No signs of improvement found

March 23-29, 2024

Big news. It’s all quite boring. Orders for durable goods, which fell 6.9% in January compared to December, rose 1.4% in February. On the one hand, the decline gave way to growth, on the other, December and January require serious seasonal cleaning and errors can creep in here. In addition, the growth is still significantly less than the previous decline. But the decline did not continue.

Besides, the average price of a new home has fallen again, which, as is clear, is not a sign of an improvement in the situation:

Рис. 1

When a month ago we noted a sharp decline in orders, there were questions whether a serious collapse had begun. Although the decline in home values has narrowed sharply. Today the situation is the opposite. In general, it can be noted that there are no clear signs of accelerating decline, but there is no sign of growth at all.

Macroeconomics. Dutch GDP -0.4% per year, 3rd minus in a row:

Netherlands GDP Annual Growth Rate
Рис. 2

UK GDP -0.3% per quarter, 2nd negative in a row:

United Kingdom GDP Growth Rate
Рис. 3

And -0.2% per year – the first decline in 3 years (and without taking into account Covid – the first minus since 2009):

United Kingdom GDP Annual Growth Rate
Рис. 4

Industrial production in Japan -3.4% per year, the 4th negative in a row and the 7th in the last 8 months:

Japan Industrial Production
Рис. 5

The number of new buildings in Japan is -8.2% per year, the 9th minus in a row:

Japan Housing Starts YoY
Рис. 6

The index of coincident indicators in Japan is at its lowest in 2 years:

Japan Coincident Index
Рис. 7

PMI (an industry health index; readings below 50 indicate stagnation and decline) Chicago 41.4, a 10-month low and close to the bottoms of recent downturns:

United States Chicago PMI
Рис. 8

The Dallas Fed Industrial Index has been in the red for 23 months in a row, more (27) was only in 2007/09:

United States Dallas Fed Manufacturing Index
Рис. 9

In the service sector of the same region, the minus has persisted for 22 months in a row:

United States Dallas Fed Services Index
Рис. 10

The Kansas Fed Composite Index has failed to break even for 18 months in a row:

United States Kansas Fed Composite Index
Рис. 11

PPI (industrial inflation index) of France -5.5% per year, it was lower only in 2009:

France Producer Prices Change
Рис. 12

Swedish household borrowing +0.4% per year, worst dynamics in 28 years:

Sweden Household Lending Growth
Рис. 13

In the eurozone +0.3% per year, 9-year bottom:

Euro Area Household Credit Growth
Рис. 14

The volume of retail sales in Norway is -0.3% per year, the 32nd minus in a row, there was nothing like it in the history of observations:

Norway Retail Sales YoY
Рис. 15

Retail in Germany -1.9% per month – the weakest dynamics in 1.5 years:

Germany Retail Sales MoM
Рис. 16

And -2.7% per year, the 22nd minus (or zero) in a row (in 2009 there were only 13 negative months in a row):

Germany Retail Sales YoY
Рис. 17

The number of unemployed in Germany has been growing monthly for 15 months in a row:

Germany Unemployment Change
Рис. 18

And has already reached an 8-year peak (not counting covid):

Germany Unemployed Persons
Рис. 19

The Swedish Central Bank left rates unchanged, but is already threatening to cut them in May-June.

Main conclusions. The structural crisis continues. There are no special deviations, but a general understanding appears that everything is going somehow not quite right. We have already noted that a number of authors have published an article (including an article by L. Summers, “The cost of money is part of the cost of living: New evidence on the consumer sentiment anomaly”) on an alternative estimate of inflation: …. For us, only one drawing from this article is more important:


As we can see, the alternative estimate is much higher than the official one and the difference exceeds the rate of economic growth in the United States. In other words, even this estimate (and it can still be changed upward, for example, by excluding hedonic indices) says that the United States has been experiencing an economic recession since the fall of 2021. We wrote about this many times and even gave estimates of its scale (about 6% of GDP per year), but if inveterate liberal monetarists began to write about it, this says a lot.

Fed Chairman Powell also spoke this week. Theses of his speech:

“▪️More confidence is needed before the Fed starts cutting rates.

▪️The US economy is strong, there is NO need to rush to reduce the rate.

▪️We were surprised by the macro data; we need to be extraordinarily modest and prepared for unexpected results.

▪️My first thought after receiving the RFE inflation report: “It’s nice to see that it meets our expectations.”

▪️Reducing the rate too early will have very destructive consequences.

▪️Doing everything right is the most important thing.

▪️We don’t know when the Fed rate will return to pre-pandemic levels.

▪️If our base scenario does not come true, we will have to keep the interest rate at its peak longer than expected.

▪️The fight against inflation is not over yet, but the risks for the Fed’s two goals are balanced.

▪️Now everything depends on macro data.

▪️There is no reason to believe that the US economy is in recession or on the brink of it.

▪️Unexpected weakness in the labor market will lead to an immediate response from the Fed.

▪️I believe we are able to return inflation to the 2% target without weakening the labor market.

▪️At some point in time, we will begin to slow down the pace of the Fed’s balance sheet contraction. (QT)

▪️By slowing down, we are trying to move further into QT without harming the economy – this is not the Fed’s main monetary policy tool.

▪️The unanimous decision on the interest rate at the last meeting does not mean that there were no different points of view.

▪️The commercial real estate market will be a problem for several years.

▪️Some banks (mostly regional) have a high concentration of loans in the commercial real estate sector. We work with them to make sure they have enough capital. I think everything will be fine.

▪️The US is experiencing stable economic growth + a strong labor market – these factors give confidence that we will achieve our inflation target before the rate cut.”

We have warned many times that labor statistics in the United States are highly skewed toward the better. It’s not that this information was secret, but rather that it was not customary to talk about it out loud. But now, the situation has changed. An article appeared, in which employees of the Reserve Bank of Philadelphia (that is, Powell’s subordinates, although not direct) accused the Bureau labor statistics in distorting data and adding from 800,000 to 1,300,000 jobs…

Рис. 21

Thus, it is safe to say that in Powell’s speech there is an outright distortion of information, there is simply hope for hope for the best. By and large, he said nothing new. And in this sense, a conflict is inevitably brewing between that part of the liberal economic elite that is ready to figure something out (Summers & Co, authors of the article on labor statistics) and Powell’s team. By the way, the heads of many large banks, judging by their latest statements, are more likely to join Summers than Powell.

Well, we wish all our readers a pleasant weekend and hope that the next working week will not let them down!


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