March 2017

Soft vs Hard Data

From the news: The Gap Between Sentiment and Certainty Is ‘Stunning’ The gap between “hard” and “soft” data measuring the U.S. economy has never been more disparate, according to a new report from Morgan Stanley, which means investors who have been putting too much weight on the soft data may be in for a rude awakening in a matter of weeks. The chart illustrates: However, there is also a dissonance between different consumer sentiment indicators (soft data). The chart depicts the Conference Board´s Consumer Confidence and the University of Michigan Consumer Sentiment indices. While the Conference Board index emphasizes household reaction… Read More

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The Fed´s inflation target has been breached

From the News: An important measure of inflation exceeded the Federal Reserve’s target for a 2% annual gain for the first time in nearly five years. The personal-consumption expenditures price index, which is the Fed’s preferred inflation gauge, rose a seasonally adjusted 0.1% in February from the prior month and climbed 2.1% from a year earlier, the Commerce Department said Friday. It was the strongest annual gain for the price measure since March 2012. That’s a healthy signal for the economy, showing excess capacity and high unemployment that long held inflation near historically low levels have finally abated. Firmer inflation could… Read More

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Stop Talking About Unemployment

Scott Sumner wrote an interesting blog post on his vision of macro. It is a useful way of seeing where Scott stands today. However, we were puzzled. Should unemployment really be the centerpiece variable or should it be stable nominal spending growth at an appropriate level? It seems to us that “unemployment” is a very flaky variable. It is easily jostled by non-monetary factors like changes in the minimum wage, length of time benefits are available, ease of getting benefits and, most crucially for our purposes, by changes in related measures of labor force utilization such as the Employment to Population ratio… Read More

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Only inflation on their minds

Summary of new research: Fed Could Allow Higher Inflation as Interest Rates Remain Low, Papers Suggest: U.S. interest rates are likely to stay historically low, which should prompt the Federal Reserve to rethink its approach to inflation. Those are the conclusions of two new research papers by teams of Fed economists published Thursday by the Brookings Institution. Taken together, the two papers conclude that increased demand for safe and liquid assets such as 10-year Treasury notes will continue to hold down yields, making it difficult for the central bank to raise its benchmark short-term interest rate while sticking to its… Read More

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Week ending Friday 24th March 2017 This week we got the first whiff of panic in markets if political or economic news is bad. Bad news is really bad for markets as the Fed is signalling a much tougher monetary stance. By the end of the week, the bears remained in charge despite the bulls trying to spin the failed Trump Obamacare reform as a tactical loss only. Weak. No official news from the Fed on their discontent over market response to the rate hike We really need some interviews or speeches from key Fed governors to concretize their disappointment… Read More

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Durable Goods Order also indicate the “confidence surge” is weakening

What makes Durable Goods Orders a “high profile” indicator is that it can foreshadow significant changes in economic activity sooner than other statistics. It is important to keep in mind, however, durable goods orders are highly volatile month-to-month due, in large measure, to sudden large changes in orders for defense goods and aircraft. In order to get a better reading of demand in the business sector we must strip those volatile components out. Doing so, we get a better gauge of consumer confidence. The 65% of durable goods orders that exclude defense and aircraft refer to mostly high priced consumer… Read More

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Although we do not believe that the PMI surveys are very good at predicting levels of manufacturing, services or total output they may be better at indicating turning points. The release today of the March preliminary PMI surveys by Markit for US manufacturing and services showed that February’s “blip” down was more of a thing than Markit’s economists thought at the time. The seasonally adjusted Markit Flash U.S. Composite PMI Output Index registered 53.2 in March, to remain above the 50.0 no-change value for the thirteenth consecutive month. However, the latest reading was down from 54.1 in February and signaled… Read More

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Yellen Preserves the Sanctity of the Punch Bowl

The market reaction following Chairwomen Yellen’s announcement of Fed policy on March 15th was clear, it wasn’t as bad as feared. Our NGDP forecast engine (which is based on daily average data, not closing prices) ticked up from 4.06% to 4.11%. The two decimal points of precision should not be read as an overestimation of our forecasting abilities, but serves instead to show that markets indeed moved up. Yellen’s statement was ambiguous, noncommittal, more in the mold of the great Alan Greenspan than Ben Bernanke. The tiny but welcome forecast increase between the 15th and the 16th was driven by… Read More

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All productivity analyses miss the "wood for the trees"

All economists agree that productivity is very important. It is a remarkable failure of economics that economists understand so little about what causes it to grow, or atrophy. In yet another exhaustive examination Bank of England Chief Economist and MPC Member Andy Haldane again shows how even the most intelligent people continue to miss the wood for the trees. The Great Stagnation is the period after the financial crisis of 2008 in which productivity growth has been weak. Numerous explanations have been put forward for the slow growth, but the most simple and obvious one has not gained much traction. Trend nominal… Read More

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Is This The Kind Of Chart That Makes A Central Bank Tighten Up?

Here is the U.S. Labor Markets Conditions Index (LCMI) for 2006 through latest reading, for February: Ironically enough, the LMCI is a creation not of the Bureau of Labor Statistics, or a do-goody liberal outfit, but of…the U.S. Federal Reserve. That’s right, the same central bank that has an inclination towards tight money is the compositor of the LCMI. The LCMI is a stew of 19 labor indicators, and from appearances, is indicating progressively softer U.S labor markets since 2012.  Considering authorship, that is quite a statement. If the LCMI is meaningful at all, then labor markets are not what will… Read More

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