Data Watch

Euro Area NGDP growth rate to keep dropping

It was all cheery waves as the governing CDU party in Germany elected a new leader after Angela Merkel stepped down. Eventually, Ms. Annegret Kramp-Karrenbauer will also take over from Merkel as Chancellor of the country. Well, she may do so, but there is the small matter of crashing German and dropping Euro Area economic growth rates that may derail these plans. We already knew that German economic success had come to a shuddering halt in 2018Q3 with a negative QoQ RGDP annualized growth rate of -0.8% and a YoY rate of just 1.2%. Maybe NGDP growth of 1.7% QoQ (3.1% YoY) will rescue… Read More

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Regarding inflation and unemployment, monetary policy plays no role!

According to Robert Gordon writing in 2000 about the “fabulous decade”: Sometimes we are satisfied to find a single “smoking gun” or “silver bullet” that alone is powerful enough to provide an explanation of a macroeconomic puzzle. However, on this occasion we have no fewer than 12 separate and largely unrelated explanations of why inflation has been so low given unemployment, or why unemployment has been so low without igniting inflation. These 12 factors in the order discussed here are (1) falling real import prices through early 1999, (2) falling real oil prices through early 1999, (3) measurement improvements that… Read More

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The Incredible Falling S&P 500

The big news in the last month or so has been the jarring volatility in the US stock market. At the time of writing, the S&P 500 is practically back to where it was a year ago and is down some -10% from the peak on 17 September, 2018. Despite the headline-making collapse in the share prices of internet companies such as Facebook, the Nasdaq is down “only” about -14% from peak, showing that the drop in the S&P 500 isn’t entirely due to the bear market in “tech”. The drop in share prices seems to be mostly due to… Read More

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Worker Compensation Still a Drag On Fed’s Inflation Target

The conventional financial-media headlines said the third-quarter employment cost index, out on Halloween, indicated “Pay Jumped.” What the headlines did not say (but should have) was, “Employment costs remain a drag on the Federal Reserve’s putative 2% inflation target.” The employment cost index, a broad measure of workers costs prepared by the Department of Labor that includes pay and benefits, rose 2.8% year-over-year in the third quarter. Of course, that means productivity gains in excess of 1% annually reduce unit labor costs to under 2% annually. Indeed. A day after the Halloween release, the Department of Labor released its second-quarter… Read More

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The “Bastiat Boom”

Retail sales frustrated expectations. It´s not that consumer spending is weakening but is now being properly measured again. After Harvey hit in August 2017, there were a lot of “broken windows” that had to be replaced. Auto is a case in point. Between May and August of this year, retail sales growth averaged 6.5% year-on-year. In September growth dropped to 3.1% (not seasonally adjusted). Some say it reflected Florence´s disruptions. That´s unlikely. In August 2017, retail sales increased 4.1% despite Harvey´s much greater destruction! The “windows replacement effect” has petered out, so now changes are reverting to type, a truer reflection… Read More

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“All the light you cannot see”

Powell´s first words at the press conference, after the usual disclaimers: “The economy is strong!” The economy is only “strong” compared to the low point of nominal spending (NGDP) growth in mid-2016, otherwise, it´s just as “strong”, or “weak”, as it has been since it only partially climbed up from the depths of the Great Recession. As such, as the chart illustrates, there is absolutely no danger of core PCE inflation getting “out of hand”, unless, quite unwittingly, the Fed allows nominal spending to go “on a binge”. The next chart shows how misleading, even dangerous, a headline target, which… Read More

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Retail Sales, rising on “gas fumes”

The chart shows that overall retail sales swings to the tune of gasoline prices. The pick-up in overall sales for the past two years shows the close connection between the two. If you take away the gasoline price factor, the US consumer does not look so good. Retail sales are materially worse now than during 2014, before the “Yellen slump” set in. The economy is better than it was in 2015 and 2016, but that is not saying much. The reality is the economy is in depression mode. Early moves to “reflate” were quickly aborted. If you take Lael Brainard´s… Read More

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CPI Core Sans Shelter Rising at 0.6% Annually

There are many who labor in relative obscurity in econo-land, much to the loss of macroeconomics. Kevin Erdmann, author of the blog The Idiosyncratic Whisk, has consistently produced the most insightful commentary on housing and finance on the web, and probably anywhere for that matter. One of Erdmann’s monthly  “chores” is to produce the CPI core sans shelter index. The CPI core minus shelter costs rose at a 0.6% annual rate in the last six months, reports Erdmann. The chart shows the year-on-year core CPI less shelter. If the US has an inflation problem, obviously housing is playing a major… Read More

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The employment report was not “solid”, but had “toxic” elements

According to the BLS: The Civilian Labor Force dropped by 469 thousand The number of employed people dropped by 423 thousand Those not in the labor force rose by 692 thousand The unemployment rate stood pat at 3.9% because the Labor Force Participation & the Employment-Population Ratio dropped by the same amount, 0.2 percentage points (if only the LFPR had dropped, pundits would be “worried” by another drop in the unemployment rate). It´s interesting to note that since early 2014, the “narrative” has changed. While in 2014-15 the average monthly increase in non-farm (NFP) employment was 237 thousand, we heard… Read More

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