There is an old saying "if it is too good to be true... it probably isn't". I think we have this so deeply embedded in our conscious that we seek out any news of impending doom. This morning's jobs report might be one such example. It started with gloom and doom about how the numbers failed to meet expectations and wage growth had softened. I read one report that claimed we must have 150,000 jobs per month to grow our economy. The sky seemed to be literally falling, not unlike the inverted yield curve of treasuries a few months back. BTW... calmer voices are now weighing in on the numbers. For the record... employment is not an accurate predictor of recession, imo. Most recessions in the past 80 years have shown negative wage growth in the 6 months prior to a recession. BUT... not always. The 11-73~3-75 recession did not show a negative wage growth until August of 1974 and continued a couple of months after the March 1975 official end. The great recession did have negative wage growth a couple of months into the lead up to its official start in 12-2007, but after the official end in 6-2009, seven of the following twelve months had negative growth. In fact it took until February, 2011 to get back to those June, 2009 employment numbers. Now to today's report in my little chart form... The reds are negative numbers, both for the month and annual. Goods producing and Manufacturing have been slowing slightly, but a massive number of positions remain unfilled. Massive in this case is 400,000+. Many of these manufacturing environments were growing due to expectations of pre tariff movement of goods and services. Such as Large Truck and R.R. container manufactures, which have now cut back sharply. Tranportation and Warehousing follows along that same line of thought. Expectations going forward are a slight rebound. To some extent, mining is in that mix. I labeled wholesale and retail trade as whatever color that is, as it would be expected these numbers would fall after the holidays. Construction is doing quite well and most of the larger companies I had dealt with in the past are struggling to keep up and even to find travelers. They're pushing some hefty bonuses. The overall employment number seems a bit tepid, but given the calendar, so what. BTW, the 145,000 is midpoint of the BLS range. That range is from 37,600~252,400. The BLS has never pretended that their empoyment release was 100% accurate, but only a rough estimate that improves as time goes by... hence revisions and sometimes big, although the past revisions with this report were downward. As to wage growth, the year ending 2018, saw 1.2% real wage growth (nominal growth minus inflation) and so far in 2019, as been at 1.1% real growth. If you think the sky is falling over these employment numbers... get an umbrella, it's probably just rain. In fact keep the umbrella with you, even when you think the sun is shining... as you are likely a bit too sensitive. The consumer's decide when and if there is a recession and can change their confidence on a dime. And it does not take all of them to panic, but a mere 5%~10% to go over the edge or possibly even less.
Time for another monthly CPI report from the BLS. Note: Before seasonal adjustments in November and December were actually down 0.1% each month. The annual increase before seasonal adjustments was 2.278% before rounding. My actual increase over the past 12 months has been 3.15% vs the CPI-U of 2.3%, as well as the CPI-W at 2.3%. The C-CPI-U was up 2.1% over the same period. The following chart lists some items of possible interest. Note; 1st column lists item of interest, 2nd column is percent of household expenditures from detailed consumer diaries and questionaires, etc. and 3rd column lists percent change over 12 months. Insurance is approximately 16% of Medical Care services and increased 20% over last year. Food at home would have likely been down, except for increases in Meat, Whole Poultry and Milk. 2020 CPI percentages of expenditures will be adjusted based on latest data on spending patterns. Example: the 2018 Shelter index made up 33.078% of expenses, but as those expenses outpaced inflation, was raised to 2019 rate of 33.489%. Conversely, Gasoline made up 4.060% in 2018 and with the expenditures falling thoughout 2018, the percent of total expenditures fell to 3.931%. As I mentioned earlier, my rate of inflation exceeds, due to my percent of Medical Care Services being north of 7.141% (16.337%). This is somewhat offset, as my gasoline consumption is 1.41% vs the 3.931% stated above. Shelter would also come in far below the average 33.489% state above. Less than 6%. That should wrap this one up.
As I have oft stated, politics is important to economics, although it depends on the mood of the public and not necessarily anything the President does or doesn’t do... short of starting a war. Which has somehow become a good thing economically. Go figure. Thus, my current status of the Presidential race is forthcoming. First or rather again, we all know pollsters really blew it in 2016. I am second guessing that to a degree. Looking and analyzing state by state polling just prior to the election and then the election results did produce some peculiarities. Trump outperformed the margin of error in 30 states. Clinton in 7 states. Clinton underperformed in 3 states, while Trump was at “0”. 18 of the states that Trump outperformed are traditionally considered republican safe states. Trump polled 60% in West Virginia and finished with 67.8%. 7 were in traditionally blue states. Don’t worry or get excited, as they were deeply blue, such as Maryland, with polled Trump having 27%, but he ended up with 34%. That leaves 5... Iowa, Ohio, Michigan, Wisconsin and Pennsylvania. Of course, the latter 3 proved to be where the focus of terrible polling fell. Interestingly, Clinton’s results fell within her polling numbers and margin of error, while Trump’s exceeded. Take that anyone you want. That last bit of thinking led me to consider an adjustment on top of current polling methods in fabricating the following chart. Additionally, as most polling addresses generic democrat v Trump, I am focusing on polls that list Trump vs each candidate. Just as national polls are misleading when considering an electoral college method, so does statewide polls with Trump v generic democrat. A lot depends on which Democrat the respondent is currently thinking about. Also, this chart includes states that normally might not be considered “toss-up”. If interested I can tell why. So enough... here goes:
Ooops!! Forgot to add an important point. Leans and slight leans are included in the above chart. Therefore, some wild swings might be expected. As to what I meant by that... is left (or right) to the imagination.
Wasted a day looking at data, expecting to find some juicy nuggets. Cold front preceded with high wind and rain moving in, made inside preferrable. I collected data on 3rd party voting in as a percent in Presidential elections over the past 100 years. 2016 showed a bump up in such voting and was the 6th highest during that period. The 1924 election seemed to have been a product of the 1920/21 depression, as it was still lingering in the minds of many. It was sharp and severe, only being overshadowed by what happened a scant decade later. Wisconsin went progressive in electoral votes. I omitted 1948, as it would have been 7th on the list. Strom Thurmond's States Rights party took 39 electoral votes. 1960 did not have a very significant vote outside the main parties, but did have a melt down of 15 electoral votes that refused Nixon or Kennedy. 1972 saw 1 elector revolt and cast with Libertarian John Hospers. I throw them out there as we sometimes think the 2016 electoral revolt of 7 was something unheard of. The 1968 was George Wallace and the south, as he grabbed 46 electoral votes in Arkansas, Louisiana, Alabama and Georgia. 1980... Anderson, but was a non factor, imo. 1992/1996 The Ross Perot candidacy seemed to tap the angst of the American people, but he managed to shoot himself in the foot. IMO, he did effectively sabotage Bush the elder in 1992. Everything that followed stems from that, imo. 2016, did have a hard bump in 3rd party voting, but is difficult to determine which was harmed or given benefit. Wisconsin tabulated 92,284 less votes in 2016 than 2012. Trump's vote total (1,405,284) was comparable with Romney's (1,407,966) in 2012. The Clinton 2016 was down 238,499 from Obama's 2012. 3rd party voting increased from 2012 (39,483) to 2016 (188,330). Clinton lost by 22K. There is a similar pattern in PA and Michigan as well as others. This is not a straightup indication of anything, although my imagination does tend to lead me astray. It is oft said that Clinton did not campaign in these states and therefore lost the election. It could also be said that if she had campaigned... it could have been worse. Whatever the blip in 2016 that created interest in 3rd parties is not presenting itself at this point. Gary Johnson quadrupled from 2012 to 2016 and Jill Stein tripled over same period. Both have declined running in 2020 and frankly, looking at the field does not have anyone leaping out... in a good way. Oh well, better luck next time... maybe.
Oh my, the coronavirus has struck the stock market. It could harm global trade, etc. yada yada, et al! That seemed to be the headlines in U.S. business papers. My gosh it pushed that other thing down the page. It almost seems they are predicting thousands of Americans will die of the flu. I don't necessarily mean to downplay this virus, but a few things I gleaned... (1) It will likely be more wide spread than SARS. (2) It is not as deadly as SARS. (3) according to WHO, 8,094 persons worldwide had SARS and 774 died. To put that in perspective... an average of 37,463 Americans died each of the past 9 years. From the CDC (2018-2019).. I have read reports that the coronavirus has been traced to a place name Wuhan and at a fish market, which happens to be just a couple of miles away from a Chinese scientific lab that was built to learn about various flu viruses. (Ooops!) Naturally the concern of coronavirus is the effect it would have on global trade as SARS did. US GDP since 2001... (DATA from BEA.gov) Really not seeing the impact in those numbers. Maybe the opposite. BTW... added (consensus) 2.2% for 2009 4th Qtr, although not officially released. Maybe the 2014~2015 above average 51,376, or the 2017~2018 figure of 61,099 caused a slight dip. I have observed the foreign media (Non U.S.) has but the coronavirus above all else, whereas the U.S. Media has it in 2nd place to that other thing. Somehow I expect that to change quite rapidly. Within a few hours after a certain group of somebodies finish up whatever they are doing, would be my guess. Why does this matter... the U.S. economy is consumer driven and is therefore driven by consumer sentiment. Can they overcome the fearmongering about to be thrown at them? That is what has the market truly concerned and caused today's kneejerk reaction... not the actual coronavirus, imo. Edited (3:49pm) to make next to last paragraph more vague and hopefully humorous.
Another GDP release this AM. My 2.2% forecast was a tad high, but not a gloom and doom report, imo, although I detected various forms of concern in media reports. Mostly about how 2019's 2.3% was lower than preceding periods of time, yada yada! Here is the past 22 years of annual growth. I used 22 years, as it averages 2.3% over the same period. If you want a longer period... here is the 20 year moving average... If you are worried about that downward trend consider this 20 year moving average of trade Deficits (you can't get sustained 3%+ growth with 5%+ trade deficits)... Bringing that last graph to anyone's attention is akin to beating a dead horse as clearly no one cares, or at least anyone that has the power to do anything. I thought Trump might be the one, but clearly he is buckling by only going after individual nations/regions. But anyone that does attempt what is required... will not be in office very long. Nuff said!
Lazy business reporters might end up being the subject of this article, but first the latest EIA data in chart form... It seems a lot was made about gasoline inventories not meeting expectations. For the record last week's 261.235M barrels of gasoline was an all time record high, or at least since 1990. Instead of increasing another 1.5M. it fell a whopping 91,000 barrels or 0.091M barrels. Again that fall was from a record high. Okay a bit of venting mixed with amusement... I realize these business "reporters" must explain all variations, which leads the online "reporters" to alter the message from hour to hour, which is why I keep a screenshot available for comparison. Without linking any of the culprits, "they" originally reported that the build on both distillates and gasoline missed expectations... which in turn cause the price of wti crude to rebound. Yet the build in Crude increased more than enough to offset the drops in distillates and gasoline. That is where the alterations started pouring in and was amusing. Unfortunately it happens way to frequent imo. Refiners buy crude, but not just any crude. They have an optimum mix of various crudes for best monetary performance. There are more than 170 different crudes around the world. These crudes are priced at either a premium or discount to various benchmarks, with the big five being Brent Crude, West Texas Intermediate, Dubai Crude, Canadian Crude Index and Argus Sour Crude Index. A crude that trades at a discount to WTI does not always follow WTI down but could begin trading at a premium... and vice versa. Refiners are buying to maintain that optimum mix. In normal or more settled times, these "reporters" might be correct is some of their assumptions, but with all manner of projections of China's impending doom in regards to Crude... It's all hunches and guesses, imo. Not unlike the Iowa Democratic Caucus.
Random thoughts... The coronavirus is starting to affect more than just people, as various China companies are using "force majeure" to renege on contracts ranging from LNG, copper and likely other commodities. It is a black eye for future China trade arrangements, although how much is TBD. Last year China destroyed a very large number of hogs, due to the swine virus. The Chinese public became increasingly critical of of how this was handled and of course the enormous inflationary cost. China relented on poultry imports from the U.S. to offset the food inflation increases. China has a thriving poultry industry, but even that is now jeopardized as bird flu is ramping up in chickens... in the same province as the alleged start of coronavirus. Whether all of this combined will cause more unrest and how it will play out with the global economy is still unknown. Central Banks are providing warnings, but appear to be doing little to prepare or offset any issues. But can they really do anything at this point? Awhile back I chimed in on polls and 2020 elections and opined on who could and who couldn't win. Most of the polling appeared to be an anybody but Trump results. In my opinion, the polls asking about Trump vs various democratic candidates might not be indicative of what they will actually do in November. The same person might clearly state they would vote for Biden over Trump, then turn around and say they would vote for Sanders over Trump... and on and on. Why would it not be indicative?... Sanders voters will likely feel cheated after all is said and done with regards to the democratic primary (remember 2016). Despite all the noise from democrats about how the 2016 Presidential election and the electoral college system was undemocratic... the Democratic party primary process is even more un-democratic and that is before the super automatic delegates are come into play, although they won't be able to vote until the 2nd ballot of the democratic convention. It would take around 1,900 delegates to achieve the nomination on 1st ballot, yet a lot of hoopla is being extended over the 155 available in February. March 3rd- 1,344; rest of March-1,104; April~June 6th-1,176 . It should be noted that the entire primary process came about to avoid the untidiness of a brokered convention (last being 1952 for both parties). This is what the democrats will be facing by end of March, so expect the backroom dealing to ramp up, but it will be difficult as there will be multiple challengers remaining at this point, imo, with no one having a clear path to nomination, even if all the automatic delegates voted in en masse for on specific candidate. A lot of people are about to feel disenfranchised. Can those wounds heal by November or will that "big tent" collapse?
China says they are going back to work in spite of the virus. Maybe those that want them will be able to get a new Apple iPhone and out auto industry will nothave to shut down.
The January CPI figures were released this AM. You can read it in the link provided. Here is my homemade y/y graph of both the CPI and my tracking. The official CPI has increased 2.5% y/y, whereas mine has jumped a healthy 3.67%. Mostly due to health and health insurance costs. My percent of expenditures in that category far exceeds the 7.219% of the CPI. And that is before my out of pocket cataract surgery costs. Speaking of which... someone/somewhere asked me to keep them updated (although it is possible I imagined that). Had my right eye done the 11th with a PanOptic Multi-focal lens. I had my right eye tested yesterday with 20/25 far and 20/40 near. That was quite an improvement in one day... according to them. I am not an expert on having my cataracts removed and new lens implanted. In any case, I am not longer wearing prescription or magnifying glasses. I was prepared to and do wear UV protection sunglasses as furnished by the Doctor. Weirdly, I find myself wearing those sunglasses in the house as well as driving. Today, I decided to do grocery shopping and was going to 2 stores. At the first store I opted not to wear the sunglasses inside. I most certainly wore them in the 2nd store and will likely keep wearing them in stores and while driving. I see the Doc again the 18th for 2nd f/u and prep for the 25th. I'll see how that turns out.
I noticed that the Japan GDP contracted 6.3% annualized. The blame being squarely placed on a sales tax hike to 10% on Oct. 1st. Okay, probably true as a previous hike to 8% circa 2014 caused an even deeper contraction. However, in 2014 the quarters preceding the tax hike were some of Japan's best in the past decade. Presumably consumers purchased ahead of that hike. This past hike was NOT preceded by sterling quarters. With the affects of the coronavirus still to be hashed out, the notion of a rebound does not seem quite so likely. On top of that China is clearly concerned about their growth rate as well. Steps are being taken to prop up the financial system in preparation. More than a few experts are wondering if 2020 might see a stagnant GDP growth or even a possible contraction. 2019 was considered a bit of disappointment at 6% gdp growth. Then add in the EU's lackluster growth from last quarter and Germany and UK at zilch... I have to wonder how any of that would affect the U.S.? If checking out the U.S. markets, one would think all is great, although I consider market performance as misleading in a global environment. It all boils down to the underlying financials, imo. The Federal Reserve pays interest to banks with excess reserves. Nearly every other central bank on the planet is engaged in NIRP (Negative Interest Rate Policy). The idea of NIRP was forcing banks to lend money out and promote growth. It's a good theory, but... How does a negative rate policy work? Okay, but how does it actually work in practice.? While the article mentions Japan, the same holds true for many other countries. Back in September, there was much ado about REPO or repurchase agreements. What is the repo market, and why does it matter? (There's Graphs and stuff!) There are concerns that it was caused by the U.S. big banks (those too big to fail). Okay, the big banks probably didn't risk their excess reserves and the repo market suffered, leading the FED to step in and keep stepping in. The mistake would be in thinking that it was solely U.S. interests that created this problem in the REPO market. No one really comes out pointing fingers, although I have provided some hints. Here is a couple of somewhat opposing views on the REPO situation. The Recent Repo Scare Carries A Deeper Warning Suggests too much regulation of the markets!! Another look at the Federal Reserve’s panic in September 2019 and solutions to the crisis Probably closer to the truth! What does all that have to do with stock markets. Multinational company "A" has $100B in debt that was financed at 8% back in the day. Now they have been reissuing the matured debt at 3%. That's $5B each and every year in interest savings. In theory, that can be used to upgrade, improve, etc. but in practice it becomes stock buybacks or higher dividends which push up stock prices. Of course there is another possibility... sell another $100B in debt at 3% coupon and still come have $2 billion left over. I guess what I am trying to say... FED policies are tending to push up the markets, not some amazing corporate performance. Yes, you can predict the future. Remember when you were a kid and did something wrong? You knew you would catch it when your parents found out. You just didn't know when they would find out. Right now I just don't know when.
Okay, we have weathered February. The Coronavirus is still making headlines and they are becoming more hysterical. There are even headlines suggesting that headlines are over hyping the dangers. This seems to come after the rapid stock market drop of the past week. Coincidence? The speed of the drop might be worrying, but that a drop took place... should not be surprising. There is a giant hole in the global supply chain. We are no immune to those problems, than we are to Covid-19. There is not much stuff anymore, that is 100% American made. That widget made in China that attaches to the doo-dad made in South Korea, which is assembled into the "whatchamacallit" in Japan and is required to assemble that final product in the USA, being 95% made in America is going to experience a shortage or parts. How will those final assembler companies react? Do these companies have the operating cash to withstand that gap in the supply chain? Can they request short term loans to bridge the gap? Will the banks even make loans under these conditions? In an age of many "zombie" companies... maybe not. President Trump is asking the FED to lower rates to get out in front of this. With the FED at 1.6% on both IORR and IOER, compared to the overall Treasury market... frankly, it would require a massive drop from that 1.6%, to get the financial markets to address the previously mentioned loans. I expect the headlines regarding Covid-19 virus numbers of deaths/illnesses to fade from the headlines over the next 6 weeks... to be replaced with headlines about the economic impact of Covid-19. That will play out well into the summer, imo. I hope not, but we'll see. That was all about the financial/business sector. Consumer spending drives about 70% of the economy, so close attention is required. While there is some anecdotal evidence that consumers in some regions are stocking up on toilet paper, masks, flu medicines, etc., generally speaking the public is not in a panic... at this time. There have been news items suggesting stores like Walmart and Target might see supply shortages by mid April... social media will magnify any such shortages and the mood of the public will be on full display. Not all is bleak as the above might seem. If we remain calm, the impact can be minimized. However, suggesting the public might actually remain calm... could be a feverish sympton of Covid-19. Afterall, I am rabid cynic and its served me well. I was just wondering... if schools start closing and the southern border is closed.... who is gonna clean those schools? Should I see a doctor. Finally... both eyes operated on and day after 2nd eye... 20/20 distance and near, doctor was amazed. Go back Tuesday for another followup and might even have x-ray vision by then.