2017

US Unit Labor Costs Q3 2017 Below Q4 2015 Level

While the US Federal Reserve manifests ever-rising hysteria regarding “tight labor” markets in the US, and Martin Feldstein warns of inflationary holocausts, unit labor costs have been….falling in the US. The Bureau of Labor Statistics reported Dec. 6 that Q3 unit labor costs fell 0.7% YOY. To smoothen short-term noise, the 4-quarter moving average of ULC year-on-year growth has moved into negative territory, a pattern consistent with post-recession periods, when productivity rises and labor compensation growth lags. Tellingly, unit labor costs are now below levels of Q4 2015. The untold story is not of rising wages but rather of US… Read More

Share

Week ending Friday December 8th 2017 Little market excitement this week as the S&P500 consolidated the strong 3% upward move to record levels that occurred over the prior two weeks. An impressive performance given the USD was steadily strengthening. At one point, a fall in the 10yr yield squeezed the 10yr-2yr spread to a 10-year low of 50bps, before ending the week where it started. New FOMC Projections out on Thursday with 25bps rate rise There is little interest in next week’s FOMC meeting where a 25bps rise is certain. The statement could provide some interest of course, but most… Read More

Share

The Employment Report: The Fed never “loses”

In his note the day before the employment report, Fed Watcher Tim Duy concluded: Bottom Line: The Fed would have an easier time paying attention to the weak inflation numbers if the economy was not operating near their estimates of full employment and clearly growing at a pace that will soon surpass those estimates. Consequently, a report near consensus expectations will tend to strengthen their resolve regarding further rate hikes. A report that falls short of consensus, however, would likely be deemed as noise given the generally solid path of economic activity this year. We now know that at least… Read More

Share

Stronger imports, a good sign for Q4 NGDP

You may have seen headlines on Tuesday, about how US imports for October jumped to “record highs”. For the month of October, nominal US imports increased to $45.2 billion, seasonally adjusted, up 5.8% year-over-year. The financial press are keen to write about trade reports, but almost without exception miss the implications of a widening or narrowing US trade deficit. The financial press, even prestigious outlets with expensive subscription fees, will claim that greater imports mean lower GDP. Witness, the Wall Street Journal on December 5th: “The U.S. trade deficit widened in October largely because of a slowdown in exports and… Read More

Share

The bane of the Zero Lower Bound

For more than 20 years, at a time when inflation had been low and stable for more than a decade, central banks began to discuss “Monetary Policy in a Low Inflation Environment”. Several conferences and papers on the issue followed. This one, from 2000, has a readable discussion and plenty of references. The abstract reads: One of the most striking macroeconomic phenomena in recent decades has been the achievement of rather low and more stable rates of inflation in many countries in the nineties. Consequently, the main goal of this paper is to offer an overview of the main policy… Read More

Share

Week ending Friday December 1st 2017 Dominating U.S. markets this week was the improved prospects for Trump-sponsored tax cuts. Equities loved the idea of corporate tax cuts even if the benefits ultimately are passed on to the consumer – especially for those corporates that pay corporate taxes. Mostly this is U.S. domestic-focused banks and small/mid-sized companies. Big tech, oil and pharma have many and clever ways to avoid corporate tax thanks to large overseas operations. One thing at a time That said, the tax package is not yet passed in Congress. Until the package is passed and is read by… Read More

Share

Faster NGDP Growth, what does it mean?

NGDP growth has accelerated in recent quarters. When we average NGDP and NGDI (Nominal Gross Domestic Income), we get, at a yearly pace, 5% for Q3, 3.7% for Q2 and 4% for Q1. Not jaw-dropping numbers, but the best run we’ve seen since 2014. It’s also worth looking at the figures in quarterly form, rather than just year-over-year, as inconvenient as it may be. It turns outs that the best way to predict NGDP growth, is to simply look at recent quarterly growth. In developing our forecast models, we found that sub-models that rely on only a single quarter of… Read More

Share

Nothing to write home about, be it growth, spending or inflation.

From the news: The U.S. economy is posting another quarter of solid growth. …Many economists are projecting growth of between 2.5% and 3% in the fourth quarter, putting the U.S. in reach of a milestone: Three consecutive quarters of above 3% growth for the first time since 2004-2005. Give me a break! This is the real growth picture since the economy left behind the doldrums of the 2008-09 Great Recession. More recently, since early 2015, mean growth has ticked down, but growth volatility has dropped significantly. Instead of “solid growth”, it´s more like a “Depressing Great Moderation”! Elsewhere, the nominal… Read More

Share

The economy has reached its destination!

From the news: The U.S. economy is running at its full potential for the first time in a decade, a new milestone for an expansion now in its ninth year. The chart illustrates “vividly”. To get that “encouraging” result, the CBO has applied the saying: “If the mountain won’t come to Mohamed, Mohamed must go to the mountain” in reverse, with the “mountain” (potential) coming to “Mohamed” (actual output). Yellen will be leaving with the feeling of “mission accomplished”, even if that is far from the truth. The charts below compare the recessions of 1990-91 and 2007-09 and the two… Read More

Share

Conflicting signals in US

Week ending Friday November 24th 2017 A surprisingly lively week in markets. Equities rose again. The USD weakened. Anyone would think that markets were anticipating an easier monetary policy in the US. One problem is that the best performing equities are those with overseas earnings, not just due to translation benefits from that weak USD but also from strongly performing overseas economies. Another problem is that the yield curve continues to flatten, as the short end yields drive higher and long end yields stays weak. The 10yr less 2yr has now fallen below 60bps. The yield curve is indicating a… Read More

Share