NO but if you really want then YES

July 6-12, 2024

Big news. In the US in June, deflation at consumer prices: -0.1% per month, only +3.0% year-on-year (June 2024 to June 2023):

United States Inflation Rate MoM
Рис. 1

Formally, it is the first fall in 4 years.

On the one hand, there is joy for the country’s political leadership, since it is possible to return to the topic of reducing the rate. On the other hand, if there is a political request, and there has been one for several months, we have written about this several times, then both the monetary authorities and the statistical authorities could not help but respond to it. Well, they went a little too far.

Why “too far”? The fact is that deflation is a sign of economic recession. There was deflation in the 1930s. Yes, it cannot exist in conditions of supporting demand, but it is precisely with the latter that there are problems. Demand support after the covid epidemic was carried out in the United States according to the “Dubinin Chubais” model of 1995-98, that is, through the budget. Why did the monetary authorities sharply increase the national debt, “vacuuming” all the money markets of the world? Only the laziest have not write about this.

The trouble is that the money printed during the Covid period had to run out sooner or later. According to some experts, in April-July this year. This is what happened:

Рис. 2

Since the Fed has tried to maintain a more or less tight monetary policy in recent months by selling securities from its balance sheet, problems with aggregate demand have begun. This is clearly visible in the construction sector in the United States, in industry, and even in official labor statistics (inadequate as they are). And if we also take into account the elections…

In general, we repeat once again that easing of monetary policy is absolutely necessary and, apparently, the Fed is actively preparing for this situation. And when you really need it, statistics meet you halfway. And this, by the way, is not the first time in the USA. Another thing is that the US economic system is so remonetized that even a minimal emission will lead to a sharp increase in inflation. However, this is already a prospect for the next few months.

By the way, data on industrial prices (PPI index) in the USA is +2.6% per year, that is, for a maximum of 15 months:

United States Producer Prices Change
Рис. 3

And data on the entire volume of industrial goods also shows growth. Compared to May, although quite insignificant, it was 0.56% on an annual scale, now it is 0.61%.

Рис. 4

But this is against the backdrop of a constant industrial decline. Although, of course, industrial prices are not consumer prices. In particular, deflation in the United States, which is clearly visible in 2023, is most likely associated with increased imports and, thus, increased competition among American producers.

Let’s not forget about expert estimates of inflation in the USA, ours (more than 10%), and Larry Summers (about 8%). In general, the economic effects here may be different, there are many interesting points for researchers, but the picture in the American economy as a whole is more or less clear: an increase in imports against the backdrop of rising domestic costs and a decline in demand and GDP. What’s true in the USA is true throughout almost the entire world.

Macroeconomics. Industrial production in Italy -3.3% per year, 16th monthly minus in a row:

Italy Industrial Production
Рис. 5

Note that, most likely, the decline here (and throughout the European Union, with the exception of Germany, which at first was supported by other EU countries) began in mid-to-late 2021. But understating inflation allowed it to be hidden in nominal terms for quite a long time.
 
PMI (expert industry performance index; its value below 50 means stagnation and decline) of the New Zealand industry 41.1.Not counting Covid, this is the minimum since February 2009:

New Zealand Manufacturing PMI
Рис. 6

Without food and fuel +3.0% per year, 14-month top:

United States Producer Prices Final Demand Less Foods and Energy YoY
Рис. 7

Loans in yuan in China +8.1% per year, a record minimum for all 26 years of observation:

China Outstanding Yuan Loan Growth
Рис. 8

And the same record low in the growth rate of the M2 money supply (+6.2% per year):

China M2 Money Stock YoY
Рис. 9

Since government support for the economy is unlikely to decline, this most likely means a sharp decline in bank activity across all sectors, with a decline in the credit multiplier.

Prices for used cars in the US are -8.9% per year, the 22nd minus in a row.This is a record, with a large gap from previous years:

United States Used Car Prices YoY
Рис. 10

Taking into account the data from the previous review, it can be assumed that in May-June the decline in demand in the United States accelerated sharply.

The number of unemployment benefit recipients in the US remained near its peak since 2021:

United States Continuing Jobless Claims
Рис. 11

Main conclusions. The global economic downturn continues, and it is becoming more and more difficult to hide. The monetary authorities of all countries are in a difficult state, Powell admitted that he has not seen Biden for two years and makes decisions on his own. Here, however, it is more politics than economics. The question arises, what are the clear signs of this decline that are not related to GDP data?

Well, for example. Prices for hot-rolled steel coils have fallen threefold since the peaks of covid and are near the record lows of 2009, 2015 and 2020:

HRC Steel
Рис. 12

Which obviously means that there is an investment decline, all over the world.

At the same time, prices for container shipping from China are heading towards Covid-era highs:

Containerized Freight Index
Рис. 13

Against the background of the industrial recession in the United States and the growth of imports, this means a reduction in the total volume of transportation (logistics companies are trying to maintain income against the backdrop of falling volumes). Which also indicates a general decline. Well, the election results in many countries of the world, where almost everywhere the current authorities are actively losing, show that the standard of living of the population is falling. No matter what the official numbers show.

But we hope that our readers, including with our help, will avoid all troubles. Moreover, they must remember one of our main slogans: real big capital is made in falling markets. And in this regard, we wish them to enjoy the summer weekend and a pleasant vacation, for those who have already started it!

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