Saturday, July 23, 2016

Weekly Indicators for July 18 - 22 at

 - by New Deal democrat

My Weekly Indicators post is up at  Are coincident indicators beginning to follow long and short leading indicators up?

Wednesday, July 20, 2016

June housing permits and starts

 - by New Deal democrat

My analysis of the most recent numbers on this most leading sector of the economy is up at

Tuesday, July 19, 2016

Five graphs for 2016: midyear update

 - by New Deal democrat

At the beginning of this year, I identified graphs of 5 aspects of the economy that most bore watching.  Now that we are halfway through the year, let's take a look at each of them.

#5 The Yield Curve

The Fed attempted to embark on a tightening regimen last December.  The question became, would the yield curve compress or, worse, invert, an inversion being a nearly infallible sign of a recession to come in about 12 months.  It turns out that the weakness in the wolrd economy has caused something of a compression just from the long end:

Rates on 2 year treasuries rose in advance of the Fed's move in November, but have since fallen to their pre-December range, while the 10 year treasury has fallen to all time lows (typically long rates only start to fall once the tightening cycle has caused the economy to weaken). At 0.86% as of last Friday, however, the yield curve is still quite positive when seen in a historical perspective.

Weakness in the economy has put the Fed back on hold, meaning that it will be very difficult for the yield curve to actually invert.

#4 The trade weighted US$

Perhaps the biggest story of 2015 was the damage done by the 15%+ surge in the US$ that began in late 2014 -- which not only harmed exports, but pretty much cancelled out the positive effect on consumers' wallets by lower gas prices.

Here there has been a big change:

Against all currencies, the US$ has recently ben in the range of +3% to +6% YoY  - a  more  typical if still elevated range.  Against major currencies, the US$ has actually declined YoY.   This is good news.
#3 The inventory to sales ratio

An elevated ratio of business inventories to sales means that businesses are overstocked.  This has frequently but not always been associated with a recession.  I have been using the wholesalers invenotry to sales ratio, since it has fewer secular issues.  While the raito increased in January, it has fallen slightly since then:

This is not objectively "good," but this kind of slow fall tends to happen as a recession is close to ending.

#2 Discouraged workers

While 2015 saw a big improvement in involuntary part time employment, this trend has completely stalled in the last 9 months: 

We are still at least 1,500,000 above a "good" number.
#1 Underemployment and wages

The single worst part of this economic expansion has been its pathetic record for wage increases. Nominal YoY wage increases for nonsupervisory workers were generally about 4% in the 1990s, and even in the latter part of the early 2000s expansion.  In this expansion, however, nominal increases have averaged a pitiful 2%, meaning that even a mild uptick in inflation is enough to cause a real decrease in middle and working class purchasing power. 
There is increasing consensus that the primary reason for this miserable situation has been the persistent huge percentage of those who are either unemployed or underemployed, such as involuntary part time workers. 

This expanded "U6" unemployment rate ( minus 10%)  is shown in blue in the graph below, toether with YoY nominal wage growth (minus 2%)!:

In the 1990s and 2000s, once the U6 underemployment rate fell under 10%, nominal wage growth started to accelerate.  U6 is now 9.6%, and there has been some mild improvement off the bottom.  More than anything, the US needs real wage growth for labor, and the present nominal reading of  2.5% still isn't nearly good enough.  With the expansion in deceleration mode past mid-cycle, it is not clear at all how much further improvement we are going to get before the next recession hits. 

Bonddad's Tuesday Linkfest

German Investor Confidence Tanks (BB)

German investor confidence deteriorated in July on concern that Britain’s decision to leave the European Union could weaken the region’s fragile economic recovery.

The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months ahead, fell to minus 6.8 from 19.2 in June. That’s the lowest level since November 2012. Economists in a Bloomberg survey predicted a drop to 9.

One Year Chart of Oil Prices

UK CFOs See Big Slowdown in Business Plans (BB)

In the survey, 73 percent of CFOs said they are less optimistic about the financial prospects for their companies, up from 32 percent three months earlier. It was the most pessimistic view since the study began in 2007 -- even topping levels after the collapse of Lehman Brothers a year later.

Eighty-two percent of CFOs said they expected their employers to reduce capital spending over the next year, while 83 percent predicted a slowdown in hiring. Those figures were up from 34 percent and 29 percent, respectively, three months earlier.

Ninety-five percent of the executives surveyed said the level of uncertainty facing their business is above normal, high or very high, up from 83 percent in the previous survey. The last time uncertainty was at similar levels was during the height of the Greek debt crisis in 2012. Also, 68 percent said they thought leaving the EU would cause a long-term deterioration in the U.K. business environment.

“While in recent stress tests, the major U.K. banks were assessed with declines of around 30 percent in commercial real estate prices, we fear that London residential could experience an even more severe downturn,” Societe Generale analysts including Marc Mozzi wrote in a note to clients on Monday. “Brexit will damage the U.K. economy, and some companies will almost certainly have to relocate parts of their business to retain access to the EU single market.”

London Home Sales Drop (BB)

Sales of London homes under construction slumped 34 percent in the second quarter as the prospect of a vote to leave the European Union damped demand already hurt by higher taxes.

The number of residences sold before completion fell to about 4,600 from 6,974 a year earlier, according to data compiled by researcher Molior London seen by Bloomberg News. A spokesman for Molior declined to comment.

“The approaching referendum added more layers of uncertainty,” said Tom Bill, head of London residential research at broker Knight Frank LLP. “That’s adding to the two-year slowdown from the December 2014 tax increase, which is still the biggest damping factor.”

5-Year Chart of UK's Construction PMI

Brexit Not Having a Material Impact on US Firms (Macroblog)

We asked firms to indicate how the outcome of the Brexit vote affected their sales growth outlook. Respondents could select a range of sentiments from "much more certain" to "much more uncertain."

Responses came from 244 firms representing a broad range of sectors and firm sizes, with roughly one-third indicating their sales growth outlook was "somewhat" or "much" more uncertain as a result of the vote (see the chart). Those noting heightened uncertainty were not concentrated in any one sector or firm-size category but represented a rather diverse group.

The Consumer Prices Index (CPI) rose by 0.5% in the year to June 2016, compared with a 0.3% rise in the year to May.

The June rate is a little above the position seen for most of 2016, though it is still relatively low historically.

Rises in air fares, prices for motor fuels and a variety of recreational and cultural goods and services were the main contributors to the increase in the rate.

These upward pressures were partially offset by falls in the price of furniture and furnishings and accommodation services.

Chart of CPI From the Report

Monday, July 18, 2016

Industrial production for June suggests March was the bottom

 - by New Deal democrat

Last week's report on industrial production for June added to the evidence that the bottom is in for the shallow industrial recession.  This post is up at

Bonddad's Monday Linkfest

Sector Performance For the Last Week

6-Month Charts of the Major Sector ETF

Seven sectors have broken through resistance.

“It’s the most serious, difficult issue facing the country for 50 years,” said John Bruton, 69, who was Irish prime minister between 1994 and 1997 and later served as the EU’s ambassador to the U.S.

Exporters have warned the plummeting pound will erode earnings and economic growth, just as a recovery had taken hold after the 2010 international bailout that followed the banking meltdown. Irish shares have declined, not least because the U.K. is the top destination for the country’s exports after the U.S. and the biggest for its services.

Meantime, Prime Minister Enda Kenny is fending off demands by Northern Irish nationalists for a reunification poll as he comes to terms with the loss of a key EU ally and plotters from his own party try to topple him. Then there’s the future of the U.K.’s only land border with the EU.

Ireland's Annual GDP Growth

Ireland's Total Trade

1-Year Chart of Ireland ETF