The headline numbers for February: 242 thousand jobs and 4.9% unemployment rate. Let´s give these numbers some “structure”. The unemployment rate is the result of two forces that reflect economic decisions by individuals and firms. The first is the employment population ratio (EPOP). The second the labor force participation ratio (LFPR). The unemployment rate is equal to 1-(EPOP/LFPR). The charts show the behavior of unemployment together with its two determinants over the three most recent cycles. The first two (1990, 2001) happened during the “Great Moderation”, while the third (2007) takes place during the “Depressed Great Moderation”. The green bars… Read More
In essence, the FOMC members are pretty much at a loss. The most relevant information was what was lacking from the Statement issued at the end of the January meeting, i.e. the “balance of risk”. From the Minutes we learn that participants were split on the issue. They´ll continue to monitor inflation developments closely to confirm that inflation will evolve along the path the Fed “anticipates”. Unfortunately, they´ve been saying that for several years now. What they´ve done is put themselves in the position of “spectators” who “wish” inflation will climb to trend, but that´s it. Meanwhile they keep blaming… Read More
Our forecast for year-on-year growth in industrial production in January was -1.6%. The release came in at -0.6%. Month-on-month the market´s expectation was for an increase of 0.4%. The outcome was more than twice as large, 0.9%. Since the last quarter of 2014, the level of industrial production has been stagnant to falling. Year on year growth rates have been on a clear downtrend since that time. This is consistent with our view that nominal spending growth, or aggregate demand growth, has been trending down since mid-2014, when the Fed´s tightening talk increased in tone. For the next several months… Read More
Nominal Retail and Food Services year-on-year growth registered 3.4%, not significantly different from our 3.3% forecast. In other words, unlike the preferred media story, there was no surprisingly strong consumer activity. In February, according to our forecast, growth in retail sales should be even stronger, nearing 4% on a year over year basis. From that point on, however, it is expected to trend down, in conformity with expected diminished growth in aggregate nominal spending.
Lately, Yellen has been sounding as “robotic” as Marco Rubio: Financial conditions in the United States have recently become less supportive of growth, with declines in broad measures of equity prices, higher borrowing rates for riskier borrowers, and a further appreciation of the dollar. These developments, if they prove persistent, could weigh on the outlook for economic activity and the labor market, although declines in longer-term interest rates and oil prices provide some offset. Of course, economic growth could also exceed our projections for a number of reasons, including the possibility that low oil prices will boost U.S. economic growth… Read More
The unemployment rate registered 4.9%. Our forecast was 4.8% while the market consensus pegged it remaining at 5%. Probably, unemployment rates below 5% will get the Fed “excited” and, therefore, “trigger-happy”. There´s absolutely no reason for that. To see why, look at our blog post The Fed & the Unemployment Rate, published today. Basically, a real improvement in the labor market would be associated not with a falling labor force participation rate and a low employment-population ratio, but with a rise in those two ratios. Again, monetary policy which the Fed thinks has been accommodative, has in fact been tight… Read More
Today the January 2016 Non-Manufacturing ISM came out. It was much worse than expected at 53.9 vs 58.5 expected. Consensus in the market is for a return to decent RGDP growth based on Non-Manufacturing growth, its employment intentions and resulting high consumer confidence. The market´s lurch downwards was only arrested by a clear statement from President of the NY Fed that he and the FOMC had noticed the weakness and would take it into account at the March FOMC meeting (see our blog comment today “Dudley is the market´s man on the FOMC, a small mercy”). The key employment component… Read More
ISM Manufacturing for January 2016, and Nominal Personal Consumption Expenditures Growth for December 2015. Wiggles along a downtrend. A reflection of monetary tightening! The last couple of months in 2015 showed that inflation is not “brain dead”. The resumption of the fall in oil and commodities in the new year could well reverse the recent minuscule inflation gains! Actually, our forecasts say it will. (see Monthly Analysis Jan 1, 2016) Aren´t we thrilled that in the statement from the January FOMC Meeting the Fed wanted to reassure us that the inflation target is symmetric. Who believes that inflation would be… Read More