuchin Interview: Treasury Secretary Steven Mnuchin laid out ambitious goals to secure a U.S. tax-code overhaul by August and to deliver economic growth at rates not seen in more than a decade. Mr. Mnuchin, in his first interview since his confirmation last week as Treasury secretary, said slower economic growth since the financial crisis had primarily been an anomaly and a result of Obama administration policies that can be reversed. He said the Trump administration is aiming for a sustained 3% or higher annual growth rate, a projection not widely shared by other forecasters. “We think it’s critical that we get back to… Read More

Share

The Minutes

Minutes Given recent manifestations, like Yellen´s Congressional Testimony last week, maybe the markets expected some confirmation about the Fed´s rate timetable. Markets were disappointed on that regard. Yields and the dollar moved down. So, somewhat surprisingly, did stocks. Interestingly, four years ago exactly, Yellen was worried about “The painfully slow recovery”. We can now see much more clearly that there has been absolutely no recovery. The economy has just “crawled” along a low growth path. Back then, Yellen complained that fiscal policy was a “headwind”: Discretionary fiscal policy hasn’t been much of a tailwind during this recovery. In the year… Read More

Share

UK RGDP saved by accelerating NGDP

The second estimate of UK RGDP released today showed an even more stark acceleration in UK NGDP than in the first estimate. Back in January, we had to use the Nominal (Current Prices) Gross Value Added as a proxy for NGDP as the headline number is only released with the second estimate. GVA is a good proxy for GDP as it is merely GDP less taxes on output, but still gets revised like all other national income data. There were the normal revisions to both RGDP and NGVA by the second estimate as more data for the final month of the quarter… Read More

Share

We have already shown the increasing unreliability of the various industry confidence surveys like the PMI from the ISM and from Markit for manufacturing and services. They are poor at predicting levels of activity and thus levels of GDP. They do appear to have some use at predicting turning points, even if at low levels of growth. So, yesterday’s provisional PMIs from Markit for both Manufacturing and Services were interesting. The Trump bounce evident in numerous industry confidence surveys did not lead to any uptick in January levels of output and now we are getting mixed messages. The regional Fed surveys for manufacturing released so far for… Read More

Share

In “Looking back, looking ahead” Williams concludes: Although it has been a long, hard road back from the recession, the American economy is in good shape and headed in the right direction. We’ve reached our employment goal, and inflation is well within sight of and on track to reach our target. Given the progress we have made and signs of continued solid momentum in the economy, and consistent with our agreed-upon monetary policy approach, it makes sense for the Fed to gradually move interest rates toward more normal levels. The only explanation for these views, is that they derive from… Read More

Share

Harker today on the economy: Labor market Things are looking pretty good. Inflation Moving on to inflation, we’re seeing positive upward movement, although PCE remains below our 2 percent target. Headline and core PCE closed out last year at 1.6 and 1.7 percent, respectively. That’s a world of improvement over the end of 2015, when they were at 0.6 and 1.4 percent. We do have January numbers for CPI inflation, with headline CPI rising a remarkable 0.6 percent, driven largely by an increase in gas prices. That brings the year-over-year change to 2.5 percent. Core CPI rose 0.3 percent, bringing… Read More

Share