The final week

December 24-30, 2022

Big news. Due to the end of the year and Christmas according to the Gregorian calendar, there were practically no interesting economic events. The data presented in the next section mainly refer to November and for this reason do not contain any specifics of the end of the year. But some of them (for example, data on unemployment in the US) are published every week. And for them, no improvement in the situation due to the fading of economic activity is noticeable.

In other words, the negative processes in the global economy are developing evenly and consistently, practically without paying attention to calendar features. This does not correspond to the logic of cyclical crises, which accelerate at first and then slow down to a minimum. But this fully corresponds to the theory of structural crises described in the book by M. Khazin “Memories of the Future. Ideas of Modern Economics”.

We consider it important to remind about this once again, since any public references to the crisis (which is called exclusively “recession”) appeal precisely to its cyclical nature. This inevitably affects everyone who is forced to make decisions related to the economy, from entrepreneurs to officials, and greatly disorients these people. Including our readers.

In this regard, we once again remind you that the current crisis is of a structural nature. This determines its features and duration, and understanding this gives a very serious advantage, both competitive and intellectual, to those who understand the situation. And our task is to maximize this advantage for our subscribers.

Macroecoomics. Industrial production in Japan has been declining on a monthly basis for 3 consecutive months:

Japan Industrial Production MoM Рис.1

That is why the annual dynamics again went negative (-1.3%):

Japan Industrial Production Рис.2

South Korean industrial output -3.7% per year – at least 27 months:

South Korea Industrial Production Рис.3

Profits of industrial companies in China in January-November -3.6% per year:

China Total Industrial Profits Рис.4

Business confidence in South Korea weakest in 26 months:

South Korea Business Confidence Рис.5

Texas Fed Zone Regional Manufacturing Activity Index in the red for 8 consecutive months:

United States Dallas Fed Manufacturing Index Рис.6

The service sector of the same region is at the bottom for 2.5 years:

United States Dallas Fed Services Index Рис.7

And for the first time in this period, the revenue of industry companies went into the red:

United States Dallas Fed Services Revenues Index Рис.8

A similar picture is in the FRB (Federal Reserve Bank) of Richmond:

United States Richmond Fed Services Index Рис.9

Taking into account the fact that inflation in the United States is systematically underestimated (this effect is included in the methodology for assessing any price indicators, for example, due to the use of the so-called “hedonistic” indices), this situation means that the real revenue of enterprises has already fallen quite significantly . Or, in other words, that industrial capital in the United States, well, at least in the zone of responsibility of the Richmond Fed, is no longer reproduced.
The Chicago Fed’s PMI (an industry health index below 50 indicates stagnation and decline) has been in the decline zone for 4 months in a row, although the decline has slowed slightly in the last month:

United States Chicago PMI Рис.10

India’s current account deficit in Q3 record for 74 years of statistics:

India Current Account Рис.11

But China has a record surplus of the same account:

China Current Account Рис.12

New buildings in Japan -1.4% per year:

Japan Housing Starts Рис.13

And her construction orders -9.7% per year:

Japan Construction Orders Рис.14

Retail sales in Japan -1.1% per month:

Japan Retail Sales MoM Рис.15

Pending home sales in the US in November another -4.0% m/m (to a 21-year low):

United States Pending Home Sales MoM Рис.16

And -37.8% per year – a record-breaking poor performance over 21 years of observation:

United States Pending Home Sales YoY Рис.17

US house prices have been falling monthly for 4 consecutive months:

United States Case Shiller Home Price Index MoM Рис.18

Retail South Korea -1.8% per month – the 10th minus in the last 11 months:

South Korea Retail Sales MoM Рис.19

And -2.2% per year – the worst dynamics since the spring of 2020:

South Korea Retail Sales YoY Рис.20

US Unemployment Claims Maximum for 11 Months:

United States Continuing Jobless Claims Рис.21

Let us remind you once again that labor statistics in the USA are totally distorted. But since the methodology, in general, is maintained from month to month, the trends in the change of indicators reflect the situation more adequately than their absolute indicators. The situation is much better reflected in the indicator of the duration of the working week, which decreases in case of crises. The latest data (dated December 2) was 34.4 hours, earlier – 34.5. The next data will be released on January 6, but even taking into account the seasonal factor, they will not be very indicative, there are too many holidays in December.

Main conclusions. Officials in almost all countries show optimism. The reality, as we see, is a little different – the structural crisis continues evenly and inexorably, as it should be in accordance with the theory. Entrepreneurs are already feeling something is wrong (see the previous section), but households are beginning to realize that things are not going well. In any case, the University of Michigan shows record dissatisfaction with the situation:


And life expectancy in the US is falling too:


Of course, it can be assumed that covid is to blame for everything, but options are also possible. In any case, it can be noted that even very indirect indicators show that the situation in the United States (and therefore throughout the world) is far from optimal. Actually, we present such graphs in order to show that, albeit slowly developing, the structural crisis has an extremely negative impact on all components of human life.

Note that a structural crisis can manifest itself in completely different areas. So, from September 2021 to June 2022, inflation was growing in the United States. But as soon as they began to fight it seriously, industry, construction and retail sales began to fall. Now the US monetary authorities believe that a drop in household demand (that is, in fact, a drop in GDP) is not as dangerous as an overheated economy (high inflation). They do not understand that it will most likely not be possible to lower inflation to the required 2%, since the structural component does not respond to the tightening of monetary policy.

Thus, if we continue to fight inflation by tightening monetary policy, inflation will not drop to the required levels, and economic indicators will actively deteriorate. And if this deterioration frightens the political authorities and they begin to maintain the standard of living of the population, then the economic pendulum will swing in the other direction, inflation will begin to grow again, and the crisis will begin a new round.

In the new year, we will see how things will develop. At the very beginning of the new year, an additional review will be released, specifically dedicated to the results of 2022 and the forecast for 2023. In the meantime, we wish all our readers a happy New Year!


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