‘Twas The Night Before The GDP Report: Atlanta GDP NOW Forecasts 0.2 Percent Q1 GDP Growth

‘Twas the night before THE GDP RELEASE, when all through the house
Not a creature was stirring, not even a mouse

Apparently the same applies to the US economy. The Atlanta Federal Reserve’s GDP NOW is forecasting a pathetic Q1 GDP read of 0.2 percent.


Here is the breakdown. From the beginning of February until today, Personal Consumption Expenditures (PCE) on Goods dropped severely. And Fixed Investment in Structures fell as well.


Meanwhile, the 10 year – 2 year yield curve slope is near the low since December 2007.


Let’s see what Friday’s GDP release brings. I forecast … a lump of coal.

Lump-Of-Coal-Cachette (1)

I wonder if The Fed will still consider raising interest rates this year?


Why The Fed May Raise Rates Soon (What Big Sister Is Watching!)

There was an excellent Bloomberg article entitled “Yellen Is Watching These Four Indicators for Signals on When to Raise Rates.”

Forget the Federal Open Market Committee’s pledge to be “patient” in raising rates from near zero. Forget “considerable time” and unemployment “thresholds.”

The new buzzword at the Federal Reserve is “reasonably confident.”

That’s the phrase Chair Janet Yellen and her colleagues at the Fed used in the statement this week to describe their need to feel pretty sure that inflation is on the way back to their 2 percent target before liftoff.

In her press conference on March 18, Yellen laid out the markers for what “reasonably confident” means. While “I don’t have a mechanical answer for you,” there are four targets that matter.

1. Jobs, jobs, jobs
Labor markets need to continue to improve. “A stronger labor market with less labor market slack is one factor that would tend to, certainly for me, increase my confidence,” Yellen said.

One key measure of slack is the unemployment rate, which was 5.5 percent in February. The FOMC this month lowered its estimate of longer-term unemployment to 5-5.2 percent. That is a kind of speed limit at which further declines would push up inflation as the stronger hiring spurs faster wage gains. So the labor market has a little further to run before officials expect to see wages rise.

2. Core inflation
Inflation without the food and energy components needs to stabilize. “We expect inflation to remain quite low because of the depressing influence of energy price declines and the dollar,” Yellen went on. “We will be looking at the inflation data carefully” to discern what’s happening beyond those short-term influences.

In other words, a stabilization or rise in core prices, excluding food and energy, might have more weight than the actual headline price data.

3. Wage growth
Wages need to break out of their slump. “We will be looking at wage growth” as a signal of inflation though “I wouldn’t say either that that is a precondition to raising rates.”

There is plenty of anecdotal evidence from the likes of Target Corp. and Wal-Mart Stores Inc., for example, that wages are edging higher. Yet there’s not much support in the data. Average hourly earnings rose just 2 percent over the past year through February. That is in line with the average since the recession ended in June 2009.

4. Inflation expectations
What households and investors expect inflation to be in the future has to rise a bit. “We’ll be watching inflation expectations.” For one thing, “market-based measures” of expectations are too low. “If they were to move up over time, that would probably serve to increase my confidence.”

The measure that looks at inflation expectations five years from now fell as low as 1.75 percent in January. A move back to 2 percent would add to confidence.

But there is a fifth consideration: bank net interest margins. Net interest margin (NIM) is a measure of the difference between the interest income generated by banks or other financial institutions and the amount of interest paid out to their lenders (for example, deposits), relative to the amount of their (interest-earning) assets.


Let’s use JP Morgan Chase (JPMC) as an example. Their Net Interest Margin (NIM) like that of other banks has been in a nosedive.


And if we look at JPMC’s annual report for 2014, you can see that a +100/+200 parallel shift in the yield curve could add billions to their value.


Another reason for The Fed to raise the Fed Funds Target rate is to “normalize” the situation and give The Fed room to maneuver on the downside … again.

So while The Fed is lowering their expectations of when to hit targets for a rate increase, there is also pressure from lenders to increase interest rates. Particularly if The Fed can STEEPEN the yield curve slope (perhaps through Operation Twisted).

Big Sister is watching … key economic indicators (and bank net interest margins)!


US Inflation Rises …. To Zero

Everyone is watching The Federal Reserve like a hawk for tell-tale signs of a rate increase.

As Janet Yellen has already said, The Fed is watching inflation.

Today’s inflation report found that the CPI rose 0.0 percent year over year.


This does not look like a trend that is likely to stimulate a rate increase.


New Home Sales Rise 7.8 Percent In February (Rises 153 Percent In Frozen Northeast, Down 6 Percent in Sunny West)

So much for the cold weather meme.

New home sales rose 7.8 percent in February and … 153 percent in the frozen Northeast.


Well, I guess it wasn’t THAT cold. And new homes sales declined 6 percent in the sunny West.

Once again, a bit of an anomaly rears its ugly head. Mortgage purchase applications remain at 1995 levels while income remains lower than in 2007. On the other hand, the employment to population ratio is growing.


At least new home sales are back to 1991 levels, a far cry from the heady days of 2005.


Surprise! Citi US Economic Surprise Index Keeps Plunging Downwards (Despite Massive Federal Reserve Intervention)

Surprise! The Citi US Economic Surprise Index keeps plunging downwards.


The Citi Economic Surprise Indices measure data surprises relative to market expectations. A positive reading means that data releases have been stronger than expected and a negative reading means that data releases have been worse than expected.

The Eurozone is actually performing BETTER than expected while Japan (not surprisingly) is foundering.


Wait a minute! I thought historically low Central Banks rates were supposed to be a game changer!!!


Yes, Federal Reserve policies HAVE been a game changer. For asset bubbles.


Ah! The SECOND Gilded Age!


Is Trade Dying? Plunging Baltic Dry Index And Keep Commodity Prices Collapsing (Global Slowdown Continues)

Most of us know that the global economy is softer than the media and acknowledges. Even the powerhouse US economy is softer than The Federal Reserve is letting on.

We know that inflation (as measured by the YoY change in the Consumer Price Index) is negative. And the YoY change in Real Personal Consumption Expenditures (PCE) is falling as well. NOT a good sign.


Then we have plunging core commodities such as West Texas Intermediate Crude oil falling like a rock along with raw material and food prices. While falling prices could be a sign of excess supply, the fact the shipping costs (as measured by the Baltic Dry Index) has fallen as well.


Here is a longer-term perspective where the Baltic Dry (shipping cost) index is at all-time lows AND commodity prices are falling.


As if this wasn’t bad enough news for you, it is happening as global Central Banks have gone wild … on the downside.


Then there is this story from Reuters: “Global oil glut set to grow as China slows crude imports.”

How slow is the global economy? Burger King Japan has just introduced a cologne that smells like …. a Whopper.


The global economy is slowing down and the US has declining core PCE growth. Perhaps we need some new models.


Bizarro World: US Has Declining Real Wages But Rising Home Prices (Secular Stagnation)

I have often wondered when the media would catch on to the REAL story about why the housing market is so slow to comeback, in terms of borrows applying for a mortgage. Particularly since The Federal Reserve has help the holders of capital with it’s monetary expansion.

Home prices have been rising rapidly since 2012 and QE3.


The S&P 500 index has been having a field day since the advent of The Fed’s QE.


But average wages have NOT been rising as fast as home prices or the stock market.


In fact, all education groups have suffered in terms of real wage growth since 2007.


Are households simply borrowing to purchase a home with declining real wages? Nope.


And now we have secular stagnation to boot!


Falling real wages and rising home and stock prices. Bizarro world.