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
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
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
The “catch-up” growth should not be construed as reflecting a “strong economy”. Total industry capacity utilization provides the same information: the economy is weak, not strong, as some like to call it.
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
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
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
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”!
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
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