Wednesday, April 16, 2014

The economy continues to expand

March industrial production figures exceeded expectations (+0.7% vs. +0.5%) and February was revised sharply higher (+1.2% vs. +0.6%). Over the past six months, industrial production has expanded at a solid 5% annualized pace. This is impressive. Industrial production in the Eurozone is still lagging, but nevertheless is still on the mend. Industrial commodity prices are up almost 3% in the past two months to a one-year high, suggesting that global manufacturing activity is doing just fine.

The manufacturing component of industrial production was also strong, but was nevertheless outpaced by gains in utilities (think cold weather). Still, manufacturing production was up at a 3.5% annualized pace over the past six months.

By the Fed's estimates (they can only estimate it, since there is no way to actually measure it), the utilization rate of the nation's productive apparatus rose a good deal more than expected (79.2% vs. 78.7%). Utilization rates are still below their pre-recession high, however, suggesting the economy still has a decent amount of "slack." This is the Fed's justification for keeping real short-term interest rates firmly in negative territory. However, as the chart above shows, gains in capacity utilization of the magnitude that we have seen in the past four years typically would have elicited a substantial Fed tightening by now. 

The Fed is still in uncharted territory. It's not a question of whether they will tighten, it's when and by how much. Continued gains like we have seen today will almost certainly tip the scales in favor of sooner rather than later.

Housing starts posted lackluster gains in March, but that is not surprising given the poor weather that persisted. As the chart above shows, builder sentiment is still strong enough to expect housing starts to move higher in the coming months. The housing boom has cooled off in recent months, but it is still underway.


McKibbinUSA said...
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Jeff said...

Doesn't QE have to end before the Fed tightens? And isn't it at least eight months before QE "winds down"?

Benjamin Cole said...

The Fed is being tight right now. As Milton Friedman said, it is when a central bank has been tight and people think it will stay tight, that is when you have low interest rates.

For the Fed to be "accommodative" you would need interest rates in negative figures. As that is an impossibility (people save in the form of cash) the other tool is QE.

Many very conservative economists have advocated QE, from Meltzer to Friedman to John Taylor. So, it is a well-regarded tool.

Is it the ight tool now?

I say yes, and pour it on.

Hans said...

"In a speech to the Economic Club of New York, Yellen noted that the central bankers and many economists see a return to full employment and stable prices by the end of 2016."

Another 2 1/2 years of interest manipulation by the Central Bank.
Seven full years of FedZero.

This tell me they are still tentative regarding the state of the health of the economy.

McKibbinUSA said...

Scott, how many years until we see a full economic recovery in the US? By "full recovery," I mean current macroeconomic data that shows new historical peaks in real wage growth, real home values, and the employment to population ratio.

a) Within the next 5 years.
b) Within the next 10 years.
c) Within the next 15 years.
d) Within the next 20 years.
e) Longer than 20 years.

If anyone else would like to hazard a forecast, I am all ears.

Oh, and my prediction is: e) Longer than 20 years.

Scott Grannis said...

If I had a crystal ball that gave me the answer to that question, would it make any difference to my investment decisions today? I doubt it.

McKibbinUSA said...
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theyenguy said...

The economy continues to expand for a number of reasons.

The age of credit presented the opportunity to grow wealth by investing in fiat assets such as stocks, bonds, and real estate. In the age of the failure of credit, wealth can only be preserved by purchasing and taking possession of and safely storing gold bullion.

This week, that is the week ending April 17, 2014, Gold, $GOLD, traded lower to $1,293 on a higher US Dollar, $USD, UUP. The Gold ETF, GLD, is in a area of strong resistance, and being a currency as well as a commodity, traded lower with the commodity currencies the Australian Dollar, FXA, the Brazilian Real, BZF, as well as the Emerging Market Currencies, CEW.

The chart of the Gold ETF, GLD, shows that it entered an Elliott Wave 3 of 3 Up in January 2014. Short Side Of Long posts Gold Has Outperformed Other Asset Classes In First Quarter 2014. ETF Daily News reports Phantom Gold Inventories: has the Comex already defaulted?

It’s best to find a place where the effects of economic deflation will be felt the least; those with wealth should consider International Living, and begin to maintain a home in Ecuador and in Panama City.

The current economic deflation in the Eurozone is caused in large part by unemployment. The Ed Yardini post Economic Recovery Is Lackluster communicates Socialist economies have not benefited LTRO 1, LTRO 2, and OMT, as much as the Crony Capitalist US economy, the reason being there is less home ownership, less natural resources like oil and gas, and less financialization and securitization of investment risk etc, etc.

EU Observer posts Regional Unemployment Highest In Spain. And the WSJ reports Deflation Threat Becomes More Widespread in Europe. Consumer prices rise at slowest pace for more than four years in Year to March.

Future economic deflation will be global in nature and caused mostly by disinvestment from debt trade investing, such as Real Estate Investment, Blackstone, BX, and currency carry trade investing, such as Budweiser, BUD, hitting hardest in the Most Carry Traded Nations, which includes Europe, DFE, Indonesia, IDX, The UK, EWUS, Egypt, EGPT, Denmark, EDEN, India, SCIN, the US, IWM, New Zealand, ENZL, China, ECNS, Africa, GAF, Singapore EWS, and the Philippines, EPHE.

The Apostle Paul in Ephesians 1:10 presents The Great Economic Blesser, that being Jesus Christ, who is now, has been, and always will be in Dispensation, that is in economic stewardship of all things, producing the ultimate economic experience.

The world passed through peak prosperity on Thursday April 10 with the failure of credit in the Eurozone. Humanity has passed from the age of credit, which produced prosperity, into the age of debt servitude, where the new normal is austerity