Data Watch

Drive!

In U.S.: retail sales show midsummer muscle We read “U.S. retail sales rose a healthy 0.5% in July, showing the economy still has plenty of punch left at midsummer.” It´s all about gas prices and American’s penchant for driving! Once you subtract gasoline sales from total retail sales, consumers are not “showing muscle” or “punch.” In fact, they have “weakened”!

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The employment report: almost perfectly anticipated

All elements of the report came exactly as anticipated, wage growth, hours worked, labor force participation and the unemployment rate. The only surprise was the 56K below expectation payroll. However, that was more than “compensated” by the upward revisions for the previous two months. Once again, many generally referred to the report as “solid” or “strong”. I have previously argued against that view. Here, I want to concentrate “fire power” on some other misconceptions regarding the labor market. Recently, Chairman Powell said: “Everywhere we go we hear about labor shortages. But where’s the wage reaction? “ “So it’s a bit… Read More

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UK Monetary Policy: walking to stand still (eh? what?)

In Governor Carney’s prepared opening remarks to the press conference after the Bank of England’s Monetary Policy Committee unanimously agreed to raise its Bank Rate from 0.50% to 0.75% he made a couple of statements. There was the obvious and expected one: “With domestically generated inflation building and the prospect of excess demand emerging, a modest tightening of monetary policy is now appropriate to return inflation to the 2% target and keep it there.” Then the curious one: “Policy needs to walk – not run – to stand still.” Classic Carney. He is such a sharp cookie. He knew that the unanimity on… Read More

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If Milton Friedman looked down at his country today on his birthday, what would he see?

Mostly, that since he died on November 16, 2006, the American economy has become a very “dry dessert”. And why´s that? Most likely because Ben Bernanke broke the promise he made to Friedman in 2002: Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again. PS. The oil shocks in 2004-08 were significant, so there were some “spillovers” to the core measure.

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The GDP report misleads

The latest GDP estimates included a sharp rise in previous numbers that seemed to have made the economy richer. The “shape” of the economy and so its growth rate, however, provide the same economic picture as before. As most people expected, quarterly growth in Q2 was boosted by a single item (the so called ‘soybean effect’). Coming in at 4.1%, this was the best number since Q3 2014 (4.9%). Being boosted by an uncharacteristic contribution from the export sector. After hearing about trade wars and restrictions for most of the year, exporters “jumped the gun” to get ahead. There is… Read More

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What´s up with industrial production?

Is this a good description? “Industrial production jumped 0.6 percent in June, rebounding from a 0.5 percent drop in May. Over the past year, industrial production is up 3.8 percent, continuing a modest upward trend in growth.” That appears to be just a rebound from a significant previous drop. We´ll have to wait for more prints to see if an upward trend takes hold (unlikely). In “olden times”, a slightly smaller drop in industrial production was associated with a recession (2001). Why not recently?

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Consumer spending: The headlines and reality

The headlines: 1 Consumer spending is bustling and likely propelled strong overall economic growth in the recently completed second quarter. 2 U.S. retail sales rose solidly in June as households boosted purchases of automobiles and a range of other goods, cementing expectations for robust economic growth in the second quarter. Reality: Retail sales remain depressed. Even ignoring the original trend path, the next chart illustrates, considering only the post-recession period, that between late 2014 and mid-2017, retail sales faltered, dropping below the new and lower trend path. The recent “bustling” is the result of sales climbing back to the lower… Read More

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The inflation report always electrifies

The release of the CPI report brings forth the usual ‘terrifying’ comments: U.S. consumer prices rose for a third straight month in June, eating away at sluggish wage growth and sending inflation to its highest rate in more than six years. That´s pressing the point too hard, as the chart illustrates. The next chart shows, on the same scale, the stable behavior of the core measure. The comment below exemplifies the degree to which the concept of inflation is misunderstood. The Fed has thus far assumed tariffs were too small to affect inflation. Maybe not much longer. Ian Shepherdson of… Read More

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Contrary to popular opinion, the low rate of unemployment does not signal a strong labor market

Comments like this one: “This is a good job-creation number, but on the other hand we see still continued soft wage growth”, should signal that things in the labor market are not as good, or strong, as generally thought. A strong labor market is characterized by a high employment population ratio (EPOP) and a high labor force participation rate (LFPR). The ratio of these two quantities define the unemployment rate. Therefore, a low unemployment rate is consistent with both high EPOP and high LFPR as well as with a low EOPO and low LFPR, as long as their ratio is… Read More

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CPI Report: No surprises

It came exactly as expected, with core CPI clocking 2.2%, so no significant asset price moves. The chart below compares core CPI and core PCE. These inflation gauges have been well behaved over the past several years. Note there is a 40 basis point gap between the CPI and PCE, implying that the May 2018 core PCE will remain below the 2% target. In fact, two or three years ago, inflation, by any gauge, was more ‘calamitous’ than now. Why, then, is the Fed so concerned about ‘overheating’? Maybe because it feels below 4% unemployment is harmful!  

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