The sharp drop in the annual rate of consumer price inflation in the Eurozone in October (0.7% vs. 1.1% for the previous month) looks like a warning sign that the winds of disinflation/deflation are strengthening (pdf). If so, that’s an ominous trend given the feeble growth rate for Europe overall. No wonder that the European Central Bank announced an unexpected cut in interest rates earlier this month. One threatening report isn’t a trend, however, and so it’s unclear if October’s weak inflation report is a sign of things to come or just a one-time quirk. We’ll know more when we see the inflation report for November. Meantime, what about the US? Is inflation decelerating here as well? The answer depends on your preference for estimating inflation.
US Retail Sales: October 2013 Preview
US retail sales are expected to rise 0.3% in tomorrow’s update for October vs. the previous month, according to The Capital Spectator’s average econometric forecast. That compares with the previously reported 0.1% decline for September. Meanwhile, the Capital Spectator’s average projection for October is moderately higher than estimates in consensus forecasts based on recent surveys of economists.
You Say Bubble, I Say Fluctuating Risk Premia
David Stockman says that “we have bubbles everywhere” in markets, including stocks, junk bonds and housing. But one man’s bubble is another man’s time-varying risk premium that reflects a fluctuating expected return that’s linked in no small degree with the business cycle. Whew! Yes, one’s easier to say and the other’s a mouthful. Yet these two narratives are essentially telling us the same thing. But if you’re looking to drum up media exposure, you’re better off talking about bubbles instead of fluctuating risk premia. Bubbles offer more dramatic opportunity for interesting TV conversations. As a practical matter for managing money, however, looking at the markets through a framework of fluctuating risk premia has far more appeal.
Q4:2013 US GDP Nowcast: +1.9% | 11.18.2013
This year’s fourth-quarter US GDP is expected to increase 1.9% (real seasonally adjusted annual rate), according to The Capital Spectator’s average econometric nowcast. This is the initial estimate that uses limited Q4 data and so the projection is a preliminary review that will be updated several times as new economic indicators are published and existing data are revised. The final nowcast will be published shortly ahead of the official Q4 GDP report. The US Bureau of Economic Analysis (BEA) is scheduled to release its first Q4 estimate on January 30, 2014.
Book Bits | 11.16.13
● The Road to Recovery: How and Why Economic Policy Must Change
By Andrew Smithers
Review via The Financial Times
Although he is about as far from a leftwing populist banker-basher as it is possible to imagine, this book is a startling and authoritative attack on the system of tying executives’ bonuses to the share-price performance of their companies.
For Smithers, the bonus system was the principal cause of the financial crisis, and is now the main reason why the recovery has been so weak. He establishes this claim meticulously, with a plethora of charts, and looks for alternative explanations. (He accepts that greater concentration, or lack of competition, could be an important factor.)
Industrial Production Unexpectedly Fell In October
US industrial activity dipped last month, falling 0.1% in October vs. forecasts that called for a slight rise. The decline was due mostly to lower ouput in mining and utilities. By contrast, the manufacturing component of industrial production advanced 0.3% in October, a modestly higher pace over September’s 0.1% rise. The fact that growth picked up a bit in the cyclically sensitive manufacturing slice of today’s report suggests that the weaker headline number may be noise in terms of the business cycle implications.
Asset Allocation & Rebalancing Review | 15 Nov 2013
How high will it go? It’s getting harder to ignore the question as the US stock market’s 2013 rally rolls on. As of yesterday’s close, our ETF proxy for US equities (Vanguard Total Stock Market (VTI)) is approaching a 29% gain for the year so far, or more than three times higher than the long-run annualized performance record for the asset class. Once again we have a real-world reminder that momentum can’t be denied, at least in the short term. The tricky part, of course, is deciding when positive momentum turns into its darker twin.
Jobless Claims Still Fallling, But The Rate Of Decline Is Slowing
Initial jobless claims fell again last week, dropping for the fifth week in a row. That’s good. But the rate of descent is slowing. It’s too soon to say if this is a warning sign, but as a potential problem it deserves monitoring. As for considering the numbers in hand, today’s release offers another dose of mildly upbeat news. With new filings for unemployment benefits inching lower, the case strengthens for assuming that the downward trend that’s been in force for much of this year is intact. In turn, the continued improvement supports a forecast that the labor market will continue to heal.
US Industrial Production: October 2013 Preview
Tomorrow’s October report on US industrial production is projected to post a 0.2% rise vs. the previous month, based on The Capital Spectator’s average econometric forecast. The expected gain represents a substantial deceleration vs. the increase in industrial output for September. Meanwhile, the Capital Spectator’s average projection for October is slightly higher than the estimates in several surveys of economists.
Squeezing Federal Spending
Is spending out of control in Washington? The answer depends on how you define your terms. There’s enough data to spin this any way you want. But let’s try to be objective. In truth, there’s no single, fully objective way to quantify the spending habits of the beast in Washington. We can, however, make a valiant effort by considering federal outlays from several perspectives. What we’ll find is a spending trend of late that’s in decline. It’s anyone’s guess if this will endure. As always, the answer relies on political decisions, which are constrained at the moment due to the automatic budget cuts that are currently the law of the land. For now, let’s consider what the current numbers tell us about the trend in budgetary matters.