2018

NGDP Outlook Update: First Estimate of ‘18 Q1 NGDP as Expected

We’ve updated the NGDP Forecast for one market day, Thursday April 26, but using the just-updated NGDP data, including the first estimate of 2018’s first quarter. The NGDP report may have looked good if one considers year-over-year growth, but quarter-on-quarter is the only new information truly contained in the report, and this is how it shows up in the forecasting model. The signal is the 4.3% annualized quarterly rate, not the 4.8% year-over-year that Q3 and Q4 ‘17 earned us. The NGDP outlook is lifted a twentieth of a percentage point by the new BLS figures. To get our year… Read More

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The Week Ending Friday April 27th 2018 If panic about WW3 over Korea was bad for markets, the prospect of peace in Korea should be good. The Fed, of course, won’t like such good news and will be happier with its tightening bias as a result. GDP data on Friday might also mean the Fed will tighten more than expected. Q1 GDP better than usual, inflation higher too The US RGDP print was better than expected, the NGDP one was also good YoY at 4.8% even if QoQ at 4.3% was a bit lighter than recent readings. The first quarter… Read More

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Warning signs – Durable Goods Orders

While most economic indicators are backward looking, durable goods orders is one that provides clues about what might transpire going forward. That´s because it is about production that will take place in the months ahead. In general, it has conformed to the recent cycle that began in mid-2014. The up leg of this cycle, beginning in mid-2016, has been dubbed “synchronized global growth”. While Harvey & Irma may have helped push DGO (ex-aircraft to minimize volatility), beyond where it would “naturally” go, growth is weakening. The same pattern is visible in new orders for Nondefense capital goods ex aircraft, agood… Read More

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The Week Ending Friday April 20th 2018 A few interesting trends in the markets as 10 year bond yields climbed to three year highs. Are they being driven up by rising short term yields powered by rising Fed target rates or in expectation of higher nominal growth? The yield curve is flattening which would indicate a possible slowdown, except that the curve is flattening at higher levels, a good sign. Five-year breakeven (i.e. expected) inflation rates also continued to move above 2%. This move above 2% may not mean a lot as expectations stayed above 2% for many years despite… Read More

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The shape of a “late-cycle cyclical recovery”

That has been misdesignated “synchronized global recovery”. What we observe, however, is simply an “offset” to the previous slowdown. The pattern shows up in the IMF´s world growth data. It is also present in higher frequency global economic activity data – world industrial production & world trade. In both cases, the “recovery” seems to have run its course and danger, in the form of “trade wars” lurks ahead! In the U.S., the pattern also shows up. I´ll posit that the process is driven by nominal spending (NGDP) growth, in other words, by monetary policy. And is reflected in economic activity… Read More

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Doing quite well?

From MarketWatch: The U.S. economy is doing quite well right now, but it could falter over the next couple of years as the stimulus fades away, said Paul Ashworth, chief U.S. economist for Capital Economics, and the winner of the Forecaster of the Month award for March. Retail sales data were released today. “The story is not fine”. The panel shows that the August-September 2017 storms gave a boost to sales, mostly for replacement purposes.  That boost has petered out, despite fiscal stimulus. When you look at discretionary spending – on such things as Appliances & Electronics and Furniture –… Read More

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As you were, men

The Week Ending Friday April 13 2018 So, it turns out the Friday mini-crash in US equities was a bit of a false alarm. Sure the market is right to be worried about Powell and his pragmatism, but at least war with Russia seems off the agenda and the trade war seems headed for negotiations. Trump’s early warning to the Syrians to move their assets into Russian bases had the effect of removing targets for the Western allies to hit. So reducing the risk of war. A refocus on equity earnings is in prospect and that should bring good news… Read More

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Looking at inflation as a “price phenomenon”

That´s what many analysts do, going into the details of price moves from pickles to trucks. The Fed many times falls into the same trap, but correctly restrains its “hiking impetus”: “All participants expected inflation on a 12-month basis to move up in coming months. This expectation partly reflected the arithmetic effect of the soft readings on inflation in early 2017 dropping out of the calculation; it was noted that the increase in the inflation rate arising from this source was widely expected and, by itself, would not justify a change in the projected path for the federal funds rate.”… Read More

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The Minutes quote that says it all

“Some participants suggested that, at some point, it might become necessary to revise statement language to acknowledge that, in pursuit of the Committee’s statutory mandate and consistent with the median of participants’ policy rate projections in the SEP, monetary policy eventually would likely gradually move from an accommodative stance to being a neutral or restraining factor for economic activity.” As if for the past eight years at least, monetary policy had not been a restraining factor! The charts illustrate it vividly. [Note: FG= “Forward Guidance”, introduced by the Fed at the August 2003 Meeting]

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The sure-fire way of stabilizing the real economy or, “all roads lead to Rome”

At Vox, Walentin and Westermark write, “Stabilising the real economy increases average output”: The intro: The Great Recession has generated a debate regarding the potential effects on the long-run levels of output and unemployment of stabilising the real economy (e.g. Summers 2015). This issue takes on additional importance as the current economic situation in some countries, including the US, imply that there is a monetary policy trade-off between stabilising inflation and the real economy. In particular, the unemployment level is low at the same time as inflation is low. More generally, the question at hand is whether policymakers, in particular… Read More

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