February 15, 2017

Aggregate Nominal Spending and the Consumer

From the news: Retail sales rose at a healthy pace in January, a sign that firming wage gains and solid consumer sentiment could be set to boost overall economic growth in 2017. “The upshot is that the improvement in consumer confidence since President Donald Trump’s election victory now appears to be feeding through into stronger gains in actual spending.” Under the “microscope”, you might say the pace of sales growth is “healthy” or getting “stronger”, but that´s just because the “grim” state of aggregate nominal spending is trudging along. (Note: Core Retail Sales excludes autos and parts) Bottom Line: Given stable… Read More

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The “good” and the “bad” inflation indicators

From the news: A jump in gasoline prices helped push inflation to its strongest monthly gain in almost four years in January, a sign of steadily rising price pressures that may support additional moves by the Federal Reserve to raise interest rates this year. The Fed would be doing a grave mistake if it used headline inflation as a “support” for rate hikes. The chart shows, for the most recent episode of oil price fall and rise that headline inflation dances to that “beat”. In other words, it is a bad indicator of the inflation trend, which is what should… Read More

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Industrial Production indicates that the “recovery” ended in 2014

It´s well known that manufacturing makes up less than 20% of the economy while the service sector, which gets far less attention, contributes much more to the economic pie. However, in contrast to services, which grows steadily irrespective of ‘wind strength’, manufacturing is highly sensitive to changes in interest rates and demand. That´s the reason Industrial Production is widely used in forecasting the economy. The Fed´s “tightening rhetoric” that began in mid-2014, quickly had a negative impact on industrial production and capacity utilization. Total Industrial Production fell on the heels of the mining slump. Manufacturing just stagnated. In the spring… Read More

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Equity rally led by investors piling into banks: likely wrong move

Investors adding new money to the market and to the bank sector in particular, drive the current rally in US equities. Two reasons: deregulation and higher interest rates. We have discussed the deregulation issue already, creating a longer-term risk to the economy, as investment banks can now play chicken with the Fed all over again, and spreading risk throughout the financial system. Expectations for higher short-term rates, sooner rather than later, have given another reason to invest in banks. We have seen this cycle many times over the last few years. When the Fed threatens or even delivers rate rises, the… Read More

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A marginally better report from the NFIB in January. We know all about the surge in optimism amongst businesses and consumers. Until recently, this had not translated into better actual growth. The January NFIB Small Business Economic Trends showed optimism sustaining the post-Trump surge. They did remain cautious on actual sales, but it was an improvement: The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past three months compared to the prior three months improved 5 percentage points to a net negative 2 percent. This is the best reading since September 2015, and the third best reading since December 2014,… Read More

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