Data Watch

My “funny inflation”

Resulting in “funny” headlines (with time stamps): Barron’s 9:26 AM: “Dow Drops as Too Much Inflation Rocks Stocks.” CNN Money 10:56 AM: “Stocks Shrug Off Inflation Data” The core CPI was 0.3% month-on-month, higher than expected (0.2%) and the highest in two years. Since it wasn’t as low as analysts were anticipating, that “confirms” the “boom hysteria”. David Beckworth put it succinctly: My prediction: Fed will be emboldened to raise rates & talk up more rate hikes. This tightening will cause inflation to drift back below 2%. And Fed officials will wonder once again why inflation remains low....

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Retail Sales: What a “boom” doesn´t look like

Retail Sales in January 2018 rose by a little over 3.5% year-over-year. That followed sharp downward revisions to December. The truth is that almost all the gain was registered during September to November – the hurricane boost. Month-over-month, retail sales declined in January after being revised to flat in December. It´s almost as if US consumers have taken two months off from spending. Obviously not. Rather, retail sales (just as several other statistics) captured the burst of activity triggered by the cleanup and recovery from the severe storms along the Gulf Coast in later summer 2017. In the seven months…...

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The Employment Report: Yellen´s last

Economists call accelerating wages ‘best news’ in January jobs report. However, wage growth for 80% of workers (production & non-supervisory) has been stuck for quite some time. The panel shows what a non-inflationary boom looks like. Low inflation and falling/low unemployment in both cases. However, a real boom sees a robust growth in hourly and weekly earnings. During Yellen´s tenure, the overall labor force participation rate remained flat as a pancake after dropping significantly following the Great Recession. Meanwhile, prime age worker participation showed a slight increase halfway through her mandate but has flattened again. There was nothing special about…...

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The reality of “low inflation” which the Fed cannot grasp

Over the past 10 years, core PCE inflation has averaged 1.5%. The latest print is exactly there. For the previous 14 years, core PCE inflation averaged 1.85%. No one complained, in part because there was no magic 2% target. Inflation only had to be “low & stable”. The charts help explain. With stable nominal spending (NGDP) growth, you get stable inflation. With lower and stable NGDP growth, you get lower, but still stable inflation. So there´s no mystery. If the Fed wants inflation closer to the 2% target, it has to increase the growth rate of nominal spending. There is,…...

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Celebration

With the GDP report we hear lot´s of celebratory comments. A typical one: The U.S. appears to have entered a stage of stronger economic growth, years into a historically modest expansion. Unfortunately, that´s not true. Just look at the chart. The “uptake” in 2014 was much stronger, but fizzled. This time, it´s weaker. Will it be more long lasting? The Fed seems to think that if you “drive slowly, you´ll grow longer”! In several other instances, even those characterized by deep depressions, the economy recovered. That simply has not happened this time. Observation: It is said that this expansion is…...

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Manufacturing Production is becoming irrelevant!

Overall, industrial production was up 3.6% year-on-year. That´s the best since November 2014 (3.7%). That´s however, mostly due to the aftermath of storms, cold winter affecting utilities, and mining. Manufacturing, the lion´s share of industrial production, has been moribund for several years. Impressively, as shown in the chart, while as a highly cyclically sensitive part of the economy manufacturing was traditionally viewed as a classic indicator of current business conditions, in the last five years it has completely lost relevance in the determination of real output fluctuations.  ...

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“Good mood” today meant “bad mood” in the 1990s

Misleading comments on the retail sales print: “Spending at U.S. retailers rose in December for the fourth consecutive month, capping the strongest year for sales growth since 2014”. “Definitely the consumers are in a good mood. The confidence is up. We’ve seen the labor market has been rather solid. “These are some positives going into 2018.” The chart indicates that retail sales follows on the heels of the encompassing nominal spending (NGDP) growth. While the Fed constrains the growth of NGDP, sales will also be “capped”. In the 1990s, up to the mid-00s, while NGDP growth averaged 5.5%, retail sales…...

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“Inflation wish”

Given how many are worried about “lowflation”, whenever a new data point is released you are likely to get absurd (and misleading) comments such as in the two examples below. “U.S. consumer prices rose in December, bolstering expectations that long-weak inflation is set to gain strength in the new year.” “For now, this report adds more weight to the idea that the run of soft numbers from March through July was ‘transitory”. To cap it “brilliantly”, this from Justin Lahart at the WSJ: Janet Yellen can take a victory lap about inflation on her way out as Federal Reserve chairwoman.…...

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The labor market is not strong. Like the economy, it is weak.

The “strong” labor market has been the excuse for the Fed to hike rates because according to their preferred model, inflation will soon pick up. They discount the fall in the labor force appealing to demographic factors. Population growth, however, has dropped to levels seen 20 years ago, before the immigration boom of the 1990s showed up in the 10-year population growth rate. What happened to the labor market after 2007 was not demographic, but was the result of the biggest monetary disaster in 60 years! It was following that event that American workers gave up looking for work that…...

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Ignorance is costly

Recently, Bill Dudley “explained”: I don’t really completely understand why inflation is as low as it is right now. We would have thought that at this unemployment rate, we would be seeing more pressure on wages, and that that would be ultimately filtering into prices. It may just be that it takes some time—that you have to be at this unemployment rate for six months or a year or two years to actually see the consequences for wages and prices. But it’s not a bad place to be. It´s just the shoddiest labor market in modern times, even compared to…...

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