A Worrisome Slide For Inflation Expectations

The Federal Reserve may start raising interest rates next year for the first time in nearly a decade, but the focus at the moment is on deflation risk, or so it seems by way of the market’s softer inflation forecast via a closely followed yield spread in Treasuries. The implied outlook for inflation slumped to a three-year low of 1.82% on Nov. 26, based on the difference for the nominal 10-year yield less its inflation-indexed counterpart. This market-based estimate is down sharply from the recent peak of 2.29% as of this past July 30. It’s unclear how much of the market’s focus on deflation risk is tied to worries about the macro outlook in Europe and Asia vs. the US. This much is clear: if Mr. Market continues to lower his inflation estimate, it’s going to be tougher to argue that the US economy is immune to the macro troubles that are bubbling elsewhere in the world.
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The First Thanksgiving…

The celebration on the fourth Thursday of November resonates deeply in the American psyche, but the historical source of Thanksgiving’s legacy across the centuries rests on a surprisingly thin slice of documentation. In fact, “the only surviving first-hand account of a celebration in 1621 comes from the pen of Edward Winslow,” historian Robert Tracy McKenzie explains in The First Thanksgiving. This concise missive is short on details, but long on atmosphere — Thanksgiving atmosphere of the Pilgrim persuasion. Have a great holiday! But first, a brief message from the 17th century…
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Private-Sector Wages Up 5% For Year Through October

Personal income and spending posted modest gains in today’s October update from the US Bureau of Economic Analysis (BEA), albeit at monthly rates (+0.2% on both counts) that fell short of the crowd’s expectations. The usual suspects will fuss over the monthly comparisons and try to spin context out of noise with the data, but there’s more than one way to slice and dice the numbers. As an antidote to the standard routine, let’s focus on the annual trend for what is arguably the more relevant data set in today’s report: private-sector wages, which continue to rise at an encouraging and stable rate of roughly 5%.
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Estimating US Recession Risk Isn’t Getting Any Easier

Clarity is a virtue when it comes to the business cycle. It’s also unusual. The US is an exception, or at least it has been, according to Scott Sumner, an economist at Bentley University and a prolific blogger on macro matters. “The US has a really weird economy,” he writes. “All our recessions are 100% clear-cut. Either we have a recession or we don’t. Normal countries have borderline recessions. Not us.” But this uncommon trait “is about to end, and very soon we’ll have debatable recessions,” Sumner advises. If he’s right, macro analysis—looking for signs of major shifts in the economic trend in particular—will be a lot tougher.
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Initial Guidance | 26 November 2014

● US GDP grows at better-than-expected 3.9% pace in third quarter | LA Times
● UK GDP growth confirmed at 0.7% for Q3 | Marketwatch
● Bank of England will raise rates despite euro gloom, says Mark Carney | Telegraph
● Saudis signal no push for oil cut as market to ‘stabilize itself’ | Reuters
● France Consumer Confidence Posts Unexpected Rise | MNI
● Italy’s consumer confidence continues decline | Marketwatch
● U.S. (Mostly) Wins With Strong Dollar | Bloomberg
● Emg Mkt Portfolio Inflows Rebound in November | IIF

Q4:2014 US GDP Nowcast: +2.1% | 25 Nov 2014

US economic growth is on track to decelerate in this year’s fourth quarter, based on The Capital Spectator’s median point forecast for several econometric estimates. Today’s initial GDP estimate for the final three months of 2014 anticipates an increase of 2.1% (real seasonally adjusted rate) — a substantially lower rate vs. the 3.5% pace in the previous quarter, according to the Q3 report published by the Bureau of Economic Analysis (BEA) last month.
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Initial Guidance | 25 November 2014

● Violence erupts after Ferguson grand jury announcement | USA Today
● Private consumption spike helps Germany avoid recession in Q3 | Reuters
● Global business confidence slumps to 5-year survey low | Markit
● US Services Sectors Growth Slows To 7-Month Low | Markit
● Italy retail sales post fifth consecutive monthly fall in September | Reuters
● Dallas Fed: Texas Mfg. activity grew at a slower pace in Nov | Dallas News
● Global growth to get $200bn kick from oil price crash | Telegraph

Chicago Fed: US Economic Growth Slowed In October

The pace of US growth slowed more than expected in October, according to this morning’s update of the Chicago Fed National Activity Index. The three-month moving average for this benchmark of 85 indicators slipped to a negative 0.01 reading last month from +0.12 in September. Led by weakness in “production-related indicators,” today’s release “suggests that growth in national economic activity was near its historical trend,” according to the press release.
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