Tuesday, January 3, 2017

Fiive graphs for 2017: #4, the US$

 - by New Deal democrat

This is the second of five graphs that bear watching in 2017.  

The first was gas prices.

The second part of the troika that may lay the basis for the next recession is the US$. Almost 100 years ago, economist Irving Fisher identified the strength/weakness of the currency as being an indicator that led the economy by about 7 months (in the below paragraph, P' is the YoY change in prices, and T is the currency value):

In 2015 we saw how the surge in the US$ depressed commerce even as lower gas prices helped consumer spending.  Since the US presidential election, the US$ has had a lesser surge (so far) based on fears that a trade war particularly with China may be in the offing.  Typically negative effects have not been felt until the US$ is up at least 5% YoY against other currencies:

As of last week the US$ was up 5% globally, although not against major currencies.

Needless to say, if both gas prices and the US$ spike, unlike 2015 both consumers and producers will take a hit.