Admiral of the Fleet T—-p, meet Admiral of the Fleet Wilhelm II

 

 - by New Deal democrat

You probably recall that a number of months ago T—-p decided that, Pearl Harbor notwithstanding, it was time to bring back battleships in a new class not coincidentally to be named after himself.

Now this weekend we have been treated to the news that T—-p had decided he is an expert in the design of aircraft carriers. In case you’ve missed it, on Friday we learned that he has ordered the navy to ditch its modern, magnet-based aircraft launching system and return to old-fashioned steam catapults.

 

 Then, this morning, we found out that he also wants new aircraft carriers to look like their WW2 ancestors. Notwithstanding all the, you know, technological and efficiency improvements in the past 75 years.

Which brought to mind a post I wrote here eight years ago, in which I went in to great detail about how T—-p’s personality is almost exactly the same of another infamous narcissistic idiot of a ruler, Kaiser Wilhelm II of Germany 100+ years ago, calling T—-p the “doppelgänger” of the latter.

By the way, I am not the only one who arrived at the same conclusion during T—-p’s first term. Here, for example, is David E. Banks in The Independent, making a similar piont:

“Like Trump, the Kaiser was an insecure and aggressive narcissist who allowed his mood to dictate many of his policy decisions, and while the domestic effects of these traits could be limited by the quasi-democratic institutions of the German Reich, in the foreign policy arena his personality wreaked havoc.”

What brought the comparison back to mind this weekend is the following passage from the book "George, Nicholas, and Wilhelm," by Miranda Carter, that I highlighted in that post back eight years ago:

"Wilhelm considered himself an expert on many things and was not shy about saying so…..

"[In 1889 in an attempt to smooth over some family difficulties, Queen Victoria had awarded Wilhelm an honorary admiralty of the Royal Navy. Afterward,] Wilhelm fell upon his new title as if nothing had ever given him so much pleasure in his whole life..... Even Phillip zu Eulenburg noted disappointedly that he was "like a child over it [the British naval uniform]." Wilhelm told Herbert von Bismarck that his British naval title meant that "he would have the right as admiral of the Fleet, to have a say in English naval affairs and to give the Queen his expert advice... [He] was perfectly serious in what he said."

"...[Later that year,] Wilhelm put on his admiral's uniform, flew the pennant of a British navy admiral, and invited himself -- as a real admiral would -- to inspect the British squadron anchored [off the Greek coast].... In December, he sent [Victoria] a plan for the reorganization of the Royal Navy.... In 1891 he sent more "humble suggestions...." 

He really is Wilhelm’s doppelgänger. Let’s hope the war he has blundered us into (so far) does not turn out to be the generational catastrophe that World War I was. 

Weekly Indicator for August 10 - 14 at Seeking Alpha

 

 - by New Deal democrat

My “Weekly Indicators” post is up at Seeking Alpha.

It is surprising how large a majority of the high frequency data is positive, despite all of the chaos that has been thrown at the economy. Still, the bond market in particular has not been fooled by the consequences of the Big Bad Bust-out Budget Bill, as 10 and 30 year yields are at or close to 20 year highs. As a result, the US will have to devote more and more of its budget to interest payments on its debt. It is - or at least may be - the beginning of the dreaded “hockey stick.”

In any event, clicking over and reading will bring you up to the virtual moment as to the state of the economy, and reward me with a little bit of pocket change.

July retail sales lay en egg; a hangover after a spring Budget Bust-out Bill binge?

 

 - by New Deal democrat

Let me start out this post with two comments: (1) real retail sales is one of my favorite economic indicators, because it tells us so much about consumer spending, which is about 70% of the economy, and also because, with a lot of noise, consumption leads employment; and (2) about once a year, it lays an egg. That’s basically what happened in July.

To the numbers: nominally, total retail sales declined a sharp -0.6% in July. Since consumer prices barely rose in July, the real inflation adjusted number rounded to -0.6% as well. Here’s the post-pandemic look at the absolute numbers:

Since gas prices have been a major driver of inflation - and deflation - in the past few months, here’s a look at the monthly % changes in nominal retail sales excluding gas stations (orange) vs. total retail sales (blue). And like all the other metrics this month, real retail sales excluding-gas also declined -0.6%:

So gasoline sales weren’t the main culprit. Rather, the weakness was widespread. Like I said, about once a year retail sales lay an egg, so maybe it was July’s turn this year.

On a YoY basis, nominally retail sales were up 5.0%, but since consumer inflation is up 3.3%, real retail sales rounded to 1.7% higher YoY. For comparison purposes, I also show the YoY% change in real personal consumption (orange) which won’t get reported until the end of this month: 

This is in accord with the weekly YoY% change in retail spending as measured by Redbook, which also backed off substantially YoY in the past five weeks:

There has been some speculation that the surge in consumer spending in the last few months was driven in part by larger tax refunds to upper income recipients due to the last year’s Budget Bust-out Bill. If so, that such added spending might be tailing off would also be a likely explanation for the July downturn. But per my opening comment, unless there is further erosion next month, I am treating this as a one-off downdraft.

Finally, since consumption leads employment, here is the update of YoY real retail sales and real personal consumption (/2 for scale) together with employment (red):

Two months ago, I wrote that “this suggests that on a YoY basis the rebound we have seen in the last three jobs reports is likely to continue in the next several months.”  I continued that position after the relatively poor June jobs report. 

After July’s even worse jobs report, showing an actual decline, maybe not so much. But as I wrote above, the leading/lagging relationship is a somewhat noisy one; but the fact remains that with the increase in consumer spending this year, employment should still follow suit. 

Producer prices indicate continued inflationary expansion, but how long can it last?

 

 - by New Deal democrat

I usually do not pay much attention to producer vs. consumer prices. Partly that is because in the past few decades, the PPI has tended to be coincident with the CPI rather than leading it, and partly because so long as the YoY PPI is less than CPI, producers do not feel under pressure to make cost (i.e., payroll) cuts. Unfortunately, that means that since the start of the Iran war I’ve had to pay more attention to the PPI release.

Let’s start with the raw numbers. Producer prices for final demand (red) decreased -0.1% in July, while raw commodity prices (including oil)(gold) declined -0.8%. This compares with consumer inflation (blue), which increased 0.1%:

 On a YoY basis, PPI final demand was up 4.7%, and 8.3% for raw commodities, vs. 3.4% for consumer prices:

Significantly, the PPI increase for final demand services, which had been 4.6% or higher YoY for the past few months, decelerated to 3.9% in July - which unfortunately is still higher than any such reading aside from the immediately inflationary post pandemic period, and briefly in the summer of 2024:

Of more concern, as per my lede above, is that the YoY measure of final demand producer prices remained higher than the that for consumer prices. And although it hasn’t been a uniform rule, as this historical graph shows, when the YoY% increase in PPI exceeds CPI, more often than not that spells trouble:

This indicates that the underlying inflationary pulse has continued to go well beyond energy related prices. And, just like last month, it also confirms what we have seen for a number of months now in the regional Fed indexes: widespread price increases in inputs, which are only incompletely being based on to buyers downstream. To summarize, the regional Fed indexes for the past few months have indicated rampant input price hikes, with much - but not nearly complete - pass-throughs to consumers. 

So my conclusion this month is the same as it was last month: “If producers stay squeezed, they are going to begin to make cost cuts where they can.” Which may include a freeze in new hiring, a cut in hours, or possibly even worse. In other words, this inflationary expansion is likely to either stop being inflationary, or stop being an expansion, sometime in the not too distant future.

Jobless claims continue to forecast a very positive economy in the near term

 

 - by New Deal democrat

Let’s take our regular weekly look at one of the most positive recent signs for the economy, initial and continuing jobless claims.

And they continued to be very positive. Initial claims rose 9,000 for the week to a still very tame 209,000, while the four week moving average was unchanged at 199,000. As a reminder, aside from several weeks in 2022, this average has not been below 200,000 for over half a century, when the US population was only about 1/2 of what it is now. Continuing claims, with the typical one week delay, declined -22,000 to 1.777 million:

As per usual, for forecasting purposes what we want to look at is the YoY comparison, and there initial claims were lower by 6.7%, the four week average by -10.3%, and continuing claims by -8.5%:

As I said above, this continues to be a very positive short leading indicator for the economy.

Finally, since it’s early in the month I won’t update the implications for the unemployment rate going forward this week. Instead, here is an update of the “quick and dirty” forecast model that includes the inverse of the YoY change in the four week average, plus the YoY change in stock prices:

Combined, these are the most positive they have been since the immediate post-pandemic Boom.

July consumer inflation: the second gift horse in a row, with gas prices down again and shelter subdued

 

 - by New Deal democrat

As I wrote yesterday, July’s CPI was likely to be subdued because on average the price of gas went down further in July. And it was, rising only 0.1% for the month and 3.4% YoY (blue). Perhaps more important, core CPI excluding food and energy (red) rose 0.2%, and was only 2.5% higher YoY, tied for its lowest advance since the pandemic was raging five years ago. And shelter, which is 1/3rd of the entire index, continued its deceleration, up only 0.1% for the month for the second month in a row, and 3.2% YoY (gold):

Ex-shelter, prices declined -0.1% for the month, and were up 3.5% YoY:

This is a complete change of dynamic from a few years ago, when energy prices were somnolent and shelter was driving inflation. Now shelter is helping keep headline inflation from re-accelerating.

Given its importance, let’s parse shelter further. As noted above, shelter prices increased only 0.1%.  Both of its two components, rent of primary residence (gold) and “owners’ equivalent rent” (red) each rose 0.1% for the month. The former was up only 2.9% YoY, while the latter was still up 3.2%. Recalling that the shelter computation had to be kludged during the government shutdown last fall, I suggest ignoring the small bump afterward and focusing on the last few months vs. before the shoutdown. And doing so, it is likely that the slow disinflation there is persisting:

But for the second month in a row, the big reason for the YoY deceleration in headline prices was energy costs (including gasoline), which declined another -2.9% in July alone, reducing the YoY gains to 14.7%:

Now let’s turn to the current and former “problem children,” which I define as significant components which have risen more than 4% YoY. The headline here is also good news, as, although I won’t bother with graphs, new vehicle costs rose only 0.1% for the month and are only up 0.5% YoY, while used vehicles increased 0.4% monthly, but have gone down in price by an average of -1.9% YoY. This is a market which has been worked to a new equilibrium after a sharp 20% increase in prices immediately after the pandemic.

Another former “problem child” was tansportation services (including car insurance and repairs). Here the former has also digested the big post-pandemic increase and is following the flatness in vehicle prices. Insurance declined -0.3% monthly and on a YoY basis they are down -4.5%; while repair prices continue to be an issue, up 0.6% monthly and 6.6% YoY::

But a new problem child may be groceries. These increased only 0.1% for the month, but are up 3.0% YoY, with several items like fruits and vegetables up 5.1%, breakfast cereal up 4.1%, bread up 4.0%, meats up 4.5%, seafood up 7.0%, milk up 5.1%, coffee up 10.3%, and sugar up 7.4%:

The complaints people have been making about the price of groceries are showing up in the data. Some of this may be a result from the product recalls we have heard so much about in the past month, and some of it may be downstream of the increase in prices of things like fertilizer secondary to the closure of the Strait of Hormuz.

Finally,  the AI data center related categories of electricity and utility services rose 0.3% monthly and up 4.3% YoY%. The electricity component was up 0.1% monthly and 0.7% YoY, while gas and oil utility services rose 4.2% for the month and is up 4.3% YoY. Additionally, computer software and accessories (not shown) rose 0.5% for the month and are up 21.2% (!) YoY:

Before I conclude, here’s a look at what the sleepy increase in headline inflation did for real nonsupervisory hourly wages (blue), which rose less than 0.1%  for the month but remain down -0.1% YoY; and real aggregate nonsupervisory payrolls (red), which were unchanged for the month and are up 0.8% YoY, although both remain about -0.5% and -0.2% below their February and January peaks respectively:

Recall that real aggregate nonsupervisory wages are an excellent short leading indicators for recession. The added information for July is a double-edged sword. On the one hand, it is very rare for this metric to stay below peak for more than half a year without a recession occurring shortly thereafter. On the other hand, a good coincident marker for the onset of recession is when they turn negative YoY - and right now there is no evidence that that is about to happen. But with the Strait of Hormuz still closed, and US emergency reserves almost all depleted, just don’t expect gas prices to cooperate for a third month in a row.