Weekly Indicators for September 19 - 23 at XE.com

 - by New Deal democrat

My Weekly Indicators post is up at XE.com.  Commodities undid their recent wobble, but the trend in several interest rate indicators is of concern.

Bonddad's Thursday Linkfest

New Fed Projections

BOJ Adds to QE (FT)

The Bank of Japan has launched a new kind of monetary easing as it set a cap on 10-year bond yields and vowed to overshoot its 2 per cent inflation target on purpose.

Its decision demonstrates that even eight years after the global financial crisis, central bankers are still willing to experiment with monetary policy tools as they struggle to escape from low inflation around the world.

The move marks another effort by Haruhiko Kuroda, BoJ governor, to surprise market expectations by expanding his monetary policy toolkit to signal his determination that Japan escape its decades of on-and-off deflation.

Weekly Chart of the Japanese ETF

OECD Warns of Slow Global Growth

The global economy is projected to grow at a slower pace this year than in 2015, with only a modest uptick expected in 2017. The Outlook warns that a low-growth trap has taken root, as poor growth expectations further depress trade, investment, productivity and wages.

Over the past few years, the rate of global trade growth has halved relative to the pre-crisis period, and it declined further in recent quarters, with the weakness concentrated in Asia. While low investment has played a role, rebalancing in China and a reversal in the development of global value chains could signal permanently lower trade growth, leading to weaker productivity growth. Lack of progress – together with some backtracking – on the opening of global markets to trade has added to the slowdown. 

Exceptionally low – and in some cases negative – interest rates are distorting financial markets and raising risks across the financial system.  A disconnect between rising bond and equity prices and falling profit and growth expectations, combined with over-heating real estate markets in many countries, increases the vulnerability of investors to a sharp correction in asset prices.

“The marked slowdown in world trade underlines concerns about the robustness of the economy and the difficulties in exiting the low-growth trap,” said OECD Chief Economist Catherine L. Mann. “While weak demand is surely playing a role in the trade slowdown, a lack of political support for trade policies whose benefits could be widely shared is of deep concern.

”Monetary policy is becoming over-burdened. Countries must implement fiscal and structural policy actions to reduce the over-reliance on central banks and ensure opportunity and prosperity for future generations.”

World Trade is Disappointing (OECD)

Table of the 20 Largest Shipping Companies by Market Cap (FinViz)

Chart of the Shipping Sector (Finviz)

A Divided Fed Leaves Rates Unchanged

This is over at xe.com.

August housing cools off, but slow increase in trend persists

 - by New Deal democrat

This post is up at XE.com.  The headline numbers are disappointingly flat.  But when we step back and take a look at the three month moving average, a slight trend appears.

Bonddad's Wednesday Linkfest

I'm a financial adviser with Thompson Creek Wealth as well as a tax and business attorney with The Law Office of Hale Stewart.

Is the Business Cycle Dead? (Capital Spectator)

But maybe the real issue is that the economy is stuck in a netherworld where growth remains perpetually weak while unusually low interest rates keep the macro trend from falling into a conventional business-cycle ditch. Actually, we’ve been in something approximating this netherworld in recent years, albeit punctuated by temporary bursts of relatively solid growth.

Housing Starts and Permits Drop (Census)

Increase in Incomes is Real and Important (Barry)

The latest data, courtesy of the Census Bureau, which released its annual update on incomes and poverty yesterday, showed that median household income increased a whopping 5.2 percent in 2015 to an inflation-adjusted $56,516. As the New York Times, noted, it was “the largest single-year increase since record-keeping began in 1967.”

.....

Ignore the naysayers; the most recent numbers were a huge positive surprise, showing that incomes for all Americans are rising in a meaningful way. Unlike in recent years, when much of the gains went to an increasingly narrow group at the top of the economic strata, last year’s improvements were broad and deep. “Gains were spread across the income spectrum and by race, while women’s earnings inched closer to men’s,” Bloomberg reported.

Global Trade is Weaker (ECB)

The so-so 2016 election economy

 - by New Deal democrat

As I have pointed out in several recent posts, the economic fundamentals forecast a very tight, 51/49 Presidential race.  Here again is a copy of Nate Silver's "economics only" election forecast:

Here's how Silver calculates the index:

"How does the model judge how well the economy is doing? It calculates an index, which may seem complicated but is actually relatively intuitive. We combine the change over the past year in six measures of economic health — jobs (nonfarm payrolls); manufacturing (industrial production); income (real personal income); spending (personal consumption expenditures); inflation (the consumer price index); and the stock market (S&P 500) — into a single index. Each part of the index is compared to how well the economy was doing by that metric in previous presidential election years"

While (except for the stock market) this is a good coincident index for the economy, almost exactly matching the criteria used to determine if the economy is in recession or not,voddly it does not include most of the series that Silver himself found om 2011 were most correlated with the results of Presidential elections over the last 50 years:

So let's take a look at the nine series that had correlations of .30 or better:

ISM manufacturing index (Jan - Sep):

Unfortunately the ISM has withdrawn its permission for the St. Louis FRED to post its data, so I can't post a better graph.  But I can tell you that through August, this year the ISM Manufacturing index has averaged 50.8 -- just barely positive.

Nonfarm employment:

Employment has grown by about 1% in the first 8 months of this year.

Unemployment rate (Sep less Jan):

The unemployment rate in September is the same as it was in January.

Real personal income minus transfers

This is also up about 1% so far this year.

Change in employment to population ratio (Sep less Jan)

The e/p ratio has only improved by 0.1% this year.

Real GDP and real GDP per capita

Real GDP is only up about 0.5% through the second quarter.  Per capita it is up less than 0.2%.

Real final sales (i.e., production plus wholesale plus retail sales)

This is also up about 1% through the second quarter.

Real disposable income per capita

This too is up about 1% as of July.

In summary, only one series -- the unemployment rate -- out of the 9 most correlated with the re-election of the incumbent party is not positive (and it is unchanged).  All of the others are positive, although several just barely so. BUT, none of them are strongly positive.  This is an economy moving forward in no better than second gear.  So the incumbent party is favored -- but by very little.

Bonddad's Tuesday Linkfest

I'm a financial adviser with Thompson Creek Wealth as well as a tax and business attorney with The Law Office of Hale Stewart.

OPEC Is Close to Deal?

OPEC members are close to reaching an agreement on how to stabilize the market, Venezuelan President Nicolas Maduro said after speaking to his counterparts from Iran and Ecuador.

Maduro held “positive discussions” with fellow members of the Organization of Petroleum Exporting Countries who attended the Summit of the Non-Aligned Movement, he said Sunday at a press conference following the event, in which 15 heads of state gathered in the South American country. Maduro said he spoke with Ecuadorian President Rafael Correa and Iranian President Hassan Rouhani at the summit and that he hopes an accord can be reached by the end of the month. 

1-Year Chart of Oil

China Debt Level High

China’s debt has grown to alarming levels, according to new data from the Bank for International Settlements that highlight a big potential risk to the global economy.

What the BIS terms the country’s “credit gap” is now three times higher than the typical danger level, the research shows.

The measure tracks the difference between corporate and household debt as a proportion of gross domestic product and the long term trend, thus highlighting any divergence between current and historic borrowing patterns — a possible indicator of unsustainable debt accumulation.

1-Year Chart of the Chinese Market

McDonald's Next EU Target?

McDonald’s could face an order to pay nearly $500m in back taxes to Luxembourg, according to a Financial Times analysis of an investigation by Brussels into state-supported tax avoidance.

Last month the European Commission imposed a €13bn tax penalty on Apple in Ireland, triggering a storm of protest from Washington and corporate America. As the commission steps up its crackdown on so-called sweetheart tax deals, two US multinationals — McDonald’s and Amazon — are potentially next in line.

According to an FT review of the commission’s McDonald’s probe, it paid an average tax rate of 1.49 per cent on the $1.8bn profit earned by its Luxembourg-based European headquarters since its 2009.

1-Year Chart of McDonalds

Bonddad's Tuesday Linkfest

I'm a financial adviser with Thompson Creek Wealth as well as a tax and business attorney with The Law Office of Hale Stewart.

OPEC Is Close to Dael?

OPEC members are close to reaching an agreement on how to stabilize the market, Venezuelan President Nicolas Maduro said after speaking to his counterparts from Iran and Ecuador.

Maduro held “positive discussions” with fellow members of the Organization of Petroleum Exporting Countries who attended the Summit of the Non-Aligned Movement, he said Sunday at a press conference following the event, in which 15 heads of state gathered in the South American country. Maduro said he spoke with Ecuadorian President Rafael Correa and Iranian President Hassan Rouhani at the summit and that he hopes an accord can be reached by the end of the month. 

1-Year Chart of Oil

China Debt Level High

China’s debt has grown to alarming levels, according to new data from the Bank for International Settlements that highlight a big potential risk to the global economy.

What the BIS terms the country’s “credit gap” is now three times higher than the typical danger level, the research shows.

The measure tracks the difference between corporate and household debt as a proportion of gross domestic product and the long term trend, thus highlighting any divergence between current and historic borrowing patterns — a possible indicator of unsustainable debt accumulation.

1-Year Chart of the Chinese Market

McDonald's Next EU Target?

McDonald’s could face an order to pay nearly $500m in back taxes to Luxembourg, according to a Financial Times analysis of an investigation by Brussels into state-supported tax avoidance.

Last month the European Commission imposed a €13bn tax penalty on Apple in Ireland, triggering a storm of protest from Washington and corporate America. As the commission steps up its crackdown on so-called sweetheart tax deals, two US multinationals — McDonald’s and Amazon — are potentially next in line.

According to an FT review of the commission’s McDonald’s probe, it paid an average tax rate of 1.49 per cent on the $1.8bn profit earned by its Luxembourg-based European headquarters since its 2009.

1-Year Chart of McDonalds

Bonddad's Monday Linkfest

The DIAs and IJHs are Right At Support

The SPYs Have Consolidated Right Above Fibonacci Levels

The QQQs Bounced Off Support and Rallied Higher

The Financial and Technology ETFS Are Outperforming the SPYs

1-Year Chart of the XLFs

1-Year Chart of the XLKs

A thought for Sunday: if you are a Democrat, buck up!

Hillary is a Clinton.  Clintons are counterpunchers.  She will jab  and kick and scratch and claw her way back.


 - by New Deal democrat

If you are a Democrat, it is easy to become dispirited after the last week. If you were a Sanders supporter like me, Hillary Clinton has validated every concern about her unpopulatirty and electability that was argued in the primaries.

But as somebody who spotted this turn of event almost as soon as it began in late August, I think I have a ltttle credibility in telling you not to give up the fight.

In the first place, as I have been noting for close to the last year, the economic fundamentals point to a very close race, as the economy is expanding, but not by much.  Here's Nate Silver's "economics only" tracker:

If this election were decided on the economy, Clinton would win by 1%.

Douglas Hibbs' "Bread and Peace" model takes nto account wartime casualties.  Since we have almost none, and no widespread violent civil unrest (both of which doomed Humphrey in 1968), that's not an issue.

So the election boils down to the personal qualities of the candidates.

Say what you will about Colin Powell, in his leaked emails he accurately pinpointed Hillary's critical flaw as overweening hubris.  Hubris explains her naming of a transition team on Aug 16, her failure to go to Baton Rouge (even now) choosing instead to fundraise in the Hamptons, her failure to catch on to the new "presidential" Trump who debuted on August 19, her her hedging and qualifiying on the issue of her emails and the Clinton Foundation, and in general her going into "prevent defense" in mid-August, with the usual results of such a defense.

Her "basket of deplorables" comment epitomized this hubris.  As I put it on Prof. Mark Thoma's blog:

My inner Spock concurs with the logic of her remark.
My inner McCoy feels her contempt for ordinary people.

Remember, she didn't call their *opinions* (misguided but) deplorable, she called *them,* about 1/4 of the American population, deplorable.  Her partial walkback was a  Spock-like emphasis on math, rather than an emotional connecting with those who felt aggrieved.

Clinton's competence-centered campaign is reminscent of failure of Michael Duckakis.  But she is not Dukakis. She is a Clinton, and they know how to counterpunch.

In fact, this is the *third time* she has blown a monumental lead (there's that hubris again). 

In 2008, she blew a monumental lead against Obama.  She kicked and jabbed and scratched and clawed her way back to obtaining more votes (but fewer delegates) than Obama.

This spring, she blew a monumental lead against Sanders.  She kicked and jabbed and scratched and clawed her way back to obtaining more votes and delegates, and won the nomination.

I fully expect her to kick and jab and scratch and claw her way back against Trump.

For what it is worth, in my opinion, she needs to do two things:

1. an "elevator pitch" of positives.  Fortunately she has a handy template in the Democratic Party platform.  All sh e needs to do is embrace it for the next 50 days.

2. She needs her surrogates t tear into Trump every single day.  Ideally, this would be the very popular Barack Obama. Like in 2008 and 2012, Obama has been in a  diffident slumber once he (or his successor) has been in a substantial lead, only to wake up once disaster loomed.   Since the GOP will repeal his entire legacy within 30 days of a President Trump taking office, he has a huge motivation to rhetorically carve Trump into little pieces -- which of course will provoke the worst from Trump.

Bottom line:  Hillary Clinton has some serious flaws as a condidate.  But rolling over in the face of adversity isn't one of them.

Weekly Indicators for September 12 - 16 at XE.com

 - by New Deal democrat

My Weekly Indicators post is up at XE.com.

There have been some subtle shifts in the last few weeks, suggesting another bout of relative global weakness compared with the US.

The Utter Bullshit of Trump's Economic Plan

I have to admit that I'm finding the presidential election extremely disheartening.  Trump is stupid, racist, xenophobic and utterly devoid of substance.  But as usual, the Republican political commentators are all pledging fealty.

      Let's look at one piece of Trump's economic plan as an example: he said he would get the economy growing at a 4% rate.  How?  He didn't say.  But rest assured it will involve some combination of tax cuts and deregulation.

     How feasible is this promise?  It's not.  Consider the following chart:

US real GDP grew at that pace during the 1980s and 1990s but isn't anymore.  Why?  because during the 1980s and 1990s the labor force participation rate was growing:

This occurred because women entered the labor force and the baby boomers moved through the system.  But now the boomers are retiring and women are leaving the labor force.  Put in broader terms, there are fundamental changes occurring in the U.S. that can't be altered through policy -- unless you want to increase immigration.  And we know how far that'll get in our new white power society. 

     In fact, this problem of slower growth is global -- it's occurring in Japan and the EU who are experiencing the exact same population dynamics.  For a really good discussion, read Larry Summers secular stagnation hypothesis or the latest speech from Fed President Lael Brainard.    

     This one piece of Trump's economic plan is bullshit and unattainable given his and Republicans hatred of non-whites.  But that no longer matters.  We are formally in a post-fact world where magical thinking reigns supreme.  And the bigger the lie, the better.  

       

     

August production and sales data disappoint

 - by New Deal democrat

This post is up at XE.com.

We've had a pattern of strong July and poor August data, which makes me think there may be a glitch in the seasonality.  In any event, the bottom of the shallow industrial recession remains last March.

Two young whippersnappers and their mobile phones

 - by New Deal democrat

I took this photo at my local Dunkin' Donuts while I was finishing the last post:

The real, timely "real median household income" just stood up: Sentier Research

 - by New Deal democrat

In April of this year, I wrote a piece entitled "Would the real real median household income please stand up?" discussing three separate measures from the Census Bureau, the BLS, and private think tank Sentier Research.

By now you have probably already read elsewhere that yesterday the Census Bureau reported that real median household income rose 5.2% in 2015 -- the biggest annual increase since the 1960s.  Here are the opening two paragraphs of the report, that pretty much say it all:

• household income in the United States was $56,516 in 2015, an increase in real terms of 5.2 percent from the 2014 median of $53,718. This is the first annual increase in median household income since 2007, the year before the most recent recession.
• In 2015, real median household income was 1.6 percent lower than in 2007, the year before the most recent recession, and 2.4 percent lower than the median household income peak that occurred in 1999. (The difference between the 2007 to 2015 and 1999 to 2015 percentage changes was not statistically significant.)

The problem is, this report is so tardy as to already be outdated.  After all, it is only issued once a year, so we just learned about the 2015 average -- but we are already only 3 1/2 months away from 2017!

A similar problem afflicts a second measure of median income, from the Consumer Spending Survey, which is released only once a year in April of the next year.  Pew Research wrote about the 2014 results just a couple of weeks before the 2015 report was issued, and here is what they found:

Two weeks later the 2015 report showed the biggest increase in years (but Pew has not updated their story):

As of June 2015, workers had made it all, or virtually all, back. According to my calculations, after falling nearly -7% from June 2009 through June 2014, in 2015 incomes in real terms were only 1% below their 2009 high ($62,138 vs. $62,857 in 2009 dollars). The bullet points:

• average  annual expenditures up +5.9% YoY (up +5.7% after inflation)

• average annual income up +6.6% YoY (up +6.4% after inflation)

But there is a third source of information as to real median household incomes:  Sentier Research, a private facility where two former Census Bureau researchers compile a monthly update from the Household Survey (the source of statistics like the unemployment rate and the employment to population ratio in the monthly jobs report).

One year ago, in September 2015, here is what the Census Bureau's 2014 report had just shown:

and here is what Sentier Research was showing at that time for 2015:

With only a one month delay, Sentier was already showing a huge increase in median household incomes in late 2014 continuing in 2015.

Now here is the updated 2015 data released by the Census Bureau yesterday:

Nearly one full year later, the official number showed what Sentier was reporting in nearly real time.

Yesterday's Census Bureau report was a major validation for the credibility and reliability of Sentier's monthly update.

So, what does Sentier show now?  Here is their graph through July 2016 (h/t Doug Short

Real median household income is higher still in 2016 than it was in 2015, but in the last several months it has stumbled.  One year from now, that is probably about what the Census Bureau will tell us.

To reiterate the conclusion from my April piece, however:

this is too important a statistic to leave to very delayed and problematic annual measures. An even more complete measure, average per capita adjusted gross income - which is generated from the complete tally of all tax returns filed in any given year, is only available through 2013!  Resources  should be devoted to producing more accurate and timely measures on a Quarterly basis at least.

Bonddad's Wednesday Linkfest

I'm traveling for the rest of the week.

JOLTS and Labor Market Conditions Index still unimpressive

 - by New Deal demorat

[Note: I'm still way too busy i.r.l.  So this is a tardy update on some news released last week.]

I reamin unimpressed with the Job Openings and Labor Turnover Survey (JOLTS), as I have been for for over a year, and like many others I have found the Labor Market Conditions Index a source of concern.

First, the LMCI, with the exception of one month ago, has been relentlessly negative all this year:

At the same time, in the past it has almost always taken an LMCI reading of -10 or worse to be consistent with a recession.  So the LMCI is just telling us that the labor market continues to decelerate.

The JOLTs report, which was updated for July, also shows continued deceleration.  For over a year I have noted that the pattern was similar to that in late in the last expansion, and the July report was more of the same.

First, here is a comparison of job openings (blue), hires (green), and quits (red).  Because there is only one compete past business cycle for comparison, lots of caution is required. But in that cycle, hires and quits peaked first and then openings continued to rise before turning down in the months just prior to the onset of the Great Recession:

Through July, 2016 continues to look very much like 2006, or even early 2007.   Although I won't post it this month, in the past I have pointed out that quits in particular seems to correlate well with the unemployment rate a few months later -- and since quits has gone nearly flat, I expect the unemployment rate to remain essentially steady.

Finally, I wanted to repost this self-explanatory graph from Barry Ritholtz:

This tells us that the ratio is about as it was at the peak of the last buisness cycle.  Which means that employers with job openings have a choice:  either pay better wages, or see the openings go unfilled.  Needlless to say, I am rooting for better wages.

Bonddad's Tuesday Linkfest

Fed President Brainard on Labor Market Slack

Second, and related, although we have seen important progress on employment, this improvement has been accompanied by evidence of greater slack than previously anticipated. This uncertainty about the true state of the economy suggests we should be open to the possibility of material further progress in the labor market. Indeed, with payroll employment growth averaging 180,000 per month this year, many observers would have expected the unemployment rate to drop noticeably rather than moving sideways, as it has done. It is true that today's unemployment rate of 4.9 percent is only 0.1 percentage point from the median SEP participant's estimate of the longer-run level of unemployment. However, the natural rate of unemployment is uncertain and can vary over time. Indeed, in the SEP, the central tendency of the projection for the longer-run natural rate of unemployment has come down significantly, from a range of 5.2 to 6.0 percent in June 2012 to 4.7 to 5.0 percent in June 2016--a reduction of 1/2 to 1 percentage point.5 We cannot rule out that estimates of the natural unemployment rate may move even lower.

In addition, the unemployment rate is not the only gauge of labor market slack, and other measures have been suggesting there is some room to go. The share of employees working part time for economic reasons, for example, has remained noticeably above its pre-crisis level. Of particular significance, the prime-age labor force participation rate, despite improvement this year, remains about 1‑1/2 percentage points below its pre-crisis level, suggesting room for further gains. While it is possible that the current low level of prime-age participation reflects ongoing pre-crisis trends, we cannot rule out that it reflects a lagged and still incomplete response to a very slow recovery in ‎job opportunities and wages.6 

This possibility is reinforced by the continued muted recovery in wage growth. Although wage growth has picked up to about a 2-1/2 percent pace in recent quarters, this pace is only modestly above that which prevailed over much of the recovery and well below growth rates seen prior to the financial crisis.7 

My main point here is that in the presence of uncertainty and the absence of accelerating inflationary pressures, it would be unwise for policy to foreclose on the possibility of making further gains in the labor market.

The Percent of People Marginally Attached is Still Very High

Labor Utilization is Still Weak

Wage Growth is Still Paltry

S&P Warns on the UK

While the news is encouraging, we believe it has no bearing on the cloudy longer-term outlook for the U.K. economy… The uncertainty surrounding the U.K’s future outside of the E.U. and the associated economic risks, which we think are pronounced and predominantly skewed to the downside, will gradually take its toll, particularly on investment, as businesses start dealing with the new Brexit reality.

All Three Markit PMIs rebounded sharply in their latest report