Data Watch

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…...

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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…...

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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…...

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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…...

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No sustained rebound in industrial production

Industrial Production benefited from a hurricane rebound in October 2017, rising 2.9% above October 2016. That is the highest year over year growth rate since January 2015. Note that from late 2014 to March 2016, industrial production was contracting, remaining at close to that low level until November 2016. The election certainly changed perceptions, at least for a while. The favorable base comparison, however, will soon begin to wane. The fact is that industrial output is now about even with the peak registered in November 2014, and about the same level obtained just before the end of the previous cycle,…...

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Retail Sales indicates the economy is dormant

Charles Evans of the Chicago Fed is downbeat on inflation, but upbeat on economic activity: The real economy in the U.S. is on solid footing, and I expect this momentum to carry forward into 2018. For some time now, activity in the U.S. has been led by solid gains in consumer spending; and more recently, growth in business capital spending has picked back up as well. With healthy labor markets and much improved household and business balance sheets, the fundamentals for continued solid growth in 2018 look pretty good. The news on inflation, however, has not been as good. Retail…...

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“Low” Inflation is neither “transitory” nor “mysterious”

In a speech today, Chicago Fed president Charles Evans said: Inflation has been too low for many years Indeed, inflation has underrun our target throughout most of the post-crisis period. Core inflation did briefly reach target in early 2012, aided by the pass-through of earlier increases in energy costs, but it soon retreated. In the summer of 2016, core inflation rose to just under 2 percent, but it then fell sharply last March and has remained in the 1.3 to 1.5 percent range since then. Many economists subscribe to the view that this latest drop in core inflation simply reflects…...

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The Labor Market remains “Strong”

Powell is in the same corner as Yellen. According to Powell: “Inflation is a little bit below target, and it’s kind of a mystery,” he told CNBC in August. “You would have expected, given that we’re getting tighter labor markets, that we’d have a little higher inflation. I think that what that gives us is the ability to be patient.” When he takes over in February, he can sit on his hands and wait! For a long time we cannot see any relation between the two, as the chart illustrates. For the last two years, wages have remained docile, just as…...

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What´s a mystery is why they think low inflation is a mystery

When the editor of the Journal of Economic Perspectives writes “Mysteries of Modern Inflation”: The theory of inflation that I learned long ago suggested that inflation should creep up when an economy is running near full employment, but will come back down during a recession. However, for almost two decades now, the rate of core inflation (that is, inflation not counting the volatile movements in oil and food prices) has stayed low and hasn’t budged by very much. At one level, low and stable is clearly good news. But at another level, it raises a question of whether we really…...

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There´s a difference between “robust” and just “positive numbers” – 2: The GDP Report

That distinction, however, is lost in the eagerness many have to paint a brighter future (or, maybe, the need for rate hikes). Comments like this one are common: The U.S. economy grew robustly in the third quarter despite two hurricanes, propelled by steady spending from American businesses and households. The charts clearly attest the hyperbole in the statement. Moreover, if spending is steady, how can it propel anything?...

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