2018

Manufacturing Production is becoming irrelevant!

Overall, industrial production was up 3.6% year-on-year. That´s the best since November 2014 (3.7%). That´s however, mostly due to the aftermath of storms, cold winter affecting utilities, and mining. Manufacturing, the lion´s share of industrial production, has been moribund for several years. Impressively, as shown in the chart, while as a highly cyclically sensitive part of the economy manufacturing was traditionally viewed as a classic indicator of current business conditions, in the last five years it has completely lost relevance in the determination of real output fluctuations.  ...

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  The US Senate Banking Committee Jan. 17 voted thumb’s up on Jerome Powell, President Trump’s appointment to the Chair of the Federal Reserve. Barring calamity, Powell should take over in February. With that, a lawyer will supplant Janet Yellen, a dyed-in-the-wool conventional macroeconomist, as leader of national monetary policy. Lamentably, going to a lawyer is arguably a change for the better. The Fed Wants Higher Unemployment In the last two years, Fed staffers have consistently posited the US economy is facing “labor shortages” and is “beyond full employment,” even as wages rise like redwoods in the Sahara. And on… Read More

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NGDP Outlook Update January 2018

Our new NGDP forecast, for 2019Q1, is coming in a bit north of 4.1%. This is the first time we’ve started a new forecast above 4.0%, the previous vintage starting a 3.9%. We begin a new forecast every quarter. By convention, we always look one year ahead of the current quarter. The current upward drift in the forecast is driven by WTI oil, stocks and to a lesser extent the yield curve steepness. TIPS spreads have been an erratic force on the forecast. As strong as the forecast is, relative to the outlook in recent years, it’s probably too bearish.…...

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When the Reagan Boom ended, the Great Moderation began

On July 1 1985, the New Republic published an article by Michael Barker titled “The end of the Reagan boom” Excerpts: What’s going on here? Only a year ago, the economy was racing along at the fastest clip in more than 30 years. Personal income was up, inflation was down, and to many Americans, if seemed positively churlish to deny that President Reagan had succeeded in “laying the foundations for a decade of supply-side growth.” … now, seven months after the election, just when we thought it was going to be “morning in America” for at least another four years,… Read More

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Week ending Friday January 12 2018 The damned stock market just won’t stop rising. The yield curve is getting steeper too, and shifting higher, at least that was what happened this week. Markets continue to move in directions that imply an enduring increase in nominal growth. 5-year Inflation indexed bond spreads imply about 1.9% average yearly inflation over the next five years, about the same as the week before, but up from about 1.7% in early December. The dollar continues to plunge, with the “DXY” spot dollar index down 1.7% just this week. It’s not that the dollar is at…...

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Let´s avoid bad choices

Greg Ip discusses asset bubbles and how they could make Jerome Powell´s life at the Fed difficult: Any central banker watching the stock market today should get a queasy sense of déjà vu. A housing boom preceded the last recession. A tech stock bubble ushered in its forerunner. Today, stock and property prices are once again setting records, in absolute terms and relative to household incomes. That may leave the Federal Reserve and Jerome Powell, nominated to succeed Janet Yellen as Fed chair next month, confronting some agonizing trade-offs in the next year or two: What if low inflation calls for low interest rates but… Read More

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“Good mood” today meant “bad mood” in the 1990s

Misleading comments on the retail sales print: “Spending at U.S. retailers rose in December for the fourth consecutive month, capping the strongest year for sales growth since 2014”. “Definitely the consumers are in a good mood. The confidence is up. We’ve seen the labor market has been rather solid. “These are some positives going into 2018.” The chart indicates that retail sales follows on the heels of the encompassing nominal spending (NGDP) growth. While the Fed constrains the growth of NGDP, sales will also be “capped”. In the 1990s, up to the mid-00s, while NGDP growth averaged 5.5%, retail sales…...

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“Inflation wish”

Given how many are worried about “lowflation”, whenever a new data point is released you are likely to get absurd (and misleading) comments such as in the two examples below. “U.S. consumer prices rose in December, bolstering expectations that long-weak inflation is set to gain strength in the new year.” “For now, this report adds more weight to the idea that the run of soft numbers from March through July was ‘transitory”. To cap it “brilliantly”, this from Justin Lahart at the WSJ: Janet Yellen can take a victory lap about inflation on her way out as Federal Reserve chairwoman.…...

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“Inflation on demand”

The title was inspired by Olivier Blanchard´s presentation at the Brookings gathering on January 8 on “Should the Fed stick with the 2% inflation target or rethink it”. Blanchard proposes increasing the target to 4%. He also comments that Bernanke´s recent “temporary price level targeting”, which Blanchard calls “inflation when you need it”, so that real interest rates can be lowered when you are at the ZLB. That´s “Inflation on demand”! In addition to a higher inflation target, the Brookings gathering also discussed an inflation band (Rosengren), a price level target (John Williams) and nominal GDP targeting (Jeffrey Frankel). After… Read More

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Marvin Goodfriend has been nominated to the Federal Reserve Board, waiting for Senate confirmation. He comes to the Fed at a critical moment. Critical, because the Fed is in the process of rethinking its monetary policy framework. As Ben Bernanke said in a recent gathering at the Brookings Institution: Former Federal Reserve Chairman Ben Bernanke predicted that the central bank’s new leadership will study alternate regimes for monetary policy over the next year to 18 months. “There will be some pretty serious discussions” on policy frameworks at the Fed under the chairmanship of Jerome Powell, Bernanke said Monday. He said Powell…...

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