Monthly Archives: May 2015

Book Bits | 30 May 2015

Hubris: Why Economists Failed to Predict the Crisis
and How to Avoid the Next One

By Meghnad Desai
Review via Times Higher Education
Far from being finally tamed, as much of the economics profession liked to boast, boom and bust was just on hold for a while. As Desai argues, the idea of automatic equilibrium is a dangerous delusion. Disequilibrium, not equilibrium, is the natural order. “Capitalism is a dynamic system but it works through creating cycles and crises. It is a disequilibrium system.” In seeking an explanation for the post-2008 crisis, Desai turns to “long wave” theories, such as the one developed in the 1920s by the Russian economist Nikolai Kondratieff, that predict periodic turbulence rather than equilibrium. He suggests that 2008 was at the tail end of the upswing phase of a 40-year-long Kondratieff cycle that began with a downswing lasting from the early 1970s to the early 1990s.
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US GDP Turns Slightly Negative In Q1

As expected, US GDP for the first quarter was revised down to a modest decrease in today’s update from the Bureau of Economic Analysis. Economic activity slumped 0.7% in the first three months of the year in seasonally adjusted annualized terms, below the mild 0.2% rise previously reported. The negative revision certainly adds a bit more gloom to the macro outlook. But for the moment it’s still reasonable to reserve judgment. The headline data for the quarterly comparison looks troubling, but it’s not yet a definitive signal that the economic recovery is dead.
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Monitoring The Trend In Treasury Yields With Moving Averages

The recent stumble in US economic data raises new questions about the timing of the Fed’s plans for raising interest rates. The earliest forecast for the first round of tightening monetary policy has been pushed up to September, although some analysts say that the turning point for rates will come later, perhaps early next year. Much depends on the incoming data, of course. Meantime, what is the Treasury market telling us? One way to cut through the noise in search of signals is to calculate a series of moving averages on Treasury yields. By that standard, the market’s sending mixed messages these days. The 2-year yield—considered to be the most sensitive spot on the yield curve for rate expectations—is trending up. The 5- and 10-year yields, by contrast, continue to trend lower, although there are some clues that suggest that the slide has run its course in longer-term maturities.
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Initial Guidance | 29 May 2015

● US Jobless Claims Rise, But Job Growth Still Seen Strong | WSJ
● US pending home sales race to nine-year high in April | Reuters
● Consumer Comfort in US Slumps on Views of Buying Climate | Bloomberg
● Eurocoin Business Cycle Indicator Rises Further In May | RTT
● German retail sales rebound in April | Reuters
● French Consumer Spending Rebounds Less Than Expected In April | RTT
● Weak Household Spending, Inflation Dampen Japan Economic Outlook | RTT
● Is China easing losing its mojo? | CNBC

Jobless Claims Rose Last Week, But Trend Is Still Positive

New claims for unemployment benefits in the US increased last week, but the trend remains encouraging. The consensus forecast told us that claims would post a modest dip to a seasonally adjusted 270,000 in today’s release for the week through May 23; instead, filings jumped to 282,000, the US Labor Department reports. But the four-week average, which is close to a 15-year low, barely budged and the year-over-year change continues to fall at a healthy rate. In short, there’s not much news in today’s update, which means that this leading indicator continues to point to ongoing growth for the labor market.
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Core Inflation And Payrolls Still Support A Rate-Hike Forecast

Earlier this week Fed Vice Chairman Stanley Fischer laid out the conditions for raising interest rates. “The tightening of US policy,” he said in prepared remarks for a speech in Tel Aviv, “will begin only when the U.S. expansion has advanced far enough–when we have seen further improvement in the labor market and when we are reasonably confident that the inflation rate will rise to our 2 percent goal.”
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Initial Guidance | 28 May 2015

● US mortgage applications post 5th consecutive decline | Consumer Affairs
● US Redbook Retail Sales Index +1.8 month to date in May vs. year ago | MNI
● ECB Nowotny: ‘No Flexibility’ On Rules To Support Greece | MNI
● China factory PMI seen as lackluster in May despite stimulus moves | Reuters
● UK to quit EU unless reforms go through, says UK foreign minister | Guardian
● Russia masses heavy firepower on border with Ukraine | Reuters

A Mild Improvement For The US Macro Trend In May… So Far

How’s that second-quarter rebound working out for the US? It’s still a shaky affair, but there are signs that the macro trend has strengthened a bit, based on a preliminary review of sentiment indicators for May. At the very least, the latest numbers suggest that that the US isn’t slipping into a recession. Growth is still weak, but to the extent that we can discern a bias in the big-picture change for the current month vs. April, the comparison is positive overall via the latest round of numbers.
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Initial Guidance | 27 May 2015

● New Home Sales In US Rise 6% in April After Decline in March | NY Times
● US Home prices rose faster than expected in March | USA Today
● US service sector business activity expands at a slower pace in May | Markit
● The Conference Board US Consumer Confidence Index Increases In May | CB
● German consumer sentiment set to rise in June: GfK | MarketWatch
● UK Retailers See Strong Growth In Sales In June: CBI | RTT

Q2:2015 US GDP Estimate: +1.3% | 26 May 2015

The US economy is expected to grow at a faster rate in the second quarter vs. Q1, based on a variety of predictions, but the improvement may turn out to be a hollow achievement. Indeed, the hurdle is quite low for beating the near-flat expansion in the first three months of the year vs. 2014’s Q4. As for the outlook for this year’s Q2 data, which the government will publish on July 30, let’s just say that minds (and models) differ by more than a trivial degree at this point.
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