Global Webinar: Hoping For A Short And Shallow Rough Patch · 2019-04-11 · Inflation Tame, Wages...
Transcript of Global Webinar: Hoping For A Short And Shallow Rough Patch · 2019-04-11 · Inflation Tame, Wages...
Global Webinar:Hoping For A Short And Shallow Rough Patch
Jim O’Sullivan & Carl WeinbergHigh Frequency Economics www.hifreqecon.com/WebinarApr2019
U.S. Holding Pattern
Jim O’SullivanChief Economist www.hifreqecon.com/WebinarApr2019
High Frequency Economics® — Jim O’Sullivan, Chief Economist April 11, 2019 Page 3
© 2019 High Frequency Economics, Ltd. 445 Hamilton Avenue, White Plains, NY 10601. All rights reserved. No secondary distribution without express permission. www.hifreqecon.com/WebinarApr2019
Fiscal Stimulus Fading; Exports Slowing—But Still Growing
-5
0
5
9
14 15 16 17 18 19
Wage And Salary Income, %chya, 3-Month Average Private Wage Income From Employment Report*, %chya, 3-Month Average Federal Withheld Employment-Based Tax Receipts, %chya, Smoothed 13-Wk Avg
*Including growth in hours worked as well as average hourly earnings.
1a. After-Tax Income Was Boosted By The Tax Cut In 2018
1000
1065
1130
1195
1260
14 15 16 17 18 19 20 21
New Caps For FY18-19 Federal Discretionary Spending Budget Authority Caps, Billions Of Dollars, Fiscal Years
1b. Increases In Spending Caps Will Need To Be Extended
-36
-27
-18
-9
0
9
18
27
26
32
38
44
50
56
62
68
96 99 02 05 08 11 14 17
Manufacturing ISM Export Orders Index (Left) Real Good Exports, %chya (Right)
Shaded Bars Denote Recession Periods
2015 2012 1998
1c. ISM Export Orders Index Has Dropped, But It Is Still Above 50
-21
-14
-7
0
7
14
21
-9
-6
-3
0
3
6
9
96 99 02 05 08 11 14 17
Private Payrolls, %chya (Left) Real Goods Exports, %chya (Right)
Shaded Bars Denote Recession Periods
1998 2015 2012
1d. Employment Growth Depends On Much More Than Exports
High Frequency Economics® — Jim O’Sullivan, Chief Economist April 11, 2019 Page 4
© 2019 High Frequency Economics, Ltd. 445 Hamilton Avenue, White Plains, NY 10601. All rights reserved. No secondary distribution without express permission. www.hifreqecon.com/WebinarApr2019
Tightening In Financial Conditions Has Been Reversed
-14
-12
-10
-8
-6
-4
-2
0
2
95 98 01 04 07 10 13 16 19
Bloomberg U.S. Financial Conditions Index*
*Based on nine financial markets series, covering money markets, bond markets and equity markets; positive readings imply accomodative financial conditions.
Shaded Bars Denote Periods Of Recession
1998
2a. Recent Tightening Of Financial Conditions Has Been Reversed
-12
-9
-6
-3
0
3
6
9
-8
-6
-4
-2
0
2
4
6
60 65 70 75 80 85 90 95 00 05 10 15
Yield Curve: 10-Year Minus 2-Year Treasury Yield, Percentage Points (Left) Yield Curve: 10-Year Minus Federal Funds Rate, Percentage Points (Left) Real GDP, %chya (Right)
Shaded Bars Denote Recession Periods
1966 1998
2c. Yield Curve Inversions Typically Followed By Recessions, But Not Always
600
1400
2200
3000
1
2
3
4
09 11 13 15 17 19
US 10-Year Treasury Yield, % (Left) S&P 500 Index (Right)
Election Day 2016
2b. S&P 500 Is Almost Back To Last Year’s All-Time High
-1 0 1 2 3 4 5 6 7 8 9
90 95 00 05 10 15
10-Year Term Premium*, % Nominal 10-Year Treasury Yield, % 10-Year Risk-Neutral Yield*, %
*NY Fed data; methodology developed by Tobias Adrian, Richard Crump & Emanuel Moench.
“Bond Market Conundrum”
Shaded Bars Mark Fed Tightening Periods
2d. Is This Time Different? Bond Market Term Premiums Are Historically Low
High Frequency Economics® — Jim O’Sullivan, Chief Economist April 11, 2019 Page 5
© 2019 High Frequency Economics, Ltd. 445 Hamilton Avenue, White Plains, NY 10601. All rights reserved. No secondary distribution without express permission. www.hifreqecon.com/WebinarApr2019
Inflation Tame, Wages Accelerating
0.0
0.5
1.0
1.5
2.0
2.5
3.0
05 07 09 11 13 15 17 19
Core CPI, %chya Core PCE Price Index, %chya
Fed Goal For PCE Prices
3a. Core Inflation Remains Tame
1.2
2.0
2.8
3.6
07 09 11 13 15 17 19
ECI: Private Sector Wages & Salaries, %chya Employment Report: Average Hourly Earnings, %chya
3b. Wage Gains Have Been Accelerating
1.0
2.5
4.0
5.5
07 10 13 16 19
TIPS 5-Year, 5-Year Forward Inflation Compensation, % Michigan 5-to-10-Years-Ahead Inflation Expectations, % New York Fed 3-Years-Ahead Inflation Expectations, % Michigan One-Year-Ahead Inflation Expectations, %
3c. Survey-Based Inflation Expectations Have Remained Low And Fairly Stable
-2.4
-1.2
0.0
1.2
-5.0
-2.5
0.0
2.5
84 88 92 96 00 04 08 12 16
CBO Estimate Of Unemployment Gap* (Left) Acceleration/Deceleration In Private Wage Component Of ECI† (Right)
*Reported unemployment rate minus CBO estimate of NAIRU. †%chya minus %chya one year earlier, four-quarter average.
3d. NAIRU Framework Points To Ongoing Acceleration In Wage Gains
High Frequency Economics® — Jim O’Sullivan, Chief Economist April 11, 2019 Page 6
© 2019 High Frequency Economics, Ltd. 445 Hamilton Avenue, White Plains, NY 10601. All rights reserved. No secondary distribution without express permission. www.hifreqecon.com/WebinarApr2019
Productivity To The Rescue? Like In The Late 1990s?
0.0
3.5
7.0
10.5
60 65 70 75 80 85 90 95 00 05 10 15
Unemployment Rate, % CBO NAIRU Estimate, % Core PCE Price Index, %chya Average Hourly Earnings*, %chya
1995
*Production & nonsupervisory workers, with data starting in 1964.
4a. Pick-Up In Wages Did Not Lead To Much Inflation In Late 1990s
-2.5
0.0
2.5
5.0
7.5
60 65 70 75 80 85 90 95 00 05 10 15
% Change From Five Years Earlier, Annual Rate %chya
Nonfarm Business Productivity
Late 1990s
4b. ...With The Help Of A Surge In Productivity Growth
High Frequency Economics® — Jim O’Sullivan, Chief Economist April 11, 2019 Page 7
© 2019 High Frequency Economics, Ltd. 445 Hamilton Avenue, White Plains, NY 10601. All rights reserved. No secondary distribution without express permission. www.hifreqecon.com/WebinarApr2019
Unemployment Still Trending Down? Claims Continue To Signal Strength
0
2
4
6
8
10
12
83 87 91 95 99 03 07 11 15 19
Unemployment Rate, % Fed Funds Rate Target, % Shaded Bars Denote Fed Tightening Periods
Fed Est For Long-Run Normal Unemp: 4.3%
5a. Fed Is Trying To Stop The Downtrend In The Unemployment Rate
180
310
440
570
700
69 74 79 84 89 94 99 04 09 14 19
Weekly Four-Week Average Shaded Bars Denote Recession Periods
Initial Claims, Thousands Per Week
5b. No Sign Of Significant Labor Market Weakening In Jobless Claims
87
89
91
93
72
74
76
78
95 00 05 10 15
25-54 Years: Female 25-54 Years: Male Labor Force Participation Rate, %
Shaded Bars Denote Periods Of Recession
5c. The “Prime-Age” Female Participation Rate Has Been Surging
62
63
64
65
66
67
68
94 96 98 00 02 04 06 08 10 12 14 16 18
Labor Force Participation Rate, %
Shaded Bars Denote Recession Periods
5d. ...The Overall Rate Is Up Recently, But It Is Still Close To Flat Since 2013
High Frequency Economics® — Jim O’Sullivan, Chief Economist April 11, 2019 Page 8
© 2019 High Frequency Economics, Ltd. 445 Hamilton Avenue, White Plains, NY 10601. All rights reserved. No secondary distribution without express permission. www.hifreqecon.com/WebinarApr2019
Weakness To Feed On Itself, Or Renewed Upward Momentum?
%ch from previous period, annual rate, except where noted; forecasts in bold
2018 2019 Calendar Average Q4/Q4Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2018 2019 2020 2018 2019 2020
Real GDP 2.2 4.2 3.4 2.2 1.5 3.2 2.0 2.0 2.9 2.4 2.0 3.0 2.2 1.9Final Sales 1.9 5.4 1.0 2.1 1.8 3.6 2.3 2.0 2.7 2.4 2.1 2.6 2.4 1.9
Domestic Final Sales 1.9 4.0 2.9 2.1 1.6 3.4 2.4 2.1 2.9 2.5 2.1 2.7 2.3 2.0Net Exports (pct pt contr) 0.0 1.2 -2.0 -0.1 0.2 0.1 -0.1 -0.1 -0.2 -0.1 -0.1 -0.2 0.0 -0.1
Inventories (pct pt contr) 0.3 -1.2 2.3 0.1 -0.3 -0.4 -0.3 0.0 0.1 0.0 -0.1 0.4 -0.3 0.0
Consumption 0.5 3.8 3.5 2.5 0.8 3.5 2.3 2.0 2.6 2.4 2.1 2.6 2.1 2.0Business Fixed Investment 11.5 8.7 2.5 5.4 4.1 3.3 3.4 2.7 6.9 4.1 2.8 7.0 3.4 2.7
Structures 13.9 14.5 -3.4 -3.9 0.0 -2.0 2.0 2.0 5.0 -0.3 1.7 4.9 0.5 2.0Equipment 8.5 4.6 3.4 6.6 4.0 4.0 3.0 2.0 7.4 4.2 2.2 5.8 3.2 2.0Intellectual Property 14.1 10.5 5.6 10.7 7.0 6.0 5.0 4.0 7.5 7.1 4.2 10.2 5.5 4.0
Residential Investment -3.4 -1.4 -3.5 -4.7 2.0 2.0 0.0 0.0 -0.3 -0.6 0.1 -3.3 1.0 0.0Exports 3.6 9.3 -4.9 1.8 3.5 3.5 3.5 3.0 4.0 2.4 3.1 2.3 3.4 3.0Imports 3.0 -0.6 9.3 2.0 1.5 2.0 3.5 3.0 4.5 2.8 3.0 3.4 2.5 3.0Government 1.5 2.5 2.6 -0.4 2.5 3.1 2.4 2.4 1.5 2.1 2.0 1.5 2.6 1.7
Inventories (ch $B annual rate) 30 -37 90 97 83 66 51 49 45 62 47 97 49 48
CPI 3.2 2.1 2.0 1.5 0.8 2.9 2.5 2.5 2.4 1.9 2.6 2.2 2.2 2.6Core CPI 2.7 1.9 2.0 2.2 2.3 2.4 2.5 2.5 2.1 2.3 2.5 2.2 2.4 2.6
Core PCE Prices 2.2 2.1 1.6 1.8 1.5 2.1 2.2 2.2 1.9 1.8 2.2 1.9 2.0 2.3
Unemployment (%, level) 4.1 3.9 3.8 3.8 3.9 3.7 3.6 3.5 3.9 3.7 3.5 3.8 3.5 3.5Federal Budget Balance ($B, FY) -779 -950 -1075
% Of GDP -3.8 -4.5 -4.8
End Of YearFed Funds Target (%, EOP) 1.63 1.88 2.13 2.38 2.38 2.38 2.38 2.38 1.8 2.4 2.4 2.38 2.38 2.3810-Year Treasury (%, EOP) 2.7 2.9 3.1 2.7 2.4 2.6 2.8 2.8 2.8 2.6 2.8 2.7 2.8 2.830-Year Treasury (%, EOP) 3.0 3.0 3.2 3.0 2.8 2.9 3.1 3.1 3.0 3.0 3.1 3.0 3.1 3.1S&P 500 (level, EOP) 2641 2718 2914 2507 2834 2750 2650 2632 2716 2701 2592 2507 2632 2550
6. HFE’s Economic & Financial Forecasts
High Frequency Economics® — Jim O’Sullivan, Chief Economist April 11, 2019 Page 9
© 2019 High Frequency Economics, Ltd. 445 Hamilton Avenue, White Plains, NY 10601. All rights reserved. No secondary distribution without express permission. www.hifreqecon.com/WebinarApr2019
Trade Tensions: Art Of The Deal?
-36
-18
0
18
36
14 15 16 17 18 19
Nominal Goods Imports From China Nominal Goods Exports To China Percentage Point Change From One Year Earlier
7c. More Weakening In Exports To Than Imports From China In % Terms
-15
-10
-5
0
5
10
15
14 15 16 17 18 19
Nominal Goods Imports From China Nominal Goods Exports To China
Change From One Year Earlier, Billions Of Dollars Per Month
7d. ...But Not In Dollar Terms In The January Report
7a. Tariffs: United States Versus China
Tariff Rate, %
Simple Average*
Weighted Average**
United States' Exports To ChinaAgricultural Products 15.1 5.8Non-Agricultural Products 9.0 5.3
China's Exports To United StatesAgricultural Products 4.0 2.8Non-Agricultural Products 4.0 3.0
Source: WTO’s World Tariff Profiles 2017*Based on a standardized simple average across six harmonized system categories.**Based on a weighted average of recorded exports.
7b. MFN Tariff Rates
Simple Average MFN Tariff Rates, % Bound (Required By WTO) AppliedAustralia 9.9 2.5Brazil 31.4 13.5Canada 6.8 4.2China 10.0 9.9European Union 4.8 5.1India 48.5 13.4Japan 4.4 4.0Mexico 36.2 7.1Russia 7.6 7.8South Korea 16.8 13.9United States 3.5 3.5Source: WTO’s World Tariff Profiles 2017
Short And Shallow Rough Patch
Carl B. WeinbergChief International Economist www.hifreqecon.com/WebinarApr2019
High Frequency Economics® — Carl B. Weinberg, Chief International Economist April 11, 2019 Page 11
© 2019 High Frequency Economics, Ltd. 445 Hamilton Avenue, White Plains, NY 10601. All rights reserved. No secondary distribution without express permission. www.hifreqecon.com/WebinarApr2019
-20
-15
-10
-5
0
5
10
15
20
Jan 05
Jan 06
Jan 07
Jan 08
Jan 09
Jan 10
Jan 11
Jan 12
Jan 13
Jan 14
Jan 15
Jan 16
Jan 17
Jan 18
Jan 19
CPB Measure Of World Trade Volume
Global Exports In U.S. Dollars, Percent Change Year Ago,
-20
-15
-10
-5
0
5
10
15
20
06 Q1
06 Q3
07 Q1
07 Q3
08 Q1
08 Q3
09 Q1
09 Q3
10 Q1
10 Q3
11 Q1
11 Q3
12 Q1
12 Q3
13 Q1
13 Q3
14 Q1
14 Q3
15 Q1
15 Q3
16 Q1
16 Q3
17 Q1
17 Q3
18 Q1
18 Q3
Percent Change Year Ago
WTO Measure Of World Trade Volume
-2
-1
0
1
2
3
4
5
6
-15
-10
-5
0
5
10
15
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
World Export Volume, Percent Change Year Ago, Right Axis World GDP, Percent Change Year Ago, Left Axis
IMF Estimates Of Yearly World Trade And GDP Data Through 2018e
IMF Measure Of World Trade Volume Vs GDP Growth
-25
-20
-15
-10
-5
0
5
10
15
Jan 05
Jan 06
Jan 07
Jan 08
Jan 09
Jan 10
Jan 11
Jan 12
Jan 13
Jan 14
Jan 15
Jan 16
Jan 17
Jan 18
Jan 19
G-7 Only G-7 Plus China
G-7 Plus China Industrial Production Growth, Percent
Data Through Jan 2019 Using GDP Weights
The Pulse Of The Beast: TradeWorld trade was grinding to a halt in 2018. Nothing good can be said about that.
High Frequency Economics® — Carl B. Weinberg, Chief International Economist April 11, 2019 Page 12
© 2019 High Frequency Economics, Ltd. 445 Hamilton Avenue, White Plains, NY 10601. All rights reserved. No secondary distribution without express permission. www.hifreqecon.com/WebinarApr2019
Today, April 11Parliament Votes To Accept EU Extension To October 31?
Waypoints To Brexit, Many Paths But No Paved Roads…Uncertainty prevails during a period when there is no clarity of Brexit outcome to encourage business investment or confidence.
May 22Last Date For Parliament To Ratify Withdrawal AgreementWithout Having To Run Elections For European Parliament
June 1Britain Is Expelled From EU If Withdrawal Agreement Is Not Passed
And UK Has Not Held Elections For EU Parliament
Whenever Britain Exits EU With Deal
And Orderly Transition Period
Yes
NoTomorrow, April 12
Brexit Day IIGovernment Must Withdraw Notice Or Hard Brexit
May 26Elections In Britain For European Parliament
Withdrawal Agreement Ratified?
June 19 - 20EU Summit To Review Progress Toward Brexit
October 31Brexit Day III
Britain Leaves With A Deal Or Withdraws Notice Or Leaves Hard(Or EU Grants Another Extension)
Unforecastable ContingenciesTory Leadership Change To Hardline Brexiteer / Tory Leadership Change To Remainer
Deal Between Tories And Labor On Customs Union / Second Referendum / Confirming Referendum On Withdrawal AgreementGovernment Is Toppled Forcing National Elections
High Frequency Economics® — Carl B. Weinberg, Chief International Economist April 11, 2019 Page 13
© 2019 High Frequency Economics, Ltd. 445 Hamilton Avenue, White Plains, NY 10601. All rights reserved. No secondary distribution without express permission. www.hifreqecon.com/WebinarApr2019
SupplyAndDemandCurves
Demand
Price
Quan.ty
D
DSupply
S'
S'
S
S
Brexit In One ChartBrexit means the suspension of immigration and the departure of some migrant labor—a reduction in the workforce—a loss of a big chunk of the business of the City, and higher costs for imported goods on top of delays in supply chains. It is a supply shock—it shifts the aggregate supply curve upward to the left—that should result in a stagflation. Potentially, the drop in output and the acceleration of prices is huge—that is the hard Brexit risk. We have no statistical basis to estimate its magnitude or duration: No one has seen this before.
High Frequency Economics® — Carl B. Weinberg, Chief International Economist April 11, 2019 Page 14
© 2019 High Frequency Economics, Ltd. 445 Hamilton Avenue, White Plains, NY 10601. All rights reserved. No secondary distribution without express permission. www.hifreqecon.com/WebinarApr2019
-35 -30 -25 -20 -15 -10 -5 0 5 10
Mar 04
Mar 05
Mar 06
Mar 07
Mar 08
Mar 09
Mar 10
Mar 11
Mar 12
Mar 13
Mar 14
Mar 15
Mar 16
Mar 17
Mar 18
Mar 19f
Euro Zone: Industrial Production, Percent Change Year Ago Black Line Shows Annualized Percentage Change In Three-Month Moving Average Blue Line Shows Percent Change Since April 2008 Peak
-25
-20
-15
-10
-5
0
5
10
15
Jan 04
Jan 05
Jan 06
Jan 07
Jan 08
Jan 09
Jan 10
Jan 11
Jan 12
Jan 13
Jan 14
Jan 15
Jan 16
Jan 17
Jan 18
Jan 19
Canada: Manufacturing Output, Percent Change Year Ago
Volume Measure
-25
-20
-15
-10
-5
0
5
10
Feb 04
Feb 05
Feb 06
Feb 07
Feb 08
Feb 09
Feb 10
Feb 11
Feb 12
Feb 13
Feb 14
Feb 15
Feb 16
Feb 17
Feb 18
Feb 19
United Kingdom: Industrial Production Bars Are Industrial Production, %chya, Blue Line Is Percent Change Since Peak Yellow Line Is Annualized Three-Month Change In Production
-60
-40
-20
0
20
40
60
Feb 04
Feb 04
Feb 06
Feb 07
Feb 08
Feb 09
Feb 10
Feb 11
Feb 12
Feb 13
Feb 14
Feb 15
Feb 16
Feb 17
Feb 18
Feb 19
Japan: Industrial Production, Percent Change Year Ago
Line Shows Annualized Three-Month Percent Change
Industrial Output… Pretty Darn UglyProblems emerged in most advanced economies starting in early 2018, not just in the fourth quarter.
High Frequency Economics® — Carl B. Weinberg, Chief International Economist April 11, 2019 Page 15
© 2019 High Frequency Economics, Ltd. 445 Hamilton Avenue, White Plains, NY 10601. All rights reserved. No secondary distribution without express permission. www.hifreqecon.com/WebinarApr2019
-8
-6
-4
-2
0
2
4
6
Feb 04
Feb 05
Feb 06
Feb 07
Feb 08
Feb 09
Feb 10
Feb 11
Feb 12
Feb 13
Feb 14
Feb 15
Feb 16
Feb 17
Feb 18
Feb 19
Euro Zone: Retail Sales Volume, Percent Change Year Ago
Green Line Shows Annualized Change Of 3-Month Moving Average
-4
-2
0
2
4
6
8
10
Jan 15
Apr 15
Jul 15
Oct 15
Jan 16
Apr 16
Jul 16
Oct 16
Jan 17
Apr 17
Jul 17
Oct 17
Jan 18
Apr 18
Jul 18
Oct 18
Jan 19
Nominal Retail Sales Retail Sales Volumes
Canada: Retail Sales, Percent Change Year Ago
-10 -8 -6 -4 -2 0 2 4 6 8 10
Feb 07
Nov 07
Aug 08
May 09
Feb 10
Nov 10
Aug 11
May 12
Feb 13
Nov 13
Aug 14
May 15
Feb 16
Nov 16
Aug 17
May 18
Feb 19
United Kingdom: Retail Sales, Percent Change Year Ago
Volume Index, Line Shows Yearly Change Of Three-Month Moving Average
-20
-15
-10
-5
0
5
10
15
20
Feb 04
Feb 05
Feb 06
Feb 07
Feb 08
Feb 09
Feb 10
Feb 11
Feb 12
Feb 13
Feb 14
Feb 15
Feb 16
Feb 17
Feb 18
Feb 19
Seasonally Adjusted Monthly Index, 2005=100, Blue Line Is 3-Month Change Annualized
Japan: Retail Sales Volume, Percent Change Year Ago
Consumer Spending… Not So HotMaybe it was the surge in energy prices that slowed the consumer in 2018. But the damage is done, even though oil prices have now retraced their 2018 increases.
High Frequency Economics® — Carl B. Weinberg, Chief International Economist April 11, 2019 Page 16
© 2019 High Frequency Economics, Ltd. 445 Hamilton Avenue, White Plains, NY 10601. All rights reserved. No secondary distribution without express permission. www.hifreqecon.com/WebinarApr2019
-25 -20 -15 -10 -5 0 5 10 15 20 -10
-5 0 5
10 15 20 25 30 35 40 45
Mar 91
Mar 93
Mar 95
Mar 97
Mar 99
Mar 01
Mar 03
Mar 05
Mar 07
Mar 09
Mar 11
Mar 13
Mar 15
Mar 17
Mar 19
Germany: IFO Inventory Index
Blue Line Is IFO Inventory Index To Mar 19 (Inverted Scale, Left Axis) Green Line Is Production To Feb 19f (Left Axis, %chya) 50
60
70
80
90
100
110
120
130 60 70 80 90 100 110 120 130 140 150
89 91 93 95 97 99 01 03 04 07 09 11 13 15 17 19
Inventory-To-Sales Ratio Industrial Production Index (Left Axis, Inverted Scale)
Seasonally Adjusted Monthly Indexes, 2010 = 100
Japan: Inventory-To-Sales Ratio Vs Industrial Production
-40
-30
-20
-10
0
10
20 1.20 1.25 1.30 1.35 1.40 1.45 1.50 1.55 1.60 1.65
Jan 04
Jan 05
Jan 06
Jan 07
Jan 08
Jan 09
Jan 10
Jan 11
Jan 12
Jan 13
Jan 14
Jan 15
Jan 16
Jan 17
Jan 18
Jan 19
Inventory/Sales Ratio Manufacturing Production %chya (Left Axis, Scale Inverted)
Canada: Manufacturing Inventories/Sales Ratio Vs Production
7.5
8.5
9.5
10.5
11.5
12.5
13.5 -6
-4
-2
0
2
4
98 Q4
99 Q4
00 Q4
01 Q4
02 Q4
03 Q4
04 Q4
05 Q4
06 Q4
07 Q4
08 Q4
09 Q4
10 Q4
11 Q4
12 Q4
13 Q4
14 Q4
15 Q4
16 Q4
17 Q4
18 Q4
United Kingdaom: GDP Vs Inventory Ratio
Lagged Year-Over-Year Real GDP Growth Rate (Bar) Vs Inventory Ratio (Line, Inverted Axiis)
The Inventory Cycle Un-MaskedIn many economies, excess inventories have been building up. HFE believes an inventory cycle correction is at the root of the slowdown in many economies. Demand is still grow-ing but output is down and employment growth has stalled. The pattern is clearest in Germany, Japan and Canada—less so for Britain, where Brexit is the key causal factor. Inventory cycles tend to be short and shallow, and rarely lead to financial sector distress or crisis.
High Frequency Economics® — Carl B. Weinberg, Chief International Economist April 11, 2019 Page 17
© 2019 High Frequency Economics, Ltd. 445 Hamilton Avenue, White Plains, NY 10601. All rights reserved. No secondary distribution without express permission. www.hifreqecon.com/WebinarApr2019
-50
-40
-30
-20
-10
0
10
60
70
80
90
100
110
120
Mar 99
Jun 00
Sep 01
Dec 02
Mar 04
Jun 05
Sep 06
Dec 07
Mar 09
Jun 10
Sep 11
Dec 12
Mar 14
Jun 15
Sep 16
Dec 17
Mar 19
Economic Confidence, Right Axis
Consumer Confidence, Left Axis
Industrial Confidence, Left Axis
Data Through March 2019
Euro Zone: Economic Confidence Indexes
70 75 80 85 90 95 100 105 110 115
Mar 05
Mar 06
Mar 07
Mar 08
Mar 09
Mar 10
Mar 11
Mar 12
Mar 13
Mar 14
Mar 15
Mar 16
Mar 17
Mar 18
Mar 19
Germany: IFO Index And Its Components
Blue Line Shows IFO Business Sentiment Overall Index Yellow Line Is Expectations Index, Red Line Is Current Conditions Index
30
35
40
45
50
55
60
Mar 99
Mar 00
Mar 01
Mar 02
Mar 03
Mar 04
Mar 05
Mar 06
Mar 07
Mar 08
Mar 09
Mar 10
Mar 11
Mar 12
Mar 13
Mar 14
Mar 15
Mar 16
Mar 17
Mar 18
Mar 19
United Kingdom: CIPS Manufacturing Sector PMI
12-Month Moving Average Shown
-10
-8
-6
-4
-2
0
2
4
6
-60 -50 -40 -30 -20 -10 0 10 20 30 40
Jun 05
Jun 06
Jun 07
Jun 08
Jun 09
Jun 10
Jun 11
Jun 12
Jun 13
Jun 14
Jun 15
Jun 16
Jun 17
Jun 18
Jun 19e
GDP To Q4 18,%chya Dev From Trend Large Manufacturers Large Non-Manufacturers Small Manufacturers Small Non-Manufacturers
Japan: Tankan Indexes And GDP Growth Trends
Informative Surveys… Also Not So HotEuro Zone to Japan, survey data point to decaying supply-side conditions.
High Frequency Economics® — Carl B. Weinberg, Chief International Economist April 11, 2019 Page 18
© 2019 High Frequency Economics, Ltd. 445 Hamilton Avenue, White Plains, NY 10601. All rights reserved. No secondary distribution without express permission. www.hifreqecon.com/WebinarApr2019
-30
-20
-10
0
10
20
30
Jan 08
Jul 08
Jan 09
Jul 09
Jan 10
Jul 10
Jan 11
Jul 11
Jan 12
Jul 12
Jan 13
Jul 13
Jan 14
Jul 14
Jan 15
Jul 15
Jan 16
Jul 16
Jan 17
Jul 17
Jan 18
Jul 18
Jan 19
Euro Zone: Exports, Percent Change Year Ago
Yellow Line Shows Five-Month Moving Average
-40
-30
-20
-10
0
10
20
Jul 09
Jan 10
Jul 10
Jan 11
Jul 11
Jan 12
Jul 12
Jan 13
Jul 13
Jan 14
Jul 14
Jan 15
Jul 15
Jan 16
Jul 16
Jan 17
Jul 17
Jan 18
Jul 18
Jan 19
Canada: Exports, Percent Change Year Ago
Blue Line Is Five-Month Trend
-20
-10
0
10
20
30
Jan 09
Jul 09
Jan 10
Jul 10
Jan 11
Jul 11
Jan 12
Jul 12
Jan 13
Jul 13
Jan 14
Jul 14
Jan 15
Jul 15
Jan 16
Jul 16
Jan 17
Jul 17
Jan 18
Jul 18
Jan 19
United Kingdom: Exports, Percent Change Year Ago
Red Line Shows Five-Month Moving Average
-3.0 -2.5 -2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0
Feb 05
Feb 06
Feb 07
Feb 08
Feb 09
Feb 10
Feb 11
Feb 12
Feb 13
Feb 14
Feb 15
Feb 16
Feb 17
Feb 18
Feb 19
Record Trade Deficit In January 2014
Japan: Trade Balance, Billions Of Yen
Line Shows 12-Month Moving Average
Exports Are Not HelpingThe decline in global exports is evident.
High Frequency Economics® — Carl B. Weinberg, Chief International Economist April 11, 2019 Page 19
© 2019 High Frequency Economics, Ltd. 445 Hamilton Avenue, White Plains, NY 10601. All rights reserved. No secondary distribution without express permission. www.hifreqecon.com/WebinarApr2019
-6
-3
0
3
6
9
12
15
Feb 01
Feb 02
Feb 03
Feb 04
Feb 05
Feb 06
Feb 07
Feb 08
Feb 09
Feb 10
Feb 11
Feb 12
Feb 13
Feb 14
Feb 15
Feb 16
Feb 17
Feb 18
Feb 19
Total MFI Lending Lending To SMEs Ex-Mortgages Mortgages
Euro Zone: Bank Lending, Percent Change Year Ago
-2
0
2
4
6
8
10
12
14
Jan 02
Jan 03
Jan 04
Jan 05
Jan 06
Jan 07
Jan 08
Jan 09
Jan 10
Jan 11
Jan 12
Jan 13
Jan 14
Jan 15
Jan 16
Jan 17
Jan 18
Jan 19
Business Credit Mortgage Lending Total Lending
Canada: Measures Of Credit, Percent Change Year Ago
-10
-5
0
5
10
15
20
Feb 09
Aug 09
Feb 10
Aug 10
Feb 11
Aug 11
Feb 12
Aug 12
Feb 13
Aug 13
Feb 14
Aug 14
Feb 15
Aug 15
Feb 16
Aug 16
Feb 17
Aug 17
Feb 18
Aug 18
Feb 19
United Kingdom: Growth Of Broad Money And Credit
Bars Are M4, Red Line Shows M4 Lending, Percent Change Year Ago
-6 -5 -4 -3 -2 -1 0 1 2 3 4
Feb 04
Feb 05
Feb 06
Feb 07
Feb 08
Feb 09
Feb 10
Feb 11
Feb 12
Feb 13
Feb 14
Feb 15
Feb 16
Feb 17
Feb 18
Feb 19
M2+CDs, Bank Lending M2+CDs Ex-QE
Japan: Money And Credit, Percent Change Year Ago
Bank Lending: Too Slow And SlowingGrowth of money and credit is too low to accommodate desired nominal GDP growth—except in Canada. Credit is slowing in most economies, or flat at unacceptable rates of growth.
High Frequency Economics® — Carl B. Weinberg, Chief International Economist April 11, 2019 Page 20
© 2019 High Frequency Economics, Ltd. 445 Hamilton Avenue, White Plains, NY 10601. All rights reserved. No secondary distribution without express permission. www.hifreqecon.com/WebinarApr2019
-15
-10
-5
0
5
10
15
20
25
0
2
4
6
8
10
12
10 Q4
11 Q2
11 Q4
12 Q2
12 Q4
13 Q2
13 Q4
14 Q2
14 Q4
15 Q2
15 Q4
16 Q2
16 Q4
17 Q2
17 Q4
18 Q2
18 Q4
GDP Potential Growth (Right Axis) Industrial Output (Left Axis)
China: GDP Vs Industrial Output, Percent Change Year Ago
0 5 10 15 20 25 30 35 40 45 50
Feb 04
Feb 05
Feb 06
Feb 07
Feb 08
Feb 09
Feb 10
Feb 11
Feb 12
Feb 13
Feb 14
Feb 15
Feb 16
Feb 17
Feb 18
Feb 19
Line Shows 12-Month Moving Average Growth Rate
China: Fixed Asset Investment, Percent Change Year Ago
-4 -2 0 2 4 6 8 10 12 14
78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
China Yearly GDP Growth China 10-Yr Trend Growth United States Yearly GDP Growth United States 10-Yr Trend Growth
China And United States: Economic Growth Rates
China Is Poised For Cyclical RecoveryAfter seven years of sub-par economic growth, China’s economy should be set to fly again. Excesses have been purged! However, fixed investment remains weak.
Produc'onPossibilityFron'er
ConsumerGoods
CapitalGoods
AdvancedEconomy
DevelopingEconomy
The Production Possibility Frontier
High Frequency Economics® — Carl B. Weinberg, Chief International Economist April 11, 2019 Page 21
© 2019 High Frequency Economics, Ltd. 445 Hamilton Avenue, White Plains, NY 10601. All rights reserved. No secondary distribution without express permission. www.hifreqecon.com/WebinarApr2019
-20 -15 -10 -5 0 5 10 15 20 25
1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 2018
China: Yearly Changes In Urban And Rural Population
Millions Of Persons, Yellow Line Is Rural Population, Blue Line Is Urban Population Red Lines Are Ten-Year Moving Averages
0 1 2 3 4 5 6 7 8 9
1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 2018
China: Yearly Changes In Urban Population, Percent
Ten-Year Moving Averages Shown
-2
0
2
4
6
8
10
12
14
1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Demographic Dividend Productivity
China: Sources Of Yearly Changes GDP, Percentage Points
-25
0
25
50
75
100
Mar 03
Mar 04
Mar 05
Mar 06
Mar 07
Mar 08
Mar 09
Mar 10
Mar 11
Mar 12
Mar 13
Mar 14
Mar 15
Mar 16
Mar 17
Mar 18
Mar 19f
M2 M1 Aggregate Financing
China: Money And Credit, Percent Change Year Ago
Pause In The Demographic Dividend?China modernizes by moving people into higher-productivity urban jobs from lower-productivity rural jobs. At the margin, shifting a worker from the farm to a city job increases his or her contribution to GDP 4.3 times. That pickup used to be 6.7 times. In addition, the percentage increase in the urban population caused by migration from farms declines over time. So the demographic dividend is down to about 8% per year now. That “potential” level of demand growth is still way higher than the 6.6% GDP growth reported for 2018.