Fire Hydrant of Freedom
Politics, Religion, Science, Culture and Humanities => Politics & Religion => Topic started by: Crafty_Dog on May 13, 2020, 11:01:29 AM
-
We've been using the Political Economics thread for this subject, but upon reflection I'm thinking it deserves its own thread.
==================
Elon Musk Isn’t Taking It Anymore
The mercurial Tesla CEO has a point about disparate lockdown treatment.
By The WSJ Editorial Board
May 12, 2020 7:26 pm ET
Tesla CEO Elon Musk is no Paul Revere. But his defiance of Alameda County’s shutdown order captures the frustration among businesses like Howard Beale’s primal scream in the movie “Network.”
California Gov. Gavin Newsom last week allowed some non-essential businesses to begin to reopen, but six Bay Area counties including Alameda, where Tesla assembles most of its electric cars in the U.S., doubled down on their lockdowns.
“Frankly, this is the final straw. Tesla will now move its HQ and future programs to Texas/Nevada immediately,” Mr. Musk tweeted Saturday. “If we even retain Fremont manufacturing activity at all, it will be dependen [sic] on how Tesla is treated in the future. Tesla is the last carmaker left in CA.”
A decade ago Mr. Musk rescued and retrofitted an auto-manufacturing plant in Fremont that Toyota had abandoned. The plant now employs 10,000 middle-class workers, many of whom live in rural San Joaquin County where another Tesla factory has been allowed to operate amid California’s shutdown because it is classified as essential.
“This disparate [government] treatment is arbitrary and without a rational basis,” Tesla states in a lawsuit against Alameda County, pointing out that the infection and fatality rates in Alameda and San Joaquin counties are similar. Mr. Musk also argues that Tesla is an essential business because it makes electric motors and battery systems that are “critical infrastructure.”
“The County’s order violates the Due Process Clause of the Fourteenth Amendment because it fails to give reasonable notice to persons of ordinary intelligence of what is forbidden under the law,” the lawsuit argues. He has a point, and arbitrary government distinctions about which businesses can stay open often seem to be based on politics rather than public health or science.
You can understand Mr. Musk’s frustration when Alameda County officials have allowed pot shops to stay open while shuttering his Tesla plant though the company has developed protocols to protect workers. Other governors including Michigan’s Gretchen Whitmer have given the green light to auto plants run by Tesla’s competitors.
Mr. Musk dared Alameda officials to arrest him when he reopened Tesla’s plant Monday, and he may get his wish. We don’t encourage lawbreaking, but a legal test of disparate lockdown treatment might rein in the inner dictators who are appearing in many places in America in these pandemic days.
-
https://www.theatlantic.com/ideas/archive/2020/04/what-covid-revealed-about-internet/610549/
-
The Federal Reserve chair, Jerome H. Powell, delivered a stark warning on Wednesday that the United States was experiencing an economic hit “without modern precedent,” one that could permanently damage the economy if Congress and the White House did not provide sufficient financial support to prevent a wave of bankruptcies and prolonged joblessness.
https://www.nytimes.com/2020/05/13/business/economy/fed-chair-powell-economy-virus-support.html?action=click&module=Spotlight&pgtype=Homepage
And "permanently damage the economy" if they do...
-
George Friedman's Thoughts: Resurrecting a Forecast
By: George Friedman
Geopolitical Futures is the second company I founded to forecast geopolitics. Many things such as the weather and econometrics are forecast with a degree of accuracy. Both methods are imperfect, based as they are on complex events, but they provide a sense of where things are going. It did not seem reasonable to me that the same could not be done with the relationships between nations.
We suppose that since nations are vast and require complex governments, their leaders are to some degree at the mercy of the institutional structures they govern. In engaging other nations, a nation is constrained by its weaknesses and driven by its imperatives. There are things it needs from other nations, and the tools of economics, politics and the military are deployed for the imperatives that compel a government to act and the constraints that will shape and sometimes prevent actions.
When we look at the world, my team and I look for recurring patterns of behavior embedded beneath the events that arise from them. The daily comings and goings themselves are circumstantial. Newspapers can deal with them. More interesting to us is the rhythm, regularity and, most important, direction of the events. This is the basis of our forecasts.
We wrote our 2020 forecast using our method of first considering our century forecast, then our 40-year forecast, then a running decade forecast, and in due course when we see patterns in the model that was constructed, we can predict, with a reasonable degree of accuracy, what will happen. This year, our central thesis was that the world was due for a cyclical recession, made more intense by the disrupting patterns left over from 2008. The recession would harm countries such as China and Germany that were addicted to exports because the appetite for their products would contract, and with it their gross domestic products. There was more in the forecast, but this was the rhythm that shaped the event.
Geopolitics dictates what is important; we do not. So when the coronavirus appeared in Wuhan just as our forecast was being completed, our internal assessment was that the virus was a China problem that would weaken China but matter little to everyone else. Partly that’s because forecasters are stubbornly in love with their forecasts, but mostly because the early information was ambiguous. The virus did not fit into any geopolitical rhythm we were prepared for, and so we screened out the event as noise. When new COVID-19 cases started spreading elsewhere, we began to realize we had a new rhythm to work with.
We were able to see fairly quickly that the economic effects would be dramatic. The worldwide lockdowns removed people from the workforce and slashed consumption. So we altered our forecast to say that though it remained intact, the recession would come faster and be more intense, and exports would contract but so would other processes, making this a more intense recession than we had expected but still in the same basic framework.
At this point, our view was born of neither stubbornness nor a lack of understanding of the rhythm the virus would take. It owes to underestimating the length and severity of sequestration. From a geopolitical point of view – which as we say is meant to tower above reality – the disease itself was significant but not out of the ordinary. Two things were extraordinary. The first was that there was no vaccine, and no medication that could mitigate the effect of the virus. The second was that the only protection from infection was social isolation.
From that, a few things were obvious. If there was no prevention and if mixing closely with people increased the rate of infection, a release from sequestration was impossible without acceptance or a viable treatment. Other than that, any attempt at ending isolation would trigger an increase in infections.
What followed seemed to us an economic crisis orders of magnitude greater than anything we had anticipated. The withdrawal of the workforce whether by layoffs or imposed self-isolation would hurt production, and the restriction of movement would disrupt supply chains. Consumption would also drop.
This led to a question that we are still debating: Is this a very bad recession or a depression? As I have explained, they are in geopolitical terms different events. A recession is a necessary corrective in the business cycle. A depression destroys elements of an economy, generating massive unemployment, personal financial stress and lower consumption. Recessions last a few quarters. Depressions can last years. In the former, all the systems are intact. In the latter, the economy must be rebuilt or at least massively repaired. Whereas there are political tensions during a recession, depressions are marked by political instability and, usually, repressive regimes. They transform governments and so change how people think about them.
At GPF, we have taken this week off from our routine work and meetings so that we can try to predict the consequences of this crisis. This is not only for economic reasons but also for political reasons. We work from patterns, and our last event of this type was the one that existed from 1920 to 1955. It began with the destruction of productive systems in World War II. The United States was the China of the time, selling low-cost industrial and agricultural goods to Europe. When Europe’s ability to consume undermined U.S. production, the depression spread to the United States. The economies of some countries recovered, and then another war broke out, ending in 1945, and led to a massive depression from Japan to Britain. Except for the U.S., the war crushed winners and losers alike.
To forecast this enormously complex thing, we need to determine whether we are facing a tough recession or a depression. We are divided on this, and the divisions shift. What we are looking for is the point at which the economy and political system break. This is essential to figure out. It is also hard. It is an area in which everyone has a view that seems obvious to him, and few can go through the logic that got him there. We need to build that logic. For us, it is not simply what economists focus on, but rather the total destabilization of what in this case would be the world. We should remember that previous depressions involved some major wars. They were connected.
There are those who argue that with a disease killing people, other things are not important. The disease is certainly important, but when you look at the time between 1920 and 1955, when most nations were recovering, many people died from both poverty and war. The coming economic calamity will not be triggered by war but by deaths from other causes. Still, there are deaths, poverty is possible and war always lurks. We can be afraid of both.
Our new forecast is not ready yet but will be soon. It may be the kind of forecast I hate, with a branching logic – if there is a vaccine and if there isn’t and if sequestration doesn’t fall apart, and so on. But the biggest question of all is whether this is a recession that will heal itself, or a depression. I obviously want it to be a recession and not a depression, but a geopolitical analyst is not permitted hopes, except late at night. An analyst must view the world as if he is not part of it and then return to humanity. In some ways, it is like a doctor who must not be emotionally involved. For me, the more I read about the Great Depression, the more I am struck by how much death and misery and hatred it produced, even in the non-military aspects. The expectation seems to me that when the virus is under control, the world will snap back as it was. Perhaps, but only if the straps are still there.
-
https://www.oldthinkernews.com/2020/05/11/pa-governor-threatens-to-withhold-federal-stimulus-from-non-compliant-counties/
-
https://www.forbes.com/sites/kenrapoza/2020/05/15/some-42-of-jobs-lost-in-pandemic-are-gone-for-good/
-
https://www.kptv.com/news/judge-tosses-out-gov-kate-browns-coronavirus-restrictions-in-oregon/article_6ca8864b-10ab-508c-b3f5-8586fb842792.html?utm_medium=social&utm_source=facebook_FOX_12_Oregon
https://www.fox13news.com/news/police-to-new-jersey-gym-that-opened-in-defiance-of-order-have-a-good-day
-
I imagine the closings are tough on dogbrothers.
is California going to let you open?
-
We were supposed to have the Dog Brothers Tribal Gathering the first weekend of May but had to cancel/postpone.
I've lost five seminars due to the brouhaha surrounding the Wuhan Virus.
-
https://www.breitbart.com/radio/2020/05/17/oregon-salon-owner-state-cps-open-business/?utm_source=newsletter&utm_medium=email&utm_term=daily&utm_campaign=20200518
-
https://www.youtube.com/watch?time_continue=2&v=wfGAktuU93s&feature=emb_logo
-
https://www.nationalreview.com/news/nyc-mayor-warns-swimmers-at-nyc-beaches-will-be-taken-right-out-of-the-water-this-summer/
-
https://pjmedia.com/uncategorized/jeff-reynolds/2020/05/19/oregon-gov-decrees-residents-in-closed-counties-cannot-shop-in-open-counties-n406450
-
https://www.youtube.com/watch?v=nOseD1OVrb4&feature=share
https://www.illinoispolicy.org/pritzker-forced-to-withdraw-criminal-penalties-for-small-business-owners-who-defy-his-order/
-
https://www.nationalreview.com/2020/05/coronavirus-crisis-Ron-desantis-florida-covid-19-strategy/?utm_source=Sailthru&utm_medium=email&utm_campaign=NR%20Daily%20Monday%20through%20Friday%202020-05-20&utm_term=NRDaily-Smart
-
https://www.americanthinker.com/blog/2020/05/michigan_gretchen_whitmer_seeds_the_nursing_homes_with_covid19.html
-
https://www.washingtonexaminer.com/opinion/nyc-vs-san-francisco-the-stark-failure-of-andrew-cuomo-and-bill-de-blasio
-
fourth post
https://nypost.com/2020/05/20/end-new-york-citys-lockdown-now/?utm_source=facebook_sitebuttons&utm_medium=site+buttons&utm_campaign=site+buttons
-
https://www.washingtonexaminer.com/news/judge-rules-in-favor-of-michigan-barber-allowing-him-to-stay-open-despite-lockdown-order
-
https://news.yahoo.com/coronavirus-cases-georgia-florida-continue-153633256.html
-
https://www.oftwominds.com/blogmay20/opt-out5-20.html
-
https://www.bbc.com/news/business-52752172
-
https://www.themarshallproject.org/2020/05/18/the-rise-of-the-anti-lockdown-sheriffs?utm_medium=social
-
https://www.youtube.com/watch?v=ZX04hMpnk1w&feature=share
-
Signs of Economic Life To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 5/26/2020
This year's experiment with government-imposed lockdowns has been a fiasco. We should have been focused on sealing-off nursing homes and limiting mass indoor events, while the vast majority of businesses that were shutdown could have kept operating, with natural social distancing.
Now, as most people (those that are not elderly or immuno-compromised) realize their health risk is lower than earlier hysterics suggested, and as states loosen up on government-imposed restrictions, green shoots of economic life are appearing. Rail car traffic, hotel occupancy, motor vehicle gas purchases, and air travel are all still down substantially from a year ago, but all have also moved off their lows.
For example, US rail freight carloads are up 3.2% from a month ago, while hotel occupancy is up 9.0%. Gas purchases are up 27.8% from a month ago, confirming what everyone already knew just from driving around. The number of passengers passing through TSA checkpoints rose to 267,451 this past Sunday, versus a Sunday low of 90,510 on April 12, a near tripling of passenger activity. Yes, this past Sunday was a holiday weekend, but last Sunday (May 17) was already up 180% from the low.
In order to tell whether the overall economy is starting to recover, we're looking for confirmation from unemployment claims and federal tax receipts. The bad news is that new claims for unemployment insurance remain at extremely elevated levels. However, new claims are down substantially from the 6.9 million filed in the last full week of March, we suspect some portion of new claims are fraudulent, and that some recent new claims reflect a backlog from people who lost their jobs in prior weeks. Typically, the average level of initial claims for a month peaks two months before the economy hits bottom. April looks like it was the highest month for initial claims, which signals an economic bottom should come in June.
What is also exceedingly clear is that this recession is not like previous ones. So, we're also watching continuing unemployment claims, which keep rising. Typically, these peak around one month after the economy hits bottom. So, if they peak soon, that's a very good sign the economy is already growing again. Unfortunately, continuing claims haven't peaked yet, and probably won't do so until at least June.
Another way to assess the overall health of the economy is by monitoring the daily flow of income and payroll tax receipts the federal government is getting through withholdings from paychecks. Using tax receipts to figure out economic trends can be tough, as withheld amounts are volatile from day to day, with big effects based on the day of the week as well as the day of the month. And the pattern of the days in a month changes from year to year (for example, how many Mondays each month has), making comparisons that much tougher.
However, the calendar from 2015 closely resembles the calendar for 2020. Ten of the twelve months have the same number day on the same day of the week (leap year in 2020 means January and February are different), making comparisons much easier.
And what does it show? In the first three months of 2020 (January through March), withheld income and payroll tax receipts were up 19.7%. That's roughly what we'd expect given economic growth and inflation from 2015 to 2020. But receipts in April 2020 were up only 2.6% versus April 2015, showing how economic activity fell off a cliff. The good news is that, so far in May (through the 21st), these receipts are up 2.9% versus May 2015. That's less bad than the April comparison, and "less bad" signals more economic activity.
The recession started in March and is the deepest since the Great Depression. However, it may also be the shortest. A full recovery is a long way off. We won't see the level of real GDP we had in late 2019 again until late 2021. We might not see an unemployment rate below 4.0% until 2024. With every passing day, the lockdowns take an increasing toll; the sooner they end, the better.
-
https://www.newyorker.com/magazine/2020/06/01/does-the-grim-reaper-wear-sunscreen?utm_source=nl&utm_brand=tny&utm_mailing=TNY_Daily_052620&utm_campaign=aud-dev&utm_medium=email&bxid=5be9d3fa3f92a40469e2d85c&cndid=50142053&hasha=52f016547a40edbdd6de69b8a7728bbf&hashb=e02b3c0e6e0f3888e0288d6e52a57eccde1bfd75&hashc=9aab918d394ee25f13d70b69b378385abe4212016409c8a7a709eca50e71c1bc&esrc=bounceX&utm_term=TNY_Daily
-
published in liberal New Yorker magazine
of course they always seem to include :
"(He used to be a Republican. )"
without any explanation
In any I DO agree people should continue to wear masks and keep apart . I don't think that is too much to ask.
But how to enforce this with kids whose only thought is of coupling ?
-
Illinois state court judge:
https://www.powerlineblog.com/archives/2020/05/americans-dont-get-ruled.php
Since the inception of this insanity, the following regulations, rules or consequences have occurred: I won’t get COVID if I get an abortion but I will get COVID if I get a colonoscopy. Selling pot is essential but selling goods and services at a family-owned business is not. Pot wasn’t even legal and pot dispensaries didn’t even exist in this state until five months ago and, in that five months, they have become essential but a family-owned business in existence for five generations is not.
A family of six can pile in their car and drive to Carlyle Lake without contracting COVID but, if they all get in the same boat, they will. We are told that kids rarely contract the virus and sunlight kills it, but summer youth programs, sports programs are cancelled. Four people can drive to the golf course and not get COVID but, if they play in a foursome, they will. If I go to Walmart, I won’t get COVID but, if I go to church, I will. Murderers are released from custody while small business owners are threatened with arrest if they have the audacity to attempt to feed their families.
These are just a few of examples of rules, regulations and consequences that are arbitrary, capricious, and completely devoid of anything even remotely approaching common sense.
***
The defendant in this case orders you to stay home and pronounces that, if you leave the state, you are putting people in danger, but his family members traveled to Florida and Wisconsin because he deems such travel essential. One initial rationale why the rules don’t apply to him is that his family farm had animals that needed [to be] fed. Try selling that argument to farmers who have had to slaughter their herds because of disruption in the supply chain.
When laws do not apply to those who make them, people are not being governed, they are being ruled. Make no mistake, these executive orders are not laws. They are royal decrees. Illinois citizens are not being governed, they are being ruled. The last time I checked Illinois citizens are also Americans and Americans don’t get ruled. The last time a monarch tried to rule Americans, a shot was fired that was heard around the world. That day led to the birth of a nation consensually governed based upon a document which ensures that on this day in this, [or] any American courtroom tyrannical despotism will always lose and liberty, freedom and the Constitution will always win.
-
https://www.youtube.com/watch?time_continue=22&v=tJY1HefqUGQ&feature=emb_logo
-
https://www.foxnews.com/politics/new-york-health-website-deletes-cuomos-order-on-nursing-homes
-
https://www.zerohedge.com/markets/atlanta-fed-now-sees-q2-gdp-collapsing-staggering-51
-
https://charleshughsmith.blogspot.com/2020/06/the-post-covid-economy-will-be-very.html
-
The Recession is Over To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 6/8/2020
The recession that started in March is the sharpest downturn since the Great Depression. As it turns out, it was also the shortest.
Friday's employment report should leave little doubt that the US economy has already hit bottom and is starting to recover. Every economist brave enough to make a public forecast thought nonfarm payrolls would drop in May and the unemployment rate would continue to rise. Instead, it was the opposite: nonfarm payrolls rose 2.5 million, and the unemployment rate dropped to 13.3%.
This doesn't mean the US is fully recovered, or even close; a full recovery is going to take at least a few years. But look for more positive numbers from here on out, including next week's reports on retail sales, industrial production, and home building.
Paul Krugman tweeted the possibility of the Trump Administration cooking the books, but that's absurd. Jason Furman, one of President Obama's top economists, pointed out that the Bureau of Labor Statistics has 2,400 career staffers and only one political appointee, with no ability to cook the books. The odds of a conspiracy among these career civil servants to help the Trump Administration are zero.
Some analysts have been saying that the unique nature of the economic downturn has made the unemployment rate unreliable, because, for example, PPP loans have allowed furloughed workers to be paid, even though they aren't working, so technically, some say, they are unemployed. Counting these workers as unemployed would have put the jobless rate at 16.3% in May versus the official report of 13.3%.
However, using the same method in April would have meant that jobless rate would have been reported as 19.5%, not the official estimate of 14.7%, which means the drop in the jobless rate in May would have been 3.2 percentage points (19.5% to 16.3%), not the 1.4 points reported Friday. And it's the change in the unemployment rate that matters for financial markets.
Meanwhile, initial jobless claims fell for the ninth consecutive week, and continuing claims remain below the peak hit in the week ending May 9, both consistent with an economy that is already hit bottom.
Another piece of evidence supporting the case for a recovery is that tax receipts look better. Every day the Treasury Department releases figures on various categories of tax receipts. These receipts vary wildly depending on the day of the week and the time of the month, so we like to compare them to 2015, because that was the last year the number of days in March through December fell on the same days of the week as 2020.
In the past five workdays, the Treasury collected $56.8 billion individual income and payroll taxes withheld from paychecks, up 11.8% from the same days in 2015. A month ago, in early May (specifically, the five workdays through May 7), these receipts were up 7.1% versus 2015. This acceleration signals the economy has turned a corner.
Which brings us to our outlook for equities. A month ago, with the S&P 500 at 2930, we projected that stocks would recover to 3100 by year end. But now we're barely under 3200. We continue to expect more gains, but don't expect it to be a straight line, with the S&P 500 finishing the year around 3350 and the Dow Jones Industrials average at 28,500.
Profits will be down substantially in the second quarter, but should recover strongly in the several quarters thereafter. Meanwhile, the money supply is growing rapidly, and the Federal Reserve is prepared to keep monetary policy loose for the foreseeable future, as should be clear after Wednesday's meeting.
The US has gone through tremendous turmoil so far this year, with a response to COVID-19 that included unprecedentedly widespread government-mandated economic shutdowns, followed by a combination of legitimate protests, riots, and looting. No one knows for sure what the second half will bring, much less 2021 and beyond. But we think that, like in the past, those who have faith in the future will be rewarded.
-
Industrial Production Increased 1.4% in May To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 6/16/2020
Industrial production increased 1.4% in May, below the consensus expected gain of 3.0%. Mining output fell 6.8% in May, while utilities dropped 2.3%.
Manufacturing, which excludes mining/utilities, increased 3.8% in May. Auto production jumped 120.9%, while non-auto manufacturing rose 1.9%. Auto production is down 62.8% versus a year ago, while non-auto manufacturing is down 12.8%.
The production of high-tech equipment declined 0.7% in May and is down 0.1% versus a year ago.
Overall capacity utilization increased to 64.8% in May from 64.0% in April. Manufacturing capacity utilization rose to 62.2% in May from 60.0% in April.
Implications: Following a dismal series of reports due to pandemic related closures, industrial production posted a gain in today's report, adding more evidence that the economy started recovering in May. Headline industrial production and its manufacturing subcomponent rose 1.4% and 3.8%, respectively in May, a welcome reprieve after April had the largest monthly declines for both series on record. Within manufacturing, auto production surged 120.9%, by far the largest monthly gain on record, as car and truck factories began resuming operations. Meanwhile, non-auto manufacturing rose 1.9% in May, as well. Outside the factory sector activity remained subdued in May. Mining declined 6.8%, as extraction activity for oil, natural gas, and other minerals continued to fall. The good news is that WTI crude oil prices have posted a healthy recovery since front-month futures prices briefly went negative in April. That said, prices are still down roughly 40% since the beginning of January and below the break-even level for many US producers. Despite this, the number of oil and gas rigs in the US has begun to level off after falling 65% since the pandemic began. As economic activity continues to rebound, demand for energy will eventually grow as well, making mining once again a tailwind for industrial production. Utilities output was also a drag on activity in May, falling 2.3%. This is likely due to less utility demand from offices and stores around the country as people largely continue to work and shop from home. In other recent manufacturing news, the Empire State Index, which measures factory sentiment in the New York region, rose to -0.2 in June from -48.5 in May. While this indicates a continued (slight) contraction, it is also the largest one-month increase in the index on record, signaling rapid improvement, though from a very low baseline. All-in-all it looks like the huge declines have passed and manufacturing activity in New York has stabilized, which is a necessary step before output starts improving again.
-
New Orders for Durable Goods Increased 15.8% in May To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 6/25/2020
New orders for durable goods increased 15.8% in May, easily beating the consensus expected gain of 10.5%. Orders excluding transportation rose 4.0% in May, also beating the consensus expected gain of 2.1%. Orders are down 17.9% from a year ago, while orders excluding transportation are down 6.3%.
The increase in orders in May was led by motor vehicles, aircraft, and primary metals.
The government calculates business investment for GDP purposes by using shipments of non-defense capital goods excluding aircraft. That measure increased 1.8% in May. If unchanged in June, these shipments will be down at a 22.2% annualized rate in Q2 versus the Q1 average.
Unfilled orders rose 0.1% in May but are down 4.1% in the past year.
Implications: Before we dive into the durables report, this morning we got the latest reading on initial unemployment claims, which came in at 1.48 million last week, maintaining the spate of extremely high readings since March. However, initial claims have now dropped twelve weeks in a row after peaking at 6.87 million in late March. We are also closely following regular continuing claims, data for which lag initial claims by one week. Continuing claims fell 767,000 to 19.52 million in the week ending June 12 and have fallen consistently since the peak of 24.91 million at the beginning of May. The reason that's important is that, typically, the economy has hit bottom when continuing claims peak or slightly before. In other words, the economy looks to have hit bottom in either April or May, returning to growth on a monthly basis in May or June, although not on a quarterly basis until the third quarter. Now back to durables, where new orders posted a strong rebound, as Coronavirus shutdowns nationwide began to ease. And it wasn't just the headline that was impressive; the details of the report showing broad-based gains. The volatile transportation sector was the biggest source of strength in May, surging 80.7% to post the largest monthly gain on record, driven by a concurrent jump in motor vehicles and a slowdown in the pace of cancelled orders for aircraft. Excluding transportation, activity was better than expected as well, with new orders rising 4.0% in May. Within this category, primary metals and fabricated metal products led the gain, up 9.1% and 7.4%, respectively. Notably, the computer and electronic products category has been remarkably stable throughout the Coronavirus Contraction, with orders actually up a modest 0.1% since February (pre-pandemic), probably reflecting extra equipment needed to help people work from home. One of the most important pieces of data from today's report, shipments of "core" non-defense capital goods ex-aircraft (a key input for business investment in the calculation of GDP growth), rose 1.8% in May and, if unchanged in May and June, will be down 22.2% at an annualized rate in Q2 vs the Q1 average. At present, we're estimating that real GDP will decline at around a 35% rate in the second quarter. While that will represent the single worst quarter for GDP in post-war US history, duration matters just as much as depth when it comes to recessions, and on the duration front the current recession is likely to be the shortest on record with growth already reviving. In other recent news, the FHFA index, which measures prices for homes financed by conforming mortgages, increased 0.2% in April and is up 5.5% from a year ago, the same gain as in the twelve months ending in April 2019.
-
https://www.nationalreview.com/news/economy-gained-4-8-million-jobs-in-june-as-unemployment-rate-declines-for-second-straight-month/?utm_source=email&utm_medium=breaking&utm_campaign=newstrack&utm_term=20793968
https://www.theepochtimes.com/trump-supports-directs-stimulus-payments-larger-than-1200-in-next-bill_3408333.html?utm_source=CCPVirusNewsletter&utm_medium=email&utm_campaign=2020-07-02
-
A True Economic Stimulus Plan
Don’t extend benefits for unemployment. Suspend the payroll tax to spur work and growth.
By Casey B. Mulligan and Stephen Moore
July 2, 2020 6:19 pm ET
The White House will soon begin negotiating with congressional Democrats on a “Phase 4” economic revival plan. President Trump has repeatedly expressed his support for suspending the payroll tax through the end of the year as a way to stimulate jobs and help low- and middle-income families gain after-tax income. Speaker Nancy Pelosi opposes the idea. Instead, she’s pushing the $3 trillion spending bill that passed the House in May, which includes a six-month extension of the $600-a-week supplemental unemployment payments enacted in March, which are scheduled to end July 31.
These proposals create opposite economic incentives. The payroll tax suspension would reward employees for returning to their jobs and working more hours by providing a 7.5% rise in take home-pay immediately on income up to $137,700. (Income over this amount would still be taxed at the usual rate, which is lower.) The suspension of the additional 7.5% tax on employers’ wage and salary costs would encourage small businesses to hire more employees by reducing the cost.
The unemployment-benefit extension would discourage work. According to the Congressional Budget Office, it would pay 5 out of 6 workers more to stay unemployed than to return to their previous jobs. Already employers are having trouble persuading employees to come back.
In a study released this week by the Committee to Unleash Prosperity, we estimate, based on employment sensitivity to higher wages, that the full suspension of the payroll tax through the rest of the year would increase employment by about 2.7 million jobs. This would stimulate the economy, increasing gross domestic product in the fourth quarter by 1.2% over what it otherwise would be.
Low-income Americans would disproportionately benefit from this policy because they pay a larger share of their income in payroll taxes. A University of Pennsylvania Wharton School study estimates a gain of after-tax income to the lowest-income workers at 7.2% to 10.7%, as employers pass on part of their tax savings in higher pay.
By contrast, we estimate the Pelosi plan would eliminate 10 million jobs and increase the unemployment rate by 6 to 8 points (after adjusting for misclassification errors). That would depress GDP for the rest of the year by roughly 5%. Our estimate is lower than those of some other researchers—for example, a Heritage Foundation study that put job losses at 13.9 million.
These are economic model estimates and are admittedly imprecise. But these two competing economic approaches were tested in practice during the financial crisis a decade ago. Britain implemented temporary tax cut of 2% of income from 2008 through the end of 2010. In the U.S. President Obama signed into law the 2009 Recovery Act, or “stimulus,” which increased cash benefits, health insurance and food stamps for the unemployed.
The U.K. jobs recovery began earlier, and by the end of 2014 the employment rate exceeded precrisis levels. In the U.S., with higher benefits for not working, unemployment stayed very high for several years and the recovery was one of the most anemic in modern times. Mr. Obama did cut the payroll tax temporarily by 2% of income, but the effects of higher marginal tax rates from other Obama policies, especially ObamaCare mandates, canceled out any positive effect.
The major argument against suspending the payroll tax is that it helps only those who already have a job. This ignores that many jobless people live in a household with somebody employed. The payroll tax cut is designed to get millions of unemployed Americans into the job market and earning paychecks, which stimulates both the supply of and the demand for goods and services.
The difference between Mr. Trump’s and Mrs. Pelosi’s approaches is a swing of almost 13 million jobs—more than the entire workforces of Indiana, Michigan and Ohio combined. If the goal of a Phase 4 stimulus plan is to encourage economic growth and put Americans back to work, the wise choice is the payroll tax cut. It isn’t even a close call.
Mr. Mulligan is a professor of economics at the University of Chicago and author of “You’re Hired!” Mr. Moore is a co-founder of the Committee to Unleash Prosperity and a member of President Trump’s Economic Recovery Task Force.
-
At the least, don't extend the benefits (for healthy people outside of high risk groups) . Do no harm. 80% of small businesses have reopened. American ingenuity will find away. Unless you pay them more not to.
-
The Economy and The Virus To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 7/6/2020
Not since the 1960s and 70s has the United States experienced social upheaval like it is experiencing today. We have protests (both peaceful and otherwise), and a massively divided political landscape. On top of that, we have a virus that is spreading across the country, creating fear and an acceptance of economic shutdowns.
Originally, the scientists said we needed 15 days to slow the spread. These same scientists have consistently lengthened the time they believe keeping the economy relatively closed is a good idea. Yet, eventually, as the number of new cases of COVID-19 slowed, people revolted against these constraints and states began to reopen. Now a pick-up in new cases, which many call a "surge," is causing politicians to reverse prior moves to re-open and they are now re-closing bars and restaurants again.
Yet, while these re-closures are happening, ordinary Americans are showing a desire to press for more freedom. On May 31st 352,947 people went through TSA airport security checks. On June 22nd, as reports of a surge in new cases started to appear, TSA counted 607,540 passengers. If these reports of a surge are slowing activity, we can't see it in the TSA data. On July 5th, 732,123 passengers entered airports.
Moreover, gasoline usage, which had been down about 50% from the year before at its worst back in April, is now down just 10%. And Apple mobility data, which reflects requests for directions, bottomed in April, down nearly 60% from the January 13, 2020 benchmark. Since April, the mobility data has rebounded 19%.
In other words, while many seem to think that new cases and some reversals in openings will do the same kind of damage to economic activity that we saw in March and April, it does not appear that way at the moment. This is likely one of the reasons that equity markets are recovering from their "surge-related" drop. Last week, in a holiday shortened four-day trading week, the S&P 500 was up 4%.
Part of this was driven by the second straight month of job gains. The US added 4.8 million jobs in June, and the unemployment rate fell to 11.1%. Over the past two months, manufacturing has recovered 606,000 of its lost jobs, and these are unlikely to be affected much by the closure of bars and restaurants.
Because we put the odds of another nation-wide economic shutdown very low, we expect economic data to continue to improve in the weeks and months ahead. On top of this, the M2 measure of money is up 25% in the past year, one of the fastest YOY rates we have ever seen. With this flood of new money, and an improvement in economic data, equity markets should continue to rise. And contrary to some views, we do not think the equity market is overvalued.
Many on both sides feel as if the world is falling apart, and we are certainly dealing with a series of issues that are causing uncertainty. However, especially after the Fourth of July, it's important to remember history.
In the Civil War, the US lost 620,000 men, 2% of the population, the equivalent of more than 6 million people today. World War I, World War II and the Spanish Flu were devastating. Yet, in every case, the United States continued to prosper.
We are completely aware of this history and the belief of many that this time is different. But we will get back to normal. It may not happen immediately, but it will happen. Competition among states, businesses and everyday people to grow and enjoy life will push everyone to realize that we can't truly stop a virus. Just like 9/11, people will fly again. They already are. They will go to restaurants again, and sporting events and theaters. But it will take time.
Those expecting a complete "V-shaped" recovery for the economy will end up disappointed. These first few months will look like a V, but then things will grow more slowly unless we get a widely distributed vaccine. We may not see 4% or lower unemployment rates again until 2023. Maybe longer. Day-by-day, week-by-week, month-by-month, progress will be made.
We remain hopeful. We have history on our side. And we remain bullish on equities. Companies, like the rest of us, are adapting. They are figuring out how to limit losses - and grow - in this uncertain time. They too will emerge stronger when this storm has passed.
________________________________________
-
Retail Sales Rose 7.5% in June To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 7/16/2020
Retail sales rose 7.5% in June (+8.0% including revisions to prior months), beating the consensus expected increase of 5.0%. Retail sales are up 1.1% versus a year ago.
Sales excluding autos rose 7.3% in June (+7.0% including revisions to prior months). The consensus expected an increase of 5.0%. These sales are down 0.5% in the past year. Excluding gas, sales rose 7.0% in June, and are up 2.9% from a year ago
The surge in sales in June was led by clothing & accessory stores, autos, and restaurants & bars. The largest decline was for non-store retailers (internet & mail order).
Sales excluding autos, building materials, and gas rose 7.3% in June. These sales were down at a 28.0% annual rate in Q2 versus the Q1 average.
Implications: Another solid month for retail sales in June, growing 7.5% on the back of an upwardly revised 18.2% gain in May. When you include revisions, retails sales rose 8.0% from the initial May reading. Just two months ago, retail sales were down 19.9% from a year ago; now, in June, retail sales are up 1.1% from June 2019. For some more perspective: from February (before the COVID shutdowns started) to the bottom in April, retail sales fell 21.7%. Now, with the increase in June, we are only 0.6% below the February mark. Still down, but a strong start to the recovery process. Ten of thirteen major categories had gains in June, with the leaders being the sectors that were hit hardest during the shutdown. For example, clothing fell by 86% from February to April, and lead the way higher in June up 105% from last month and up 467.5% since the April bottom. Autos rose 8.2% in June as car dealers followed the rest of the country in continuing to reopen doors along with restaurants & bars. The three major categories that fell were all in areas that did exceptionally well during the shutdown with all still seeing double-digit gains from a year ago. Non-store retailers – the one group that rose, rather than fell, throughout the shutdown – fell 2.4% in June, but is still up 23.5% versus a year ago. Food & beverage sales declined 1.2% in June but are up 12.4% from a year ago, while building materials fell 0.3%, but are up 17.3% from a year ago. "Core" sales, which exclude the most volatile categories of autos, building materials, and gas station sales, jumped 7.3% in June, and are now up 0.3% from a year ago. While the data are improving (virtually across the board), the second quarter for real GDP will still be much worse than the first, with the steepest drop in real GDP for any quarter since the immediate aftermath of World War II or possibly the Great Depression in the 1930s. What matters right now is the path forward, and we have started down that path at a healthy clip. In other news today on the employment front, initial jobless claims declined for a 15th consecutive week, coming in at 1.300 million last week, down 10,000 from the week before. Continuing claims, which lag initial claims by a week, declined 422,000 to a reading of 17.338 million. These figures suggest the rebound in the labor market continues in July, although it's far from fully healed. Also this morning, the Philly Fed Index, a measure of East Coast factory sentiment, declined to a still robust +24.1 in July from +27.5 in June. This number continues to show a healthy rebound in manufacturing activity.
________________________________________
-
second post
China Is First Major Economy to Return to Growth Since Coronavirus Pandemic
China says economy grew 3.2% from a year earlier in the second quarter
How China Became the First Major Economy to Grow After Coronavirus
YOU MAY ALSO LIKE
The Chinese economy expanded 3.2% from a year earlier in the second quarter, and could be the only major global economy to grow in 2020. WSJ's Jonathan Cheng explains the country's strategy to front-load the economic pain in the early stages of the pandemic. Photo: Alex Plavevski/Shutterstock
By Jonathan Cheng
Updated July 15, 2020 11:00 pm ET
BEIJING—China has become the first major economy to return to growth since the coronavirus started sweeping across the world earlier this year.
On Thursday, China said its economy grew 3.2% from a year earlier in the second quarter, as authorities benefited from an aggressive campaign to eradicate the virus within its borders.
In sequential terms, China’s second-quarter growth in gross domestic product represented a 11.5% rebound from the first three months of the year, according to data released by Beijing’s National Bureau of Statistics. For the entire first six months of the year, China’s economy contracted just 1.6% when compared with the first half of 2019.
The growth figure for the second quarter beat a median estimate from economists for 2.6% growth and was at the top end of an unusually wide range of forecasts, from a contraction of 3.1% to growth of 3.5%. It followed a historic 6.8% contraction in the first three months of the year, when Beijing shut down the country in late January as the coronavirus spread across China from the central city of Wuhan.
“The national economy overcame the adverse impact of the epidemic in the first half gradually and demonstrated a momentum of restorative growth and gradual recovery,” the statistics bureau said.
China's quarterly GDP, change from a yearearlier
Source: National Bureau of Statistics via Wind
%
2Q 20203.2%
2010
’11
’12
’13
’14
’15
’16
’17
’18
’19
’20
-10
-5
0
5
10
15
The second-quarter recovery followed a string of data points that suggested China’s economy had turned a corner. Manufacturing surveys have shown a steady recovery in sentiment over the past three months. And China said Tuesday that exports and imports had returned to growth in June for the first time since the outbreak.
The rebound came in a quarter when China appeared to bring the virus’s spread under control. In early April, it ended its 77-day lockdown of Wuhan, a city of 11 million. It responded forcefully to subsequent viral resurgences, including one that emerged in a wholesale market in Beijing last month, testing millions within weeks and restricting travel in and out of the capital. As of Wednesday, the country recorded 10 consecutive days without a case of local transmission.
The question now for Beijing policy makers is whether the rebound can sustain itself through the coming months with only the modest stimulus measures that have been put in place, particularly as the U.S. struggles to rein in record numbers of new coronavirus cases.
A prolonged recession in the U.S. would hurt demand for Chinese goods in their most important export market, while the persistence of new virus cases around the world could keep much of the global economy in a state of paralysis for months, weighing on growth prospects.
Separately, China has been dealing in recent weeks with its worst flooding in recent memory across large swaths of the country, including parts of its manufacturing and export heartland, which some economists worry could hamstring a recovery.
A man drives a scooter loaded with flowers at a market in Yunnan province on July 14.
PHOTO: QILAI SHEN/BLOOMBERG NEWS
With the second-quarter growth, China is looking more like a bright spot in a world ravaged by the pandemic. The International Monetary Fund expects China’s economy will grow 1.2% for the full year, which would make it the only large economy to report positive data in 2020.
Though the world will likely look to China to help power the global recovery, Beijing’s restraint on fiscal and monetary stimulus means it is unlikely to do as much heavy lifting as it did during the global downturn more than a decade ago.
China, in turn, is counting on the rest of the world to bounce back. Though exports are less important for China’s economy than they once were, they are still a significant driver, contributing about a fifth of overall growth.
In Hangzhou, a city about 100 miles southwest of Shanghai, one manufacturer of metal roll-forming machines that was founded in 2003 has weathered that year’s outbreak of severe acute respiratory syndrome, the global financial crisis and the coronavirus pandemic.
“This year is the worst,” said May Fu, sales manager at Hangzhou Zhongyuan Machinery Factory.
With the company’s clients—largely based in Africa and Latin America—struggling, “they cut their orders as the economic situation turned worse,” Ms. Fu said. Business at the factory hit a nadir in late March, with orders roughly 30% down from a year earlier, she said.
In the first half of July, however, the company has experienced a sharp rise in the number of inquiries and new orders—a 20% rise compared with the first half of June, Ms. Fu estimates.
“We’ve seen significant signs of improvement,” she said.
But Ms. Fu considers her company fortunate just to have survived. None of her 55 employees were laid off. The factory next door, which was already struggling with weak orders coming into the year, closed for good during the pandemic.
As conditions improve, Chinese policy makers’ caution on the stimulus front—born in part from concerns about exacerbating imbalances in the economy—has grown more evident.
In recent weeks, borrowing rates in China have stopped their descent as the central bank has started to worry again about financial speculation. Stocks have surged this month and on Thursday, statistics showed new home prices kept rising in June from the previous month in 61 of 70 cities tracked by officials, compared with 57 cities in May.
The yield on 10-year government bonds has risen by roughly half a percentage point since the beginning of May to roughly 3%. Yields fall when bond prices rise.
The first-quarter economic report, China’s first period of contraction in more than four decades, prompted senior Chinese leaders to make the rare move of ditching a formal growth target for the year, turning its focus instead to stabilizing the job market and ensuring social stability.
On Thursday, China reported that its urban surveyed jobless rate dropped to 5.7% in June, compared with 5.9% in May. China’s headline unemployment rate doesn’t factor in many migrant workers, tens of millions of people who lost their jobs during the first three months of the year.
Industrial production, meantime, rose 4.8% in June from a year earlier, in line with expectations and up from a 4.4% increase in May.
Fixed-asset investment dropped 3.1% in the first half of the year, improving from a 6.3% drop in the January-to-May period, which was better than the 3.2% decline expected by economists.
China’s retail sales fell 1.8% in June from a year earlier, compared with a 2.8% drop in May, falling short of economists’ projection for 0.3% growth.
Investment in commercial and residential real estate rose 1.9% in the first six months of the year from a year earlier, reversing a fall of 0.3% for the January-to-May period.
—Bingyan Wang, Grace Zhu, Liyan Qi and Xiao Xiao contributed to this article.
Write to Jonat
-
second
China's Economy Is Growing Again, Sort Of
4 MINS READ
Jul 16, 2020 | 21:07 GMT
HIGHLIGHTS
Further scrutiny of China's 3.2 percent GDP growth in the second quarter of 2020 still shows uneven, slow healing from the COVID-19 crisis that leaves the Chinese economy vulnerable to setbacks and shocks, even as the headline number suggests a slight recovery from the country's deep dip earlier this year. Risks in the second half of the year include a renewed virus outbreak, residual Chinese consumer caution and weak business investment in manufacturing plants and equipment, shaky global demand for Chinese exports, heightening tensions with the United States, and severe flooding currently in much of the country....
Further scrutiny of China's 3.2 percent GDP growth in the second quarter of 2020 still shows uneven, slow healing from the COVID-19 crisis that leaves the Chinese economy vulnerable to setbacks and shocks, even as the headline number suggests a slight recovery from the country's deep dip earlier this year. Risks in the second half of the year include a renewed virus outbreak, residual Chinese consumer caution and weak business investment in manufacturing plants and equipment, shaky global demand for Chinese exports, heightening tensions with the United States, and severe flooding currently in much of the country.
China's economic recovery in the second quarter was largely a supply-side phenomenon driven by industrial and state growth, with private demand continuing to lag. On its face, the 3.2 percent GDP increase (year-over-year) is a significant improvement from the 6.8 percent decline in GDP growth China reported in the first quarter, leaving output in the first half of year only 1.6 percent less than the same period in 2019. In particular:
Industrial output was up by 4.8 percent from a year earlier, with most of the growth in raw materials production, technology components, automobile production and energy.
Much of the increased domestic supply, however, went into inventories, which are accounted for in GDP data as investment. Retail sales continued to lag and were down by 1.8 percent — a progressively smaller decline from March-May, but still indicating depressed household consumption and residual consumer caution. Car sales also were down from a year earlier despite increased production.
Fixed asset investment overall fell by 3.1 percent in June, with private investment down 7.3 percent after falling for a fifth consecutive month. Investment by state-owned companies rose by 2.1 percent in June, much of it in infrastructure after successive falls in previous months. That indicates further a policy-directed growth increase that has yet to take hold privately.
Both exports and imports were up in June but the contribution to GDP from net exports shrank, with a small trade surplus of $46 billion and foreign trade down by 3.2 percent for the first half of 2020. Low prices for imported commodities, however, helped keep trade positive.
Looking ahead, unemployment in China continues to be a drag on consumption. The surveyed urban unemployment rate ticked down to 5.7 percent, but it undercounts the number of jobless by excluding migrant labor. Other data showed labor migration was down by 2.7 percent year-over-year. 1.73 million fewer jobs were also created in the first half of the year, with setbacks, particularly for younger workers.
The Chinese government's fiscal and monetary policies will likely remain accommodative, albeit with some new caution by the country's central bank. A recent stock market bubble, in which both the Shanghai and Shenzen stock markets rose by 14 percent in just two weeks in July, suggests credit market support might be contributing to asset price inflation, rather than supporting the real economy. Property investment, for example, was also up strongly in June by nearly 2 percent.
Further scrutiny of China's second-quarter GDP growth still shows an uneven, slow recovery from COVID-19 that leaves its economy vulnerable to setbacks and shocks.
At the same time, fiscal stimulus will be important, and while a debt crisis is unlikely, the Chinese economy's dependence on credit is still a risk. The Chinese central government's deficit this year is projected at only 3.6 percent of GDP, an increase from previous years to be sure. But borrowing and off-budget operations push Beijing's real deficit closer to 11 percent of GDP, and perhaps as high as 15 percent. The Chinese government dropped its formal GDP growth target for this year, which will help constrain increasing debt as provinces no longer have to meet artificial output goals with unproductive investment financed by borrowing. Though even so, China's debt-to-GDP ratio was nearly 317 percent in the first quarter of 2020, an increase from only 300 percent at the end of 2019.
China was the first in and was expected to be first out of the COVID-19 crisis, as its authoritarian system was able to impose massive lockdowns and monitoring systems to track and contain the virus, which has proven to be a challenge in other countries. Difficulties in returning the Chinese economy to normalcy is thus not encouraging for economic revivals elsewhere. China's current growth model is nearly universally known to require rebalancing away from the infrastructure-driven, export-led growth of the last 30 years and toward a more consumption-based economy, but that may be on hold and imply further structural slowdowns for China's economy going forward.
-
https://www.powerlineblog.com/archives/2020/07/a-word-from-lowell-pickett.php
-
There's No Such Thing As A Free Lunch To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 7/20/2020
"There is no such thing as a free lunch." It's been attributed to many different people, Milton Friedman and Robert Heinlein, among others. Regardless of who said it, we think it's one of the most basic economic truths.
A lunch has to come from somewhere, and once it is consumed, it's not available for someone else to consume. 'Another way to say it, someone needs to produce what we consume. Supply comes before demand. Without supply – without production – we have nothing to bring to "the market" in exchange for something else. In Venezuela, production has plummeted due to socialist government policies, while inflation and hunger run rampant.
And the US is facing problems as well. Recent reports show a huge gap between supply and demand, a gap that can't go on indefinitely. Retail sales in the US, a measure of demand, fell off a cliff in March and April, bottoming 21.7% below the level in February. Since then, retail sales have rebounded sharply, rising 18.2% in May and 7.5% in June. Amazingly, retail sales are now 1.1% higher than a year ago, during a time where unemployment has climbed from 3.7% to 11.1%.
By contrast, industrial production – one proxy for supply – hasn't done as well. Industrial production fell a combined 16.6% in March and April and has since risen a more modest 6.9% combined in May and June, leaving it down 10.8% from a year ago.
How can Americans go out and buy more when they're making less? The answer: borrowing from the future through government deficits. Government transfer payments in April and May, combined, were up 86.7% from a year ago due to COVID spending on "tax relief" checks that have been sent out by the IRS, as well as a surge in unemployment compensation, mostly because of more people collecting benefits, but also because benefits were increased substantially.
As a result, government transfer payments made up 30.6% of all personal income in April and 26.4% in May. Let's say that again...government made up over 25% of all personal income in May!! From 2015 through February 2020, government transfers averaged roughly 17% of all consumer income. Prior to the Panic of 2008, transfer payments averaged 14%. This year, government transfer payments have been so generous that they've more than offset declines in wages & salaries and small business income.
Normally, the gap between the growth in retail spending and industrial production would be a sign that something is systematically wrong with the economy, and higher inflation is not long to follow. The only way people can spend more without producing more is if they're spending inflationary dollars. That's not a free lunch; it's just that the cost of the lunch is paid for by reducing the value of all the money we use. (Sneaky, sneaky.)
The Federal Reserve has all but promised to remain loose for the foreseeable future. We haven't seen this kind of monetary policy since the 1970s.
Consumer prices rose 0.6% in June, although, given steep price declines in March and April, consumer prices are still up only a modest 0.6% from a year ago. So we don't have deflation, but for now signs of runaway inflation remain scarce.
One reason is that the personal saving rate has surged. The personal saving rate is the share of our after-tax income that we don't spend on consumer goods or services. It hit 32.2% in April, the highest level on record - by far - going back to at least 1959. The next highest level was 17.3% in May 1975, and the average rate last year was 7.9%. The saving rate remained at a still elevated 23.2% in May.
The fact that people are not rushing out all at once to spend their transfer-padded incomes has helped keep inflation in check. The gap between consumer spending and production has also come in the form of big reductions in business inventories, a reduction that can't continue forever (eventually, we'd run out of inventories to reduce).
We aren't looking for hyper-inflation, but we do think the Fed is likely underestimating future price increases. The Fed expects the PCE deflator to rise 0.8% this year, 1.6% in 2021, and 1.7% in 2022. We'd take the OVER on all three.
-
New Single-Family Home Sales Increased 13.8% in June To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 7/24/2020
New single-family home sales increased 13.8% in June to a 776,000 annual rate, easily beating the consensus expected 700,000. Sales are up 6.9% from a year ago.
Sales rose in all major regions of the country.
The months' supply of new homes (how long it would take to sell all the homes in inventory) fell to 4.7 months in June from 5.5 months in May. The decline was due to both the faster pace of sales and a decrease in inventories of 4,000 units.
The median price of new homes sold was $329,200 in June, up 5.6% from a year ago. The average price of new homes sold was $384,700, up 6.3% versus last year.
Implications: The recovery in new home sales continued at a break-neck pace in June, rising more than even the most optimistic forecast by any economics group to the highest level since 2007. That's right, new home sales were higher in June than before COVID-19 hit the US economy. Keep in mind that sales of new homes are counted when the contracts are signed, so they represent a timelier indicator of activity than existing home sales, which are counted at closing. There are a couple of factors that should continue to drive new home sales higher in the months ahead. First, affordability is increasing; Fed rate cuts have reversed the increase in mortgage rates we saw prior to the shutdowns and rates now sit below 3% for the first time on record. Second, due to the pandemic, buyers' preferences look to be shifting away from units in denser urban environments, toward the more spacious options in the suburbs where most new single-family homes are built. However, a lack of finished new homes waiting for buyers could be a headwind for sales going forward. In the past year, the only portion of the inventory of unsold new homes that has seen gains has been homes where construction has yet to start. Meanwhile, the inventory of unsold homes that are either under construction or finished is still down from a year ago. Given the downward pressure that social distancing regulations, shortages of labor, and supply chain issues continue to exert on new construction, we do not expect an oversupply of homes anytime soon. As a result, home prices should continue to rebound in the next several months. In other recent news, initial jobless claims rose last week for the first time since March, coming in at 1.416 million, up 109,000 from the week before. It looks like the recent "second-wave" of coronavirus infections, and the resulting shutdowns of bars and restaurants in many states, is causing headwinds for the labor market recovery. Meanwhile, continuing claims, which lag initial claims by a week, declined 1.1 million to a reading of 16.2 million. Combined, these readings suggest job growth continued in July, but at a slower pace than June. Finally, on the manufacturing front, the Kansas City Fed index rose modestly to +3 in July from +1 in June. This represents a return to pre-pandemic levels, and a significant recovery from the reading of -30 during April in the middle of the crisis.
________________________________________
-
New Orders for Durable Goods Increased 7.3% in June To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 7/27/2020
New orders for durable goods increased 7.3% in June, beating the consensus expected gain of 6.9%. Orders excluding transportation rose 3.3% in June, slightly below the consensus expected gain of 3.6%. Orders are down 12.7% from a year ago, while orders excluding transportation are down 4.6%.
The increase in orders in June was led by motor vehicles and fabricated metal products.
The government calculates business investment for GDP purposes by using shipments of non-defense capital goods excluding aircraft. That measure increased 3.4% in June, but declined at a 19.8% annualized rate in Q2 versus the Q1 average.
Unfilled orders declined 1.4% in June and are down 4.8% in the past year.
Implications: Durable goods orders continued to recover in June, rising 7.3% on the heels of May's 15.1% jump. That said, there is still a ways to go to make up the massive declines in March and April, with overall orders remaining 16.0% below February. The volatile transportation sector was the biggest source of strength in June, jumping 20.0%, as a surge in orders for motor vehicles and parts more than offset declining aircraft orders. Excluding transportation, activity came in slightly below expectations, rising 3.3% in June. It's worth noting that orders for every core non-transportation category rose in orders for the month. Fabricated metal products registered the largest improvement, up 4.5%, followed by primary metals (+3.6%), machinery (+2.7%), electrical equipment (+1.2%), and computers & electronic products (+0.1%). While computers and electronic products showed the smallest improvement in June, the category has been remarkably stable throughout the Coronavirus Contraction, with orders modestly up since February (pre-pandemic), probably reflecting extra equipment needed to help people work from home. One of the most important pieces of data from today's report, shipments of "core" non-defense capital goods ex-aircraft (a key input for business investment in the calculation of GDP growth), rose 3.4% in June, but declined at a 19.8% annualized rate in Q2 vs. the Q1 average. We're forecasting that real GDP declined at a 35% rate in the second quarter, and we get our first look at the government's estimate when the advanced report on Q2 GDP is released this Thursday. For a deeper dive into what drove the historic decline in the second quarter, check out this week's Monday Morning Outlook. But remember, while the second quarter was bad – terrible in fact – activity turned a corner in May, and continued to recover in June. The third quarter, which we are roughly 1/3rd of the way through, is on track to see double-digit positive real GDP growth. We expect the economy will continue to grow at an above-trend pace in Q4 and through 2021, but the road to recovery will take time. What matters most, is that we have started our way down the path.
-
second post
The Bottom Fell Out To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 7/27/2020
Thursday's initial report on real GDP growth in the second quarter is going to break records, and not in a good way.
Right now, it looks like the US economy shrank at a 35% annual rate in Q2. To put that in perspective, the worst quarter we've ever had since the military wind-down immediately following World War II was -10% in the first quarter of 1958, when, not by coincidence, the US was hit by an Asian flu. This is going to shatter that record by multiples and will likely be the worst since the Great Depression.
However, the US economy has already started recovering and we anticipate a strong report for the third quarter. Compared to the bottom in April, retail sales were up 27.0% in June; industrial production has rebounded 6.9%; housing starts, 27.0%.
Now, imagine retail sales, industrial production, and housing starts, are unchanged in July, August, and September; so, basically we're flatlined from where we were in June throughout the third quarter. Even in that scenario, average retail sales in Q3 would be up at a 48.5% annual rate versus the Q2 average; industrial production would be up at a 17.2% rate; housing starts at a 66.5% annual rate. As a result, we're penciling in real GDP growth at a 15% annual rate in Q3, assuming continued reductions in inventories.
This doesn't mean a full recovery anytime soon. Eventually, the economy will pay a price for recent higher government spending and that price may be an eventual return to the Plow Horse growth of 2009-16. The unemployment rate is unlikely to return below 4.0% until at least 2023.
In the meantime, here's how we get to our forecast for a 35% decline in real GDP for Q2:
Consumption: Car and light truck sales plunged at a 67.3% annual rate in Q2, while "real" (inflation-adjusted) retail sales outside the auto sector shrank at a 27.7% rate. Spending on services also fell: think restaurants & bars, dry-cleaning, daycare, health care services (outside COVID-19), Uber rides,...etc. The list goes on and on. We estimate that real consumer spending on goods and services, combined, fell at a 31.8% annual rate, subtracting 21.6 points from the real GDP growth rate (-31.8 times the consumption share of GDP, which is 68%, equals -21.6).
Business Investment: Business investment in equipment as well as commercial construction got rocked in Q2. Investment in intellectual property may have continued to rise, but we're estimating a combined contraction at a 30% annual rate, which would subtract 3.9 points from real GDP growth. (-30 times the 13% business investment share of GDP equals -3.9).
Home Building: Residential construction got beat up like everything else in Q2, although in many places it was considered "essential." We estimate a contraction at a 32.5% annual rate, which would subtract 1.3 points from the real GDP growth. (32.5 times the 4% residential construction share of GDP equals -1.3).
Government: Growth in national defense spending probably offset a drop in public construction projects in Q2, keeping overall government purchases steady, with zero net effect on real GDP growth in Q2.
Trade: The trade deficit soared in April and May as exports and imports both fell but exports fell even faster. At present, we're projecting that net exports will subtract an unusually large 3.5 points from real GDP growth in Q2, although data out Wednesday morning in the trade deficit in June may alter this estimate, as well as our estimate for overall real GDP.
Inventories: Looks like inventories plunged at the fastest pace on record in Q2, suggesting a drag on real GDP of 4.7 points.
Add it all up, and we get -35.0% annualized real GDP for the second quarter.
The key to remember is that we have already seen the worst of the crisis. The US economy will take years to get back to where it was before COVID-19, but a recovery has already started. Businesses and entrepreneurs have adapted and made the best of an awful situation, including massive government overreach. Better days are headed our way.
-
Those are frightening numbers. On the flip side with such a low benchmark, the percentages will look strong coming back.
This is not the virus. This is a measure of our reaction to the virus.
-
Personal Income Declined 1.1% in June To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 7/31/2020
Personal income declined 1.1% in June, below the consensus expected decline of 0.6%. Personal consumption rose 5.6% in June, beating the consensus expected gain of 5.2%. Personal income is up 7.4% in the past year, while spending has declined 4.8%.
Disposable personal income (income after taxes) fell 1.4% in June, but is up 8.9% from a year ago.
The overall PCE deflator (consumer prices) rose 0.4% in June and is up 0.8% versus a year ago. The "core" PCE deflator, which excludes food and energy, also rose 0.2% in June and is up 0.9% in the past year.
After adjusting for inflation, "real" consumption increased 5.2% in June but is down 5.5% from a year ago.
Implications: Consumer spending rose sharply in June, while extra government stimulus payments remained on a downward trend, pushing down overall personal income for the month. All of June's 1.1% decline in personal income can be traced to the tapering off of CARES Act stimulus payments sent to individuals. Meanwhile, private-sector wages & salaries, small-business income, and unemployment benefits continued to rise in June. Outside of government transfer payments, personal income rose by 1.8% in June, which should come as little surprise given the increase of 4.8 million jobs in June. Even with the increased spending and decline in income, the saving rate remained elevated in June at 19.0%. This is down from 33.5% back in April, but still well above "normal" levels. The next few months will continue to see the numbers muddled by the extraordinary measures taken in response to COVID-19, but what is clear is that the economy has turned the corner and the recovery process is under way. On the spending side, personal consumption jumped 5.6% in June, the second largest monthly increase in the report's history, with only May's 8.5% surge beating it out. The rise was led by spending on goods, up 6.4%. Within the category, durable goods led the way, as consumers picked up purchases of autos and recreational goods and vehicles. Spending on services wasn't far behind, rising 5.2% in June, as, once again, health care spending had one of the largest movements, up 14.0%. While spending rose across most major categories, a few highlights in June include spending on live entertainment (+897.0%), sports tickets (+638.0%), casino gambling (+443.1%), and air transportation (+108.8%). On the inflation front, PCE prices rose 0.4% in June and are up 0.8% from a year ago. Core prices, which exclude food and, more importantly, the very volatile energy component, rose 0.2% in June, and are up 0.9% from a year ago. Notably, the Fed's last set of economic projections had PCE prices up 0.8% for 2020. The fact that the year-ago comparison is already up 0.8% as of June suggests they underestimated inflation for the year. The nation as a whole continues to see economic activity on the rise, and now that the "second wave" states like Texas, Florida, Arizona, and California are beginning to see cases fall once again, some of the recent headwinds to the recovery look like they will begin to dissipate as well. Expect continued economic progress, though the pace of growth may be lumpy geographically in the weeks and months ahead. In other news this morning, the Chicago PMI rose to 51.9 in July from 36.6 in June, posting its first expansionary reading in more than a year. Plugging this into our models suggests the national ISM index, reported Monday, will show a rise to about 53.5 for July from 52.6 for June.
-
August 4, 2020 View On Website
Open as PDF
From a COVID-19 Recession to COVID-19 Depression?
By: George Friedman
It’s been roughly five months since COVID-19 lockdown measures were first put in place. That means that come September, we will have gone two quarters like this with no end in sight.
Masks and social distancing contained the spread of the virus somewhat but could never eliminate it. Yet that is the only containment strategy we had. The only real solution is a vaccine. Many have already claimed that a vaccine is coming soon, but even if comes to market in September, producing, distributing and administering it to billions of people will be a time-consuming and logistically fraught process. Obviously, the number of people vulnerable will decline over time, but it is not clear that social distancing or quarantining will be suspended simply because a vaccine will be available. They will likely continue.
I have argued that unless a solution is found by September, the probability that the recession could turn into a depression would mount. A recession is a normal part of the economy, a primarily financial event that imposes disciplines on an overheated economy. A depression, from a geopolitical standpoint, involves the physical destruction of the economy, something that lays waste to businesses, dislocates labor and vaporizes capital. A recession is the economy cycling. A depression is an economy breaking.
I chose September because two quarters of intense economic contraction is instructive. Economists’ definition of a recession is two successive quarters of negative growth (also known in English as decline). This is generally enough time to understand how resilient an economy is. Uncoincidentally, it is also the point at which economies begin to recover in normal cycles. Under normal circumstances, basic economic structures remain intact during recessions so financial stimulus measures can restart the system.
There’s no evidence that the economies of the United States and Europe – the center of gravity of the global economy – are recovering. Last week, the EU reported that its economy contracted by 8.3 percent, the largest contraction since it started keeping records. In the U.S., some 20 million jobs were lost in April, and there has been no dramatic reversal in unemployment. Brick and mortar retail stores across the nation are shuttering. Many argue that COVID-19 merely speeded up the inevitable. But even if that is true – and it may be – simultaneous collapses of an economic sector should not be regarded lightly. It’s unclear just how many businesses have gone under because of delays in reporting, backlogs in the legal system, and so on. But it seems to me that retail collapse was merely the most visible sign of a tidal wave of bankruptcies not yet measured by the system, locking the unemployed into a difficult position.
So far, a depression has been delayed by massive government intervention. The United States spent trillions of dollars to stabilize the economy and avoid economic destruction. It did not reverse the collapse of March and April, but it blunted the damage by infusing capital into businesses, provided that they retain their employees. The problem was that demand fell not just for a lack of money but because of a lack of will to go purchase goods.
There was a contraction of effective demand, not only from lack of money but also because trips to the store became heroic undertakings. The stimulus could not continue. Lack of demand led to business failures, which led to unemployment. This is what the beginning of a depression looks like.
The European stimulus, which came later, was more complex but the basic economic principle is the same: At a certain point, the value of the currency declines as supply surges, making cash injections unsustainable. Weimar Germany is a good example – think about that iconic, if possibly staged, picture in the 1920s of a man with a wheelbarrow full of deutsche marks going to buy a loaf of bread. The danger of the collapse of a currency vastly compounds economic failure. It cuts off investment at a time when it alone could stabilize the system.
The past two quarters have been a time of coming to terms with the medical reality and, more important, with life lived under the only medical mitigation there was: masks and isolation. There was a sense developing since June that this was simply what we would live with, and for many, it was a tolerable solution. What I think was less understood was that the economy had not reached a stable if unpleasant plateau, but was being held in place by inertia and government stimulus, and that the economy was fragmenting under the surface, past the point where government stimulus and patience would keep it together. In other words, the relative safety of the plateau afforded by the medical solution was being undermined and eaten away by unemployment and bankruptcies.
As we move into September, business failures will begin to mount, unemployment will soar, and underemployment may be even worse. It will be a time of instability and unpredictability. In past depressions, there was vast social unrest reflected in political fragmentation between those who suffered the most and those who didn’t. Sometimes the system can balance it, but usually it cannot, giving birth to a powerful political movement championing the dispossessed. In Europe, it was usually right-wing parties crushing the left. We are far from that point, but the coming U.S. election will be a harbinger of what might come.
Depression scares me. It creates not only vast human suffering but also political monstrosities. It is clear at this point that the current medical solution will remain in place until there is a vaccine. It is also clear that even with the best of luck a vaccine will not be fully produced, distributed and injected to a degree necessary or in time for the current solution to be improved. By that time, the economy will be in a very dangerous condition, if it is still salvageable. But the sooner a vaccine is found the less the danger will be. It should be remembered that after the European and American depressions of the 1920s and 1930s, there was not only political extremism but also war. History does not repeat itself, which is a great comfort – save that, as Mark Twain pointed out, it does rhyme.
-
The ISM Non-Manufacturing Index Rose to 58.1 in July To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 8/5/2020
The ISM Non-Manufacturing index rose to 58.1 in July, easily beating the consensus expected 55.0. (Levels above 50 signal expansion; levels below signal contraction.)
The major measures of activity were mixed in July. The new orders index surged to 67.7 from 61.6 in June, while the business activity index rose to 67.2 from 66.0. The employment index declined to 42.1 from 43.1 in June, and the supplier deliveries index moved lower to 55.2 from 57.5.
The prices paid index declined to 57.6 from 62.4 in June.
Implications: Another surprise to the upside from the service sector, as the ISM Non-Manufacturing Index continued to climb following the largest single-month increase in series history back in June. The composite index stands comfortably in growth territory at 58.1 (remember, readings above 50 signal expansion), marking the highest level since early 2019. In total, fifteen of eighteen companies reported growth in July, while three reported contraction. The two most forward-looking indices – business activity and new orders – both rose again in July. New orders improved the most, up 6.1 points to a reading of 67.7, the highest mark for the new orders index in the series history dating back to the late 1990s. Business activity, up 1.2 points to 67.2 in July, recorded the second highest reading in series history, and the best mark in more than fifteen years. Two indices declined in July; supplier deliveries and employment. It's worth noting that the supplier deliveries index increases when companies report longer delivery delays (typically a sign of more demand than companies can fill in a timely manner), so the continued decline in July means fewer delays. While supply chain disruptions and manufacturer back orders continue to result in longer lead times, deliveries are gradually moving in the right direction. The employment index continues to remain in contraction territory, and declined in July to 42.1 from 43.1 in June. While we do anticipate a slowdown in the pace of jobs growth when we get the employment report this Friday, we are currently forecasting two million nonfarm payroll jobs were added last month. With most states now on the downside of the curve in new confirmed COVID cases, progress in job gains look likely to continue for the foreseeable future. On the inflation front, the prices paid index declined to 57.6 from 62.4 in June. In other words, prices rose in July, but at a slower pace than in June. Cleaning products, medical supplies (like N95 masks), and construction contractors led the index higher. The data will likely remain volatile over the weeks and months ahead as the virus – and state responses – impact the ability for companies to operate. Cases look to have peaked and turned in the "second wave" states, but nobody knows with certainty where exactly things will go from here. What we do know is that our ability to identify, respond to, and treat cases as they arise continues to strengthen with each passing day.
-
https://scottgrannis.blogspot.com/2020/08/is-50-recovery-in-3-months-just-chump.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29
-
Monday Morning Outlook
________________________________________
A Healing Economy To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 8/10/2020
It's going to take years for the US economy to fully heal from the economic disaster brought about by COVID-19 and the government-mandated shutdowns which continue to limit economic activity across the country. When we talk about a full recovery, we don't simply mean getting real GDP back where it was in late 2019; a full recovery comes when the unemployment rate gets back below 4.0%, and we don't see that happening until at least late 2023.
Yet last week's key reports on the economy clearly show we're recovering. The ISM Manufacturing and Service indices, autos sales, and the employment report all beat expectations. The Manufacturing index came in at 54.2, while the sub-indices for new orders and production both exceeded 60.0 for the first time since 2018. The ISM Services index hit a robust 58.1 for July, the highest reading so far this year, including back in January and February when the economy was doing quite well. The new orders sub-index for services hit 67.7, the highest on record (dating back to 1997).
Meanwhile, consumers felt healthy enough to keep increasing auto purchases. Cars and light trucks were sold at a 14.5 million annual rate in July, the highest since February, when sales were 16.8 million annualized. To put this in perspective, auto sales bottomed at an 8.7 million annual rate in April, so this is one sector which is very nearly healed.
Of course, the big news for the week came with Friday's employment report, which showed payrolls expanding faster than anticipated while the unemployment rate declined further. Nonfarm payrolls rose 1.763 million, while civilian employment, an alternative measure of jobs that includes small-business start-ups, increased 1.350 million. Combined with jobs gains in May and June, these figures show that we've recovered roughly 40% of the jobs lost in the carnage of March and April.
The best news was that both average hourly earnings and the total number of hours worked rose in July, with earnings up 0.2% and hours up 1.0%. Recently, these two figures have moved in opposite directions. At first, layoffs tilted toward lower paid workers, which meant average earnings for the remaining workforce were rising while total hours worked fell. Then, as hours rebounded and (disproportionately) lower-paid workers were rehired, the pattern reversed. Now they're rising at the same time.
In addition, recent declines in unemployment claims signal that the improvement in the labor market is continuing. Initial jobless claims came in at 1.186 million in the latest week, 249,000 fewer than the prior week and the lowest level since March. Continuing claims for regular benefits fell 844,000 to 16.1 million, the lowest since April.
It's still early – the initial report on real GDP growth in the third quarter won't be released until October 29 – but plugging all these reports, as well as earlier ones, into our models suggests growth at a 15.0% annual rate.
But along with faster growth, we're also going to see higher inflation. Broad measures of the money supply are growing rapidly, while the Federal Reserve remains committed to keeping short-term rates low as far as the eye can see. The Fed doesn't think we'll hit its 2.0% inflation target until at least 2023. We think inflation will get there, and beyond, before the calendar closes on 2021.
-
The Consumer Price Index Rose 0.6% in July To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 8/12/2020
The Consumer Price Index (CPI) rose 0.6% in July, coming in above the consensus expected 0.3%. The CPI is up 1.0% from a year ago.
Energy prices rose 2.5% in July, while food prices declined 0.4%. The "core" CPI, which excludes food and energy, rose 0.6% in July, versus a consensus expected 0.2%. Core prices are up 1.6% versus a year ago.
Real average hourly earnings – the cash earnings of all workers, adjusted for inflation – declined 0.4% in July but are up 3.7% in the past year. Real average weekly earnings are up 4.3% in the past year.
Implications: Mirroring yesterday's report on producer prices, consumer prices also posted above consensus gains in July, rising 0.6% for the second month in a row. The typically volatile food and energy categories moved in opposite directions in July as the effects of gradual re-openings from Coronavirus lockdowns began to show up in the data. Energy prices rose 2.5%, primarily due to a 5.6% increase in the price of gasoline as demand for fuel continues to rise along with other measures of mobility. Meanwhile, the 0.4% decline in food prices was largely driven by the food at home category which fell 1.1%, as Americans became less reliant on grocery stores for their meals and food supply chains finally caught up with demand. Strip out the impacts from the food and energy sectors, and "core" prices also increased 0.6% in June, the largest monthly increase since 1991! One of the biggest drivers of "core" prices in July was used cars and trucks which saw prices rise 2.3%, as dealers had lower inventory levels due to fewer trade-ins during the pandemic while they also experienced a surge in buyer demand. Some other contributors in July were apparel (1.1%), new vehicles (0.8%), and medical care services (0.4%). Amazingly, consumer prices never fell on a year-over-year basis during the short but sharp coronavirus recession, bottoming out in May at 0.1%, and rebounding since then to 1.0% in July. We expect prices will continue to rise in the months ahead toward the 2% - 3% annual pace of inflation that was in effect before the Coronavirus wreaked havoc on global economies. However, underlying fundamentals point to a higher risk of rising inflation than during the 2008 recession. The Coronavirus pandemic is the first recession on record where personal income has actually risen, due to government stimulus checks and boosted unemployment insurance payments that replaced greater than 100% of wages for many workers. Meanwhile, measures like industrial production and the unemployment rate demonstrate that the actual production of goods and services remains depressed relative to pre-pandemic levels. That mismatch between supply and demand will eventually mean too many dollars chasing too few goods, especially if further stimulus measures continue to lean on the same policies. That said, it's clear that the economic recovery has begun, the worst economic quarter in the post-World War II era is behind us, and the question now shifts to how quickly we recover.
-
Atlanta Fed: GDP Now estimates current GDP Growth rate:
"Latest estimate: 20.5 percent — August 7, 2020"
https://www.frbatlanta.org/cqer/research/gdpnow
Those are summer doldrum numbers. September should be yuge.
3rd quarter GDP results are scheduled for announcement October 29, Thursday before the election, right when the truly undecided must make their choice.
Two Americas: By election time we will have separate measures of economic growth:
One for blue and one for red states. The idea that both parties offer similar economic results is far behind us. The so called blue states now only lead in crime rate growth. Landslide?
-
Goldman Sachs projects 3rd qtr growth at 25%.
This 'recession' was 4 months, March, April, May and June. Two quarters in bureaucratic statistics only, not two quarters meaning six months. The comparison with the Great Depression is what? One side wants to keep us shut down and screwed up with bad economic policies for a decade?
-
Industrial Production Increased 3.0% in July To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 8/14/2020
Industrial production increased 3.0% in July, matching consensus expectations. Utilities output rose 3.3% in July, while mining increased 0.8%.
Manufacturing, which excludes mining/utilities, increased 3.4% in July. Auto production jumped 28.3%, while non-auto manufacturing rose 1.6%. Auto production is down 1.4% versus a year ago, while non-auto manufacturing is down 8.3%.
The production of high-tech equipment increased 1.6% in July and is up 4.6% versus a year ago.
Overall capacity utilization increased to 70.6% in July from 68.5% in June. Manufacturing capacity utilization rose to 69.2% in July from 66.9%.
Implications: The industrial sector continued its recovery in July, posting the second largest monthly gain (beaten only by June) going back to 1959. However, that improvement continues from a low baseline. Even with July's impressive headline gain, industrial production has made up roughly half of the decline seen in March and April. While there is still some ways to go before a full recovery, the details of today's report were healthy. Within manufacturing, auto production surged 28.3% in July, following 100%+ increases in May and June, as car and truck factories continued to resume operations. With the July jump, auto manufacturing now stands just 1.4% below year-ago levels, and is virtually even with where the index stood back in February. Meanwhile, non-auto manufacturing rose 1.6% in July, also a multi-decade high with the exception of last month's surge. While some sectors of the economy - like restaurants, bars, and hotels - remain at risk, the factory sector appears better positioned for further recovery. Outside the factory sector, activity was also positive. Utilities output rose 3.3% in July, led by electricity demand. Meanwhile mining increased 0.8%, as oil and coal extraction led most mining categories in moving higher on the month. Crude oil prices are comfortably off the lows seen during the heart of shutdown activity, but remain down roughly 35% since the beginning of January and below the break-even level for many US producers, constraining growth in activity. One bright spot is that the number of oil and gas rigs in the US has leveled off after falling roughly 65% since the pandemic began, so it looks like most of the damage is behind us. As economic activity continues to rebound, demand for energy grows, and the surviving firms consolidate, mining eventually will be a tailwind for industrial production. On the capacity side, utilization ticked up to 70.6 in July, steadily inching back towards the readings in the mid-to-upper 70's seen to start this year. The path to recovery is under way, and today's data provides further evidence that the march forward is on steady ground.
-
Existing Home Sales Increased 24.7% in July To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 8/21/2020
Existing home sales increased 24.7% in July to a 5.860 million annual rate, easily beating the consensus expected 5.410 million. Sales are up 8.7% versus a year ago.
Sales in June rose in all major regions. The gain was due to both single-family homes and condos/coops.
The median price of an existing home rose to $304,100 in July (not seasonally adjusted) and is up 8.5% versus a year ago. Average prices are up 6.5% versus last year.
Implications: You would be hard pressed to find a better example of a V-shaped recovery than existing home sales. From February (pre-pandemic) to the bottom in May, sales collapsed 32.1% as lockdown measures and widespread economic uncertainty took hold across the country. However, following two record-breaking monthly gains in a row in June and July, sales are now up from the previous February high. It's also important to remember that existing home sales are counted at closing, so July's 24.7% surge mostly reflects contracts that were signed in June as the "second-wave" of coronavirus cases was erupting across the country, signaling the resilience of the ongoing housing market recovery. One major contributor to the recent recovery has been the Fed's liquidity policies, which have pushed 30-year fixed mortgage rates below 3.0% for the first time on record, boosting affordability. In fact, demand for existing homes has remained so strong that 68% of homes sold in July were on the market for less than a month. That said, sales face an increasing headwind from a low inventory of existing homes, as rising demand continues to more than fully offset new listings. In fact, today's report showed that inventories were lower than any other July on record and down 21.1% versus a year ago (the best measure for inventories given the seasonality of the data). This lack of options has caused median price growth to reaccelerate as well, up from a year-ago comparison of 1.9% in May to 8.5% in July. With employment growing, new and future construction boosting inventories, and an easy fed which will keep rates low for the foreseeable future, expect the housing market to continue to improve. In other recent news on the employment front, initial jobless claims unexpectedly rose 135,000 last week to once again come in above one million, remaining stubbornly high despite recent improvements in new infections in the "second wave" states. Meanwhile, continuing claims, which lag initial claims by a week, declined 636,000 to a reading of 14.844 million. In spite of the increase in initial claims, we still anticipate a payroll increase for August. Finally, on the manufacturing front, the Philly Fed Index, a measure of East Coast factory sentiment, declined to a still robust +17.2 in August from +24.1 in July. This number continues to show a healthy rebound in manufacturing activity versus the deeply negative readings early on in the pandemic.
-
https://pjmedia.com/culture/victoria-taft/2020/08/21/restaurant-servers-in-maine-ordered-to-wear-dog-cones-of-shame-while-serving-food-n823081
The Governor that gets their citizens to wear dildos strapped to their foreheads wins.
My money is on California.
-
Latest estimate: 25.6 percent — August 18, 2020
The next GDPNow update is Wednesday, August 26
https://www.frbatlanta.org/cqer/research/gdpnow
--------------------------------------------------------
Average GDP Growth during Obama "recovery" = 1.5%
https://www.hudson.org/research/12714-economic-growth-by-president
-
New Orders for Durable Goods Increased 11.2% in July To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 8/26/2020
New orders for durable goods increased 11.2% in July, easily beating the consensus expected gain of 4.8%. Orders excluding transportation rose 2.4% in July, beating the consensus expected gain of 2.0%. Orders are down 5.0% from a year ago, while orders excluding transportation are down 1.0%.
The increase in orders in June was led by motor vehicles and defense aircraft.
The government calculates business investment for GDP purposes by using shipments of non-defense capital goods excluding aircraft. That measure increased 2.4% in July. If unchanged in August and September, these shipments will be up at a 23.7% annualized rate in Q3 versus the Q2 average.
Unfilled orders declined 0.8% in July and are down 5.4% in the past year.
Implications: New orders for durable goods soared in July, easily beating the consensus expected increase to post a third consecutive monthly gain. New orders now sit just 6.7% below the February pre-pandemic high, signaling a sharp recovery in the manufacturing sector as you can see in the chart to the right. The volatile transportation sector was the biggest source of strength in July, jumping 35.6%, as a surge in orders for motor vehicles and parts as well as defense aircraft more than offset declining civilian aircraft orders. However, even excluding transportation, orders came in above expectations, rising 2.4% in July. It's also worth noting that orders for every core non-transportation category rose for the month. Electrical equipment registered the largest improvement, up 4.1%, followed by fabricated metal products (+2.0%), machinery (+2.0%), computers & electronic products (+2.2%), and primary metals (+0.2%). Meanwhile, the only major category to post a decline in July was civilian aircraft, where orders continued to fall (but at a slower pace than in June) as major airlines continue to cancel prior purchase orders due to a highly uncertain economic outlook related to the pandemic. One of the most important pieces of data from today's report, shipments of "core" non-defense capital goods ex-aircraft (a key input for business investment in the calculation of GDP growth), rose 2.4% in July. Even if these orders remain unchanged in August and September, this measure will be up at a 23.7% annualized rate in Q3 versus the Q2 average, suggesting that business investment, which was a major drag on real GDP in the second quarter, will be a major tailwind in Q3. While this represents growth from a very low base, Q3 is on track to see double-digit positive real GDP growth. At present, we estimate real GDP growth at a 20.0% annual rate, but the risk is more to the upside than downside. For example, the Atlanta Fed's "GDP Now" model currently has Q3 growth at a 25.6% annual rate, but we are sticking with a slightly more conservative forecast as we expect inventories reductions to show a drag on growth. We also expect the economy will continue to grow at an above-trend pace in Q4 and through 2021, but the road to recovery will take time. What matters most, is that we have started our way down the path.
-
Personal Income Rose 0.4% in July To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 8/28/2020
Personal income rose 0.4% in July (+0.8% including revisions to prior months), easily beating the consensus expected decline of 0.2%. Personal consumption rose 1.9% in July (+2.5% including prior month revisions), beating the consensus expected gain of 1.6%. Personal income is up 8.2% in the past year, while spending has declined 2.8%.
Disposable personal income (income after taxes) rose 0.2% in July and is up 9.5% from a year ago.
The overall PCE deflator (consumer prices) rose 0.3% in July and is up 1.0% versus a year ago. The "core" PCE deflator, which excludes food and energy, also rose 0.3% in July and is up 1.3% in the past year.
After adjusting for inflation, "real" consumption increased 1.6% in July, but is down 3.8% from a year ago.
Implications: Rising income paired with a pickup in spending in July, comfortably beating expectations in a report where the details are even better than the already impressive headline readings. The move higher in income came as rising private sector wages and salaries more than offset a decline in government transfer payments. In other words, the data improved as the economy continued to move further into reopening. Outside of government transfer payments, personal income rose by 0.9% in July, which should come as little surprise given the increase of 1.8 million jobs in July. Spending followed suit, up 1.9% in July after historically large increases in May and June. The increase in spending on services was led by health care, food services, and accommodations. Spending on goods was led by motor vehicle sales, up 19.1% in July. While spending rose across most major categories, a few highlights from the July report include spending on spectator sports (+2800.0%), casino gambling (+40.7%), air transportation (+38.6%), and hotels and motels (+23.5%). And while the return to spending through the recovery has been uneven, with areas like autos, food, housing, and recreational goods up from both year ago levels and where they stood back in February, the above-mentioned categories that saw large gains in July remain well off prior highs. This data helps explain why a company like MGM is laying off 18,000 furloughed workers and American Airlines has announced plans to cut 19,000 jobs in October, while companies like Home Depot and Amazon are announcing the expansion of distribution centers and adding to their payrolls. With spending rising more than income, the saving rate declined to a (still very elevated) 17.8% in July. This is down from 33.7% back in April, but still well above "normal" levels. The next few months will continue to see the numbers muddled by the extraordinary measures taken in response to COVID-19, but what is clear is that the economy has turned the corner and the recovery process is under way. On the inflation front, PCE prices rose 0.3% in July and are up 1.0% from a year ago. Core prices, which exclude food and, more importantly, the very volatile energy component, also rose 0.3% in July, and are up 1.3% from a year ago. We expect inflation will continue to trend higher in the months ahead, moving toward – and then above – the 2% pace that has historically stood as the Fed's target. But don't expect that to mean that monetary policy will be tightening any time soon. The Fed announced yesterday a shift in the inflation targeting process to make abundantly clear that inflation can run above the long-term target for at least a little while before it will raise rates. In other news this morning, the Chicago PMI remained in expansion territory in August, but declined to a reading 51.2 from 51.9 in July. This comes on the heels of yesterday's report from the Kansas City Fed which showed activity in that region rose, pushing the manufacturing index to 14 in August from 3 in July. Plugging this into our models suggests the national ISM index, reported next Tuesday, will show a rise to about 54.7 for August from 54.2 for July. In other recent news, pending home sales, which are contracts signed on existing homes, increased 5.9% in July, suggesting that strong gains in existing home closings continued in August.
-
This is not a very reliable measure but it is from a federal reserve bank (Atlanta) where they have access to the best, real data available.
"GDP NOW is a running estimate of real GDP growth based on available economic data for the current measured quarter. There are no subjective adjustments made to GDPNow—the estimate is based solely on the mathematical results of the model."
Latest estimate: 28.9 percent — August 28, 2020
https://www.frbatlanta.org/cqer/research/gdpnow
Recall that 3% was the elusive number Pres. Obama could not hit - even when he kept predicting 4%.
Broken promises 2010, 2011, 2012, 2014:
"In January 2010, President Obama predicted his economic policies would produce 4.3 percent GDP growth by 2011. When that growth did not happen, the president did not admit failure, rather he simply revised his prediction in 2011 for better growth in 2012. He has continued to predict strong growth, but each year he moves the goal post further away."
https://www.rpc.senate.gov/policy-papers/obamas-false-predictions-on-the-economy
-
Obviously economic structural racism!
This is not a very reliable measure but it is from a federal reserve bank (Atlanta) where they have access to the best, real data available.
"GDP NOW is a running estimate of real GDP growth based on available economic data for the current measured quarter. There are no subjective adjustments made to GDPNow—the estimate is based solely on the mathematical results of the model."
Latest estimate: 28.9 percent — August 28, 2020
https://www.frbatlanta.org/cqer/research/gdpnow
Recall that 3% was the elusive number Pres. Obama could not hit - even when he kept predicting 4%.
Broken promises 2010, 2011, 2012, 2014:
"In January 2010, President Obama predicted his economic policies would produce 4.3 percent GDP growth by 2011. When that growth did not happen, the president did not admit failure, rather he simply revised his prediction in 2011 for better growth in 2012. He has continued to predict strong growth, but each year he moves the goal post further away."
https://www.rpc.senate.gov/policy-papers/obamas-false-predictions-on-the-economy
-
Head of Graco, headquartered in Minneapolis:
https://players.brightcove.net/940277650001/default_default/index.html?videoId=6185108523001
5 minute straight talk
-
S&P 500 3650, Dow 32,500 To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 8/31/2020
If you pay close attention to our stock market forecasts, the title of this piece will look familiar.
At the end of 2019 we made the same exact forecast for the end of 2020 — the strangest year in our lifetimes, and it's not even over. Compared to most analysts, this was a very bullish call. And then, when the market hit a pre-COVID19 peak of 3386 in mid-February, if anything we looked not bullish enough.
Then the bottom fell out of both stocks and the economy, struck by a combination of COVID19 and overly-strict government shutdowns. The S&P 500 bottomed at 2237 on March 23, pricing in an 80% drop in corporate profits from the year before, making our call of 3650 look obsolete.
About seven weeks later, on May 8, stocks had recovered back to 2930, but we figured 3650 was probably still obsolete, and so revised our year-end forecast for the S&P 500 to 3100. Still bullish, but from a lower base.
Then, only four weeks later, the S&P 500 had blown through our updated year-end target and was sitting at 3194. So we revised up our year-end target again, this time to 3350.
But, here we are at the end of August and once again stocks have blown through our updated target, closing last week at 3508. As a result, we're moving our target back up to exactly where we started: 3650.
The key lesson in all this should be that it is a fool's errand to try to time the market. Imagine being told on February 15 that the world was about to be hit by a widespread virus for which there was no known therapy or cure, that governments were going to react by shutting down massive swaths of their economies, and that US real GDP was about to drop at the fastest rate for any quarter since the Great Depression.
Then imagine you had to make a choice about how you would allocate your investments through year end. Many investors would have opted to sell their equities and not look back. But, as we now know, the better choice would have been to grit your teeth and stay invested.
In order to make a stock market forecast we use a model based on capitalized profits. Our model takes the government's measure of profits from the GDP reports, divided by interest rates, to measure fair value for stocks.
To be cautious, we're using the level of corporate profits in the second quarter, when they were down 20.1% from a year ago, and at the lowest level in nine years, a level from which they are very likely to recover in the third quarter and beyond. In addition, we are NOT using the current 10-year Treasury Note yield of 0.7%, which generates absurdly high targets for equity prices. Instead, we're using a 10-year yield of 2.0%. And at that yield, with profits remaining at second quarter levels, our model says the S&P 500 is fairly valued at 4052.
In other words, we would not be shocked if stocks went even higher than our year-end target of 3650 and barring a major shift in public policy as a result of the election in November, expect further gains in the 2021.
-
The Trade Deficit in Goods and Services at $63.6 Billion in July To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 9/3/2020
The trade deficit in goods and services came in at $63.6 billion in July, larger than the consensus expected $58.0 billion.
Exports increased $12.6 billion, led by autos and crude oil. Imports rose $22.7 billion, led by autos, cell phones & other household goods, and civilian aircraft.
In the last year, exports are down 20.1% while imports are down 11.4%.
Compared to a year ago, the monthly trade deficit is $12.6 billion larger; after adjusting for inflation, the "real" trade deficit in goods $3.9 billion larger than a year ago. The "real" change is the trade indicator most important for measuring real GDP.
Implications: International trade continues to improve after some very ugly reports earlier this year. The trade deficit in goods and services came in at $63.6 billion in July, which some may believe is not good. But what really matters is that both exports and imports rose, consistent with the economic recovery in the US and global economic activity slowly picking back up. Imports rose faster than exports, which is why the trade deficit rose, and signals a faster rebound here than abroad. The total volume of trade (imports plus exports), which signals how much businesses and consumers interact across the US border, rose 9.7% in July, by far the largest monthly gain recorded going back to at least 1992, but is still down 15.3% versus a year ago. Expect trade to continue expanding rapidly in coming months as the shutdowns of business across the US and the world slowly dissipate, and new trade deals with key trading partners take effect. Some other good news in today's report was that for the seventh month in a row, the dollar value of US petroleum exports exceeded US petroleum imports. Horizontal drilling and fracking have transformed the global energy market and the US is no longer hostage to foreign oil. In other news this morning, initial jobless claims declined 130,000 last week to 881,000. Meanwhile, continuing claims for regular benefits declined 1.238 million to 13.254 million. Note, however, that the Labor Department changed the way it seasonally adjusts these figures, so don't read too much into this particular week's report. Also on the employment front, data out yesterday from the ADP employment report showed 428,000 jobs gained in August. The consensus was expecting a larger gain of 1.0 million. Plugging all these figures into our models suggests a nonfarm payroll gain of 1.67 million for August with an unemployment rate down to 9.5%. In other recent news, cars and light trucks were sold at a 15.2 million annual rate in August. Sales were up 3.9% from July but still down 11.0% from a year ago. Expect sales to continue to pick up over the next few months as the economy continues to reopen and heal.
-
U.S. created 1.37 million jobs in August, vs 1.32 million expected; unemployment rate falls to 8.4%
https://www.cnbc.com/2020/09/04/jobs-report-august-2020-.html?
By election day, the news will be fastest growing American economy ever.
GDPnow, Atalanta Fed: Latest estimate: 29.6 percent — September 3, 2020
https://www.frbatlanta.org/cqer/research/gdpnow
-
Looks like the expiration of the $600 encouraged a lot of people to go back to work , , ,
================The Jobs of August
The economy creates another 1.4 million jobs, defying the pessimists.
By The Editorial Board
Sept. 4, 2020 6:56 pm ET
So much for the economy falling off an August cliff. That was the prediction in progressive economic circles amid a summer Covid-19 surge and the reduction in government payments to individuals. But Friday’s blowout jobs report for August reveals a labor market and economy that continue to recover in encouraging fashion.
The economy added 1.4 million jobs in the month while the unemployment rate declined 1.8 percentage points to 8.4%. Temporary Census hires filled 238,000 of those jobs. But the economy has nonetheless added 10.5 million private jobs in four months, about half as many as were lost in the recession caused by government-ordered lockdowns. The recovery after the 2008-2009 recession took three years to make this much progress, and the jobless rate was still 8.1% in August 2012.
U.S. jobless rate July 2009-August 2020
Source: Bureau of Labor Statistics
Jobless Rate
Month/MonthChange
2010
'11
'12
'13
'14
'15
'16
'17
'18
'19
'20
-4
-2
0
2
4
6
8
10
12
14
16
Labor force participation increased 0.3 percentage points to 61.7%, up 1.5 points from its April low. This is still 1.7 percentage points below its February peak, but the increase means that hundreds of thousands of Americans are continuing to return to the workforce. By contrast, labor force participation declined in the five years after the 2009 recession. Our contributor Donald Luskin notes that the number of Americans receiving Social Security disability payments is 9.8 million, one million fewer than in August 2012.
One reason the Barack Obama-Joe Biden jobs recovery was so slow is that Congress increased government transfers such as food stamps and Medicaid and repeatedly extended 99 weeks of unemployment benefits, which didn’t lapse until the end of 2012. The expansion of government transfer payments reduced the incentive for Americans to return to work.
Democrats call that compassion, but it’s a cruel sort of kindness for many. Skills atrophy when they aren’t put to use, making it harder to re-enter the workforce later. Notably in August, as in 2013, the job market didn’t go into a tailspin when the $600 a week in federal enhanced unemployment benefits expired at the end of July. Two-thirds of unemployed Americans had been making more by not working. Most states have signed up for President Trump’s $300 a week substitute for the $600, and that is much less of a disincentive to work.
Job growth was especially notable in lower-paid industries like retail (249,000), leisure and hospitality (174,000), and transportation and warehousing (78,000). Unemployment rates also fell sharply among teens (16.1%), blacks (13%) and Hispanics (10.5%).
All of this means the economy is growing again as the lockdowns ebb and despite the lack of another spending blowout from Washington, D.C. The downturn was a recession, not the depression that many feared in March. The Atlanta Federal Reserve’s GDPNow formula is predicting third-quarter growth of nearly 30% year-over-year.
Consumer spending may slow without more federal checks, but perhaps not as much as feared with a recovering job market and average hourly earnings up 4.65% from August last year. They’re up 4.9% for production workers. People have pent up savings—the savings rate was 17.8% in July—and the wealth effect from rising home and stock prices despite the selloff in tech stocks this week will also help. Home prices are up 12% year-over-year, and the Dow Jones Industrial Average has risen 51% from its March trough.
Manufacturing is also rebounding as Europe and China reopen their economies, supply-chain bottlenecks ease, and home building surges. The Institute for Supply Management reported this week that its manufacturing index last month hit a 21-month high. Most industries reported that their biggest challenge is a shortage of raw materials and supplies.
The economy still has a long way to go to return to its pre-Covid heights, and that will take time and probably a vaccine. Covid aside, the biggest barrier to recovery now is election uncertainty and the potential for anti-growth policies if Democrats take the Senate as well as the House and Presidency. Meanwhile, happy Labor Day.
-
"Looks like the expiration of the $600 encouraged a lot of people to go back to work , , ,"
Yes.
-
https://scottgrannis.blogspot.com/2020/09/promising-signs.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29
-
second
The Producer Price Index Rose 0.3% in August To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 9/10/2020
The Producer Price Index (PPI) rose 0.3% in August versus a consensus expected 0.2%. Producer prices are down 0.2% versus a year ago.
Food prices declined 0.4% in August, while energy prices fell 0.1%. Producer prices excluding food and energy rose 0.4% in August and are up 0.6% in the past year.
In the past year, prices for goods are down 1.6%, while prices for services have risen 0.4%. Private capital equipment prices rose 0.3% in August and are up 0.5% in the past year.
Prices for intermediate processed goods rose 0.6% in August, but are down 2.6% versus a year ago. Prices for intermediate unprocessed goods jumped 7.0% in August but remain down 9.0% versus a year ago.
Implications: Producer prices continued to rise in August, coming off a substantial jump in July, and would be up faster but for declining costs of food and energy products. Prices for services led the way in August, as margins received by wholesalers and retailers rose 1.2%. In particular, the margins for machinery, equipment, parts, and supplies accounted for roughly 20% of the service price increase. On the goods side, the typically volatile food and energy categories continue to live up to their reputations, with energy prices falling 0.1% (after three consecutive months of 5%+ increases) while food prices declined 0.4% on lower costs for eggs. Strip out these volatile categories, and "core" producer prices rose 0.4% in August, just a tenth of a percent off the largest monthly increase in the series' (short) history dating back to early 2010. Core producer prices are up a modest 0.6% over the past twelve months, but expect that to move higher in the months ahead. Supply constraints, limitations on activity, and the general economic disruptions related to COVID-19 will continue to muddy the data for the foreseeable future, but what is clear is the massive increase in the M2 money supply, up 23.3% in the past year. Once the dust finally settles – and it eventually will – we expect inflation to trend back toward 2% and then higher. The Federal Reserve is loose and, as it has made abundantly clear, plans to stay that way for the foreseeable future. Meanwhile, businesses operating at limited capacity will remain a headwind to economic activity. The result will eventually be too much money chasing too few goods (and services), meaning higher – but not hyper – inflation. Further down the pipeline, prices for intermediate demand processed goods rose 0.6% in August, while intermediate demand unprocessed goods rose 7.0%. Both intermediate demand categories continue to show prices broadly lower compared to year-ago levels. The data is starting to shift higher, though, tracking the emergence of the economy from what was a severe – but short – recession. We still have a long way to go to get back to where we were at the start of 2020, but the initial steps of recovery are under way, and we expect growth will march onward through the close of this year and beyond. In other news this morning, initial jobless claims were unchanged last week at 884,000. Meanwhile, continuing claims for regular benefits rose 93,000 to 13.385 million. Changes to the seasonal adjustment methodology of these series make comparison to month-ago levels a fool's errand, but this jobs data will remain under intense focus in the weeks ahead for signs of progress or a stall on the path of the workforce recovery.
-
Full Recovery Requires Reopening To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 9/28/2020
With the presidential election just over a month away, prospects for another round of fiscal stimulus seem to be dwindling. The recent death of Justice Ginsburg and the rapidly approaching election have shifted the Senate's gaze.
Conventional wisdom is worried that a lack of additional stimulus, and the potential for a drawn out and contested election, could impede the economic recovery. And some of those fears seem to be reflected in the stock market recently, with the S&P 500 having fallen 7.9% from its high of 3588 on September 2, as of Friday's close.
While we need to wait for August data on incomes, through July, the Commerce Department's measure of personal income was 4.9% higher than in February, as government transfer payments - which the US borrowed from future taxes - more than fully offset declines in wages and salaries. Think about that for a moment. Even with the end of special unemployment bonus payments, there is likely more money in people's pockets today than there would have been had the pandemic never happened!
Right now, any weakness in the economy is coming from the fact that many sectors (especially service-type activities) remain shut down or lightly used.
Spending on goods in July was up 6.1% from February, while spending on the more pandemic-restricted service sector was down 9.3% over the same period. Overall spending (goods plus services) remains down 4.6%. We doubt a full recovery can happen without a rebound in services. Additional checks can't change Americans' wants and desires. Instead, continued recovery is going to require states to push ahead with reopening in a responsible manner.
Take New York and California. Daily new cases are down roughly 92% and 66%, respectively, from the peak in these states. Deaths are down, 99% and 40%, respectively as well. Yet both still have some of the nation's strictest pandemic-related restrictions in place. This, in turn, has held back their economic recoveries.
According to August data from the Bureau of Labor Statistics, New York and California had unemployment rates of 12.5% and 11.4%, respectively, while the unemployment rate for the US excluding these two states was only 7.7%. If New York and California mirrored the nation's unemployment rate, the result would be an additional 1.2 million Americans employed. New York and California combined have 18% of the US population, but 32% of all people receiving continuing unemployment benefits.
Just this past week, Florida (7.4% unemployment) and Indiana (6.4%) have fully opened their economies. These states, among many others, had lower unemployment than the national average, mainly because their shutdowns were less draconian.
The competition between states that open and those that don't – at the political, business, sports, school, and even family level – will lead to even more opening of the economy in the months ahead.
For a self-sustaining recovery to fully catch hold, it is reopening, not additional stimulus, that is the key.
-
Data Watch
________________________________________
The ISM Manufacturing Index Declined to 55.4 in September To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 10/1/2020
The ISM Manufacturing Index declined to 55.4 in September, lagging the consensus expected 56.5. (Levels higher than 50 signal expansion; levels below 50 signal contraction.)
The major measures of activity were mixed in September. The new orders index declined to 60.2 from 67.6 in August, while the production index fell to 61.0 from 63.3. The employment index rose to 49.6 from 46.4, and the supplier deliveries index increased to 59.0 from 58.2 in August.
The prices paid index rose to 62.8 in September from 59.5 in August.
Implications: The pace of growth in the manufacturing sector slowed in September, but it continues to expand at a healthy clip. Remember, readings above 50 signal expansion, so the September reading of 55.4 is comfortably within growth territory, even if it is a modest decline from the August print of 56.0 (which, it's worth noting, was the highest reading for the index since late 2018). Growth in September remained broad-based, with fourteen of eighteen industries reporting expansion, while four reported contraction. And comments from survey respondents showed more than two positive comments for every cautious comment. Looking at the major indices, the two most forward looking – new orders and production – led the headline number lower in September, showing declines from August's multi-year highs, but remain above 60.0. Given that the customers' inventories index (where a reading below 50 signals inventory levels are too low), hit the lowest reading in more than a decade at 37.9 in September, while at the same time the backlog of orders index (which show orders rising faster than production can fill them) hit a multi-year high at 55.2, the data suggest activity should remain robust for the foreseeable future. Employment, meanwhile, remains on the "bad, but not as bad" path, rising to 49.6 in September from 46.4 in August. We are projecting that tomorrow's report on nonfarm payrolls will show a gain of 1.073 million jobs in September, which would move the unemployment rate down to around 8.0% from 8.4% in August. The index for supplier deliveries, which rises when companies have difficulty meeting demand on a timely basis, and moves lower as delays ease, moved higher in September to 59.0. The coronavirus and related shutdowns have wreaked havoc on supply chains, in particular, transportation challenges, labor shortages, and limitations on the number of workers who can be present at any given time due to safety concerns. These challenges have generated a sustained headwind to the process of getting back to business and are expected to remain for the foreseeable future, representing one of the biggest headwinds to even faster production and inventory growth. On the inflation front, the prices paid index rose to 62.8 from 59.5 in August, as rising costs for aluminum, copper, and freight led the index. This, too, is in part a reflection of the supplier delivery difficulties, as rising costs to acquire and produce input materials are being passed along to manufacturing companies. Recovery is clearly under way, and now the focus shifts towards the ability of companies to return to business and meet demand. It's not smooth sailing yet, but the path ahead continues to improve. In other news this morning, construction spending rose 1.4% in August (+3.5% including upward revisions to prior months). Strong growth in homebuilding, paired with increased public spending on highways & streets, was partially offset by a decline in private sector power projects.
-
Nonfarm Payrolls Rose 661,000 in September To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 10/2/2020
Nonfarm payrolls rose 661,000 in September, below the consensus expected 859,000.
Private sector payrolls rose 877,000 in September. The largest increases were for leisure & hospitality (318,000), retail (142,000), and professional & business services (89,000, including temps). Manufacturing rose 66,000 while government declined 216,000.
The unemployment rate dropped to 7.9% in September from 8.4% in August.
Average hourly earnings – cash earnings, excluding irregular bonuses/commissions and fringe benefits – rose 0.1% in September and are up 4.7% versus a year ago. Aggregate hours worked rose 1.1% in September but are down 6.0% from a year ago.
Implications: The job market continues to rapidly recover from the COVID-19 disaster, but not quite as rapidly as in previous months. Nonfarm payrolls rose 661,000 in September versus a consensus expected 859,000 and an average gain of 3.8 million in May and June and an average gain of 1.6 million in July and August. However, private-sector payroll gains narrowly beat expectations, rising 877,000 versus a consensus expected 850,000. The key drag on payrolls in September was a drop in government jobs at schools. It's also important to recognize that average weekly hours in the private sector ticked up to 34.7 in September versus 34.6 in August, the equivalent of about 350,000 jobs. In other words, the details in the payroll report suggest on ongoing robust recovery in the demand for private-sector workers. Civilian employment, an alternative measure of jobs that includes small-business start-ups, increased only 275,000 in September, but that follows an unusually large gain of 3.8 million in August. After peaking in February, nonfarm payrolls plummeted by 22.2 million in March and April. In the past five months, payrolls have grown 11.4 million, making up 52% of the jobs lost earlier in the year. Over the same timeframe, civilian employment has recovered 56% of the jobs lost earlier this year. In the private sector, retailers and restaurants & bars continued to rebound quickly in September, gaining 142,000 and 200,000 jobs, respectively. Retail jobs have now recovered 80% of the losses in March/April, while restaurants & bars have recovered 62%. The best news in today's report was the drop in the unemployment rate to 7.9%, which is still a very high level but well below the peak of 14.7% in April. Average hourly earnings rose a modest 0.1% in September but are up 4.7% from a year ago. Total earnings, which we calculate by multiplying average hourly earnings by the number of hours worked, rose a healthy 1.1% in September. Although total earnings are down 1.7% from a year ago, they dropped steeply early this year and have since recovered 71% of those losses. The road to a full recovery remains a long one. It's not just a matter of getting back to the level of jobs we had in February because, in the absence of the shutdowns related to COVID-19, jobs would have been rising since then. We think a full recovery means getting back to an unemployment rate of 4.0% or below, which is where it was before COVID-19. And that looks like it won't happen for at least a couple more years. That said, there should be no doubt we are headed in the right direction.
-
https://scottgrannis.blogspot.com/2020/10/top-charts.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29
-
https://www.detroitnews.com/story/news/local/michigan/2020/10/02/michigan-supreme-court-strikes-down-gretchen-whitmers-emergency-powers/5863340002/
-
Monday Morning Outlook
________________________________________
Profits Poised for Growth To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 10/12/2020
COVID lockdowns crushed the economy in the first half of 2020, with real GDP down 5.0% at an annual rate in the first quarter and 31.4% at annual rate in the second quarter, the latter of which was the steepest drop in real GDP for any quarter since the Great Depression in the 1930s.
But for the third quarter, the US is tracing out a V-shaped bounce and likely grew somewhere between 30 - 35% at an annual rate, the fastest increase in real GDP for any quarter since at least World War II. The rebound is due to two things...a shift in activity toward businesses that were able to stay open because they were "essential" or found new ways of getting things done, and the actual reopening of businesses in recent months. Still, because many types of businesses are regulated, and because some companies will never reopen, it looks like it'll take until late 2021 for real GDP to fully get back to where it was pre-COVID-19.
Yet, stock market investors are not buying shares of GDP, they're buying shares of specific companies providing specific goods and services, many of which have had and will have robust profits or healthy rebounds in profits to entice investors.
Economy-wide corporate profits peaked in the fourth quarter of 2019 but then fell 12% in Q1 and another 10.3% in Q2. Converting these figures into annualized changes, profits declined at a 37.6% rate in the first half of 2020, versus a total 2-quarter drop of 19.2% for real GDP.
In other words, profits dropped faster than the overall economy.
Look for this process to go in reverse for the third quarter and beyond.
First, it's normal for profits to grow faster than the economy in the early stages of economic recoveries. The profit share of GDP bottomed at about 7% in both the 2001 and 2007-09 recessions, but eventually peaked north of 12.0% of GDP. They are now 9.4% of GDP
Second, the labor share of GDP (wages, salaries, and fringe benefits) surged in the first half of the year as firms reduced payrolls rapidly but not quite as rapidly as production fell. Many employers operated on a forward-looking basis, realizing they could ill afford to layoff workers who they figured they would want and need when the crisis passed. But that also means less of an increase in payroll costs as the economy heals.
Third, many firms have trimmed other costs, beyond payrolls, supporting the bottom line. Think less travel and less office space, in particular. Yes, of course, airlines, for example, get hurt when fewer people travel for business, but they can trim costs, so a dollar saved by the firm for which someone is traveling doesn't need to mean a full dollar less in profit for the firm providing travel services.
Bottom up forecasters have been predicting record levels of overall corporate profits next year, and we concur from a top down approach. Bottom line, the rise in stocks is not based on fantasy, but the fact that profits and low interest rates continue to reflect undervalued equity prices for most industries
-
Also someone needs to point out that profits going up is a good thing. It's what makes employment and greater investment possible.
-
The Consumer Price Index Rose 0.2% in September To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 10/13/2020
The Consumer Price Index (CPI) rose 0.2% in September, matching consensus expectations. The CPI is up 1.4% from a year ago.
Energy prices rose 0.8% in September, while food prices were unchanged. The "core" CPI, which excludes food and energy, rose 0.2% in September, also matching consensus expectations. Core prices are up 1.7% versus a year ago.
Real average hourly earnings – the cash earnings of all workers, adjusted for inflation – declined 0.1% in September but are up 3.3% in the past year. Real average weekly earnings are up 4.1% in the past year.
Implications: Inflation was on the rise in the third quarter, as the consumer price index rose at one of the fastest 3-month paces since before the last recession. Over the past three months, consumer prices are up at a 4.7% annualized rate, well above the Federal Reserve's inflation target of around 2%. However, don't expect this to change the Fed's plan to keep short-term rates near zero for the foreseeable future. Given the drop in prices earlier this year during the worst of the pandemic and related shutdowns, consumer prices are up a tepid 1.4% versus a year ago. Still, the recent burst of inflation hints at the impact the massive 23.6% increase in the M2 money supply can have as supply chains continue to recover. The typically volatile energy category rose 0.8% in September, led higher by a 4.2% increase in natural gas prices, while food prices were unchanged on the month. Strip out the impacts from the food and energy sectors, and "core" prices increased 0.2% in September. Coming off historically large increases in July and August, "core" inflation has been rising at the fastest pace since the early 1990s, although this follows declines in March through May and core prices are up a pedestrian 1.7% in the past year. One of the biggest drivers of "core" prices in September was used cars and trucks, where prices rose 6.7%, as dealers had lower inventory levels due to fewer trade-ins during the pandemic while they also experienced a surge in buyer demand. Some other contributors in July were hospital services (0.6%), new vehicles (0.3%), and housing (0.2%). We expect inflation will continue to rise in the months ahead toward the 2% - 3% annual pace of inflation that was in effect before the Coronavirus wreaked havoc on global economies. However, underlying fundamentals point to a higher risk of rising inflation than after the 2008 recession. The Coronavirus pandemic is the first recession on record where personal income has increased, due to government stimulus checks and boosted unemployment insurance payments that replaced greater than 100% of wages for many workers. Meanwhile, measures like industrial production and the unemployment rate demonstrate that the actual production of goods and services remains depressed relative to pre-pandemic levels. That mismatch between supply and demand will eventually mean too many dollars chasing too few goods, especially if further stimulus measures continue to lean on the same policies. That said, it's clear that the economic recovery is under way, the worst economic quarter in the post-World War II era is behind us, and the question now shifts to how quickly we recover.