Data Watch

How long does “temporary” or “transitory” last?

Yellen has made her position (shared by others at the FOMC) clear: First, she is somewhat puzzled by the inflation data. Second, that bewilderment will not deter them from keeping to their established “hike path”. Interestingly, two years ago she delivered a speech, which was all about inflation, in fact setting the foundation for beginning the “tightening” cycle, the first move of which took place three months later, in December, and was almost immediately temporarily “aborted” (remember Stan Fischer´s “4 rate hikes for 2016?) Highlights from the speech: “Inflation Dynamics and Monetary Policy” Policy Implications Assuming that my reading of…...

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The GDP report: An alternative take

Some showed a “positive spirit”: From CNBC: Growth last quarter was the quickest since the first quarter of 2015 and followed a 1.2 percent pace in the January-March period. Economists had expected that the second-quarter GDP growth rate would be unrevised at 3.0 percent. With GDP accelerating in the second quarter, the economy grew 2.1 percent in the first half of 2017. Still, economists believe growth this year will not breach President Donald Trump’s ambitious 3.0 percent target. The fact is that the economy has been in the doldrums for the past 11 years. The “ambitious” 3% growth was the…...

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Durable Goods Orders: In “stall speed”

What makes Durable Goods Orders a “high profile” indicator is that it can foreshadow significant changes in economic activity sooner than other statistics. That´s because it is about production that will take place in the months ahead. It is important to keep in mind, however, durable goods orders are highly volatile month-to-month due, in large measure, to sudden large changes in orders for defense goods and aircraft. In order to get a better reading of demand in the business sector we must strip those volatile components out. Doing so, we get a better gauge of consumer confidence. The 65% of durable…...

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Hard data on retail sales & manufacturing contradict consumer sentiment and manufacturing surveys

  Always in search of “justifications” for undesired results the Fed, after using cell phone connection prices and other “excuses” for falling inflation, now says it´s Harvey´s fault for industrial production, including manufacturing, to frustrate expectations: The Fed said Hurricane Harvey, which hit the Gulf Coast late last month, was responsible for most of the decline by depressing oil drilling, petroleum refining and other industrial activity. Interesting to observe that manufacturing surveys did not seem to be affected by Harvey. The basic fact, however, is that this “recovery” ended many years ago, with manufacturing output essentially trendless since. Meanwhile, hard…...

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In this expansion, Phillips went AWOL

To some: U.S. consumer prices rebounded in August, a sign of economic vigor that could nudge the Federal Reserve closer to raising a key interest rate. Reality, however, is a different beast. Headline CPI is prompted by oil prices (with gas prices impacted by Mr. Harvey). It, however, does not “intrude” the ranks of core CPI. Meanwhile, the Fed sticks to its belief that there´s a Phillips Curve out there! And while it searches for Phillips, the “army” languishes....

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The Employment Report: A wages “puzzle”

It´s just one more of the “puzzles” the Fed faces. Yesterday the inflation “puzzle” just got a bit “bigger”, given that inflation (Core PCE) continues to move in the “wrong” direction, going “south” instead of “north” as the Fed has been “forecasting” for some time. The San Francisco Fed has been making efforts to “solve” the low wage growth “puzzle”. A couple of years ago, the story focused on wage rigidity, with firms being “unable to reduce wages during the recession, so that they must now work off a stockpile of pent-up wage cuts”. That story has now changed, with…...

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PCE Inflation Report: The Fed ‘tricked’ again

Instead of climbing towards 2%, as the Fed is constantly “forecasting”, core PCE inflation has ticked down to 1.4% YoY while headline PCE inflation stayed pat (mostly because oil prices ticked up YoY). Being a monetary phenomenon, inflation has to be ‘motivated’ by monetary policy. Unfortunately, that´s something few seem to understand. Certainly the Fed doesn´t. I´m reminded of a piece by Martin Feldstein from March 2014. He wrote: Janet Yellen, like Ben Bernanke before her, believes that the Federal Reserve should communicate the reasons for its current policies and the strategy of its future policy actions. And so we…...

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GDP Report: Upward revision, but the ‘state of play’ hasn´t changed

When you look at annualized data, the GDP revision was ‘robust’: to 3% from 2.6%. On a year-on-year basis, however, it was ‘paltry’: to 2.2% from 2.1%, in line with what has been observed for the past 7 years. These marginal changes are far away from making a meaningful difference in the ‘state of play’, which remains dismal and depressed. The two charts weave a story. Since taking over the Fed in January 2006, Bernanke, the “inflation worrier”, soon allowed NGDP to slip below the level trend path. RGDP growth was soon impacted by the steep rise in oil prices…...

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Durable Goods Orders: “Aircraft Blackout” (i.e. “Negative Noise”)

Durable Goods Orders: “Aircraft Blackout” (i.e. “Negative Noise”) What makes Durable Goods Orders a “high profile” indicator is that it can foreshadow significant changes in economic activity sooner than other statistics. That´s because it is about production that will take place in the months ahead. It is important to keep in mind, however, durable goods orders are highly volatile month-to-month due, in large measure, to sudden large changes in orders for defense goods and aircraft. In order to get a better reading of demand in the business sector we must strip those volatile components out. Doing so, we get a better…...

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Industrial Production also dances to the Fed´s beat

When the Fed tightened monetary policy (falling nominal spending (NGDP) growth) from mid-2014 to mid-2016, manufacturing production growth faltered, picking up when monetary policy was “eased”. Since the start of the year, the Fed has again slipped into tightening mode and NGDP growth turned down. Manufacturing output growth follows suit. That´s one more sign of economic weakness, pulling down long yields and also stocks....

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