16-22 ноября 2024
Big news. Long-term (5-year) inflation expectations in the US unexpectedly returned to a 16-year high (+3.2%):
Рис. 1
Some will say that these are not objective indicators, but merely consumer assessments, so this indicator can be ignored. I would say that it is the other way around.
As can be seen from the ten-year chart, inflation expectations are gradually growing. Based on Larry Summers’ estimates ( https://fondmx.pro/en/weekly-wrap/no-signs-of-improvement-found/ ) and, especially, ours, this is a correct and understandable assessment. Consumers live in a natural economic environment, it is quite difficult to deceive them. But the official indicators …
We have told many times how statistical indicators are distorted, in particular, the distortion of labor statistics is described in the article that is described in the cited review for the month of March. By the way, the US Department of Labor admitted to this distortion, we also wrote about this ( https://fondmx.pro/en/weekly-wrap/what-it-takes-to-have-a-house-make-from-paper-now-it-s-ours/ ).
But, for example, here’s a look at consumer sentiment and inflation and risk in the financial sector: Bitcoin has continued its impressive rally and is now close to $100,000:
Рис. 2
Yes, this happened after Trump’s election victory, so one can attribute political reasons to this phenomenon. But, you must admit, relying solely on political reasons for such an effect is somewhat incorrect…
Let me remind you that the idea of releasing macroeconomic reviews came from the management of the Economic Research Foundation Mikhail Khazin precisely because we were tired of explaining to our readers and clients how much reality differs from the official picture. But in assessing the trend of inflation, consumers turned out to be right. Although, of course, they are far from understanding its real values.
Another thing is that by showing distortions in official data we still use them, since the risks of overestimating the data are extremely high. Since we are responsible to our readers, we have to use official figures and use various indirect methods to evaluate their deviations from reality. Creating a virtual reality is too dangerous a method and can lead too far (the experience of the Federal Reserve and the US Department of Labor is an example of this).
Macroeconomics. Germany’s GDP -0.3% per year, 5th consecutive monthly minus and the worst dynamics since the beginning of 2013 (excluding Covid):
Рис. 3
UK industrial orders balance in negative territory for 28 months in a row:
Рис. 4
Sweden’s production capacity utilisation is at its lowest in 11 years (excluding the Covid slump):
Рис. 5
Eurozone construction output -1.6% p.a., 8th straight negative:
Рис. 6
US leading indicators showed monthly declines in 30 out of 31 months:
Рис. 7
Eurozone collective wage growth in Q3 +5.4%, highest since early 1993:
Рис. 8
This is about inflation.
UK PPI -0.8% per year; not counting Covid, this is the weakest indicator since June 2016:
Рис. 9
This is deflation, a sign of an acute industrial crisis.
The Kansas Fed composite (all sectors) index has failed to turn positive for 26 consecutive months:
Рис. 10
The number of people receiving unemployment benefits in the US has reached a 3-year high:
Рис. 11
I wonder what deviations from reality there are? I don’t ask in which direction, it’s obvious.
The Central Bank of China left its monetary policy unchanged, but may lower the rate again before the end of the year. The Central Bank of Indonesia also did not change anything. The Central Bank of Turkey, whose rate is at its peak since 2002, did not change anything.
The Central Bank of South Africa cut the rate by 0.25% to 7.75%.
Main conclusions: The structural crisis continues and the positive aspects that the Fed leadership sees (or saw before the elections) do not look very convincing against the background of various data. For example, on overdue credit card loans:
The 2008 crisis figures haven’t been reached yet, but a bad start is a bad start!
Already about half of American households live paycheck to paycheck. Bank of America data, so most likely, they don’t deviate from the truth by much.
Another frequently used index:
With comments from Pavel Ryabov:
“According to leading indicators in the US, things have gotten even worse.
A surprising situation: one US statistical agency is broadcasting an incredible economic boom in the US economy, other departments are reporting stagnation with a downward slope, and according to the totality of indicators and leading components, it’s a direct road to … hell! )
▪️ The Conference Board Leading Economic Index (LEI) is in its 32nd month of contraction – this is the longest continuous contraction phase in history without a single attempt at recovery.
On average, it took 12 months from the first contraction to the onset of a crisis or recession, and the longest series of deterioration in leading indicators without the onset of a recession is the 2009 crisis, when it took 20 months, but now it’s already 32 months!
▪️ The depth of the LEI reduction was 17.6% from the peak reached in early 2022. Since 1959, there have been three times with a deeper plunge: the 1975 crisis, the early 80s and 2008-2009.
In all cases without exception, when the indicator fell by 10% or more, at least a recession occurred (now it is already 17.6%).
According to the smoothed 6-month impulse, more than 30 months of reduction are observed – in 65 years this has happened only once (in 2009).
There is also an indicator of current or coincident economic indicators (CEI).
▪️ The LEI/CEI ratio has been declining for 31 months in a row – almost immediately after the start of the monetary policy tightening cycle in the spring of 2022. On average, 7 months of LEI/CEI decline were previously required before the onset of a crisis or recession.
There have been times when the LEI/CEI ratio has declined for several months without a recession, but never in history has there been a situation with such a speed and duration of decline without a recession.
Over the entire statistical period (66 years), there have been two periods of similar divergence: 1975-1980 and 2007-2009, but only once in history has the divergence been comparable, as in 2023-2024 – this is the 2009 crisis.
In total, we have the longest phase of leading indicators’ decline, the fourth deepest decline, and one of the most powerful divergences in history between leading and current indicators.
Previously, such a combination always led not even to a recession, but to a full-fledged crisis, but now we are told about “3% economic growth with the legend that the economy is great and will be even better.”
Either the leading indicators are broken (they haven’t broken for 70 years, and now they’ve just gone and broken), or the US macroeconomic statistics are fake.”
Well, the reader knows our opinion, just in case we repeated it in the first section of the Review. And as for the US economy, it has been in a structural decline for three years now, in terms of the economic mechanism – a complete analogue of the crisis of 1930-32. Then it led to the “Great” depression, now everything will be even worse. But then the crisis was a deflationary one, and now – an inflationary one, which allows us to mask the indicators by understating inflation.
However, as the conclusions from our reviews show, our readers cannot be deceived! And therefore, they can have a fun rest on the weekend and look to the future with confidence in the next work week!