August 10-16, 2024
Big news. The big news was the contradictory data on inflation in the US. Formally, everything is fine, the inflation rate (consumer) year-on-year (i.e. July-on-July) decreased and amounted to 2.9% against the previous 3.0%. But then the problems begin.
The level of core inflation (i.e. excluding highly volatile fuel and food components) month-on-month (i.e. July compared to June) was 0.2%, with the previous value being 0.1%. Accordingly, year-on-year core inflation was -3.2%, although with the previous value (June compared to June) being 3.3%. But the most important thing is something else. A drop in consumer inflation may mean serious stagnation of demand, and then this is not a positive, but a negative sign. The next section of the Review will clearly show that there are sufficient grounds for such a conclusion.
What about industrial inflation?
Growth for the month by 1.5%… And this is in the situation of a sharp decline in industrial production, by 0.64% for the month of July! At the same time, the data for June were revised downwards by 0.43%, which means a decline for the month by 1%! This already exceeds the rate of the crisis of 1930-32!
Looking at the annual indicators, the decrease was 0.2 (July to July). In such a situation, prices should fall, but they are growing. This means that the inflation trends are very strong and, most likely, there is a serious increase in prices. Theoretically, readers of our reviews already know this, we have repeatedly explained that prices in the USA are growing quite quickly, but this week it became clear from official data.
Macroeconomics. Difficulties not only in the USA, but also in China. More precisely, if there are difficulties in the USA, then, inevitably, in China too.
Investments in fixed assets continue to slow down (+3.6% per year):
Рис. 2
As well as industrial production (+5.1% per year):
Рис. 3
Retail sales volumes accelerated slightly, but remain weak (+2.7% per year):
Рис. 4
The dynamics of prices for new buildings (-4.9% per year) continues to approach the anti-record of 2015 (-6.1%):
Рис. 5
Foreign direct investment is -29.6% per year, the only time it has been worse in history was in January 2009 (-32.6%):
Рис. 6
Finally, the rate of loan growth (+8.7% per year) is the worst in all 25 years of data collection:
Рис. 7
Eurozone industrial production -3.9% y/y, 6th consecutive negative and 13th in the last 14 months:
Рис. 8
Japan -7.9% per year, the worst figure since February 2013 (excluding Covid):
Рис. 9
Eurozone Economic Expectations Index (ZEW Survey) Weakest in 9 Months:
Рис. 10
Germany hits 7-month low and worst monthly decline in 2 years:
Рис. 11
At the same time, the assessment of the current situation in the economy is close to record lows:
Рис. 12
The New York Fed manufacturing index has been in the red for 9 months in a row:
Рис. 13
After a six-month pause, the Philadelphia Fed’s similar indicator also went into the negative:
Рис. 14
US housing market index weakest in 8 months, close to 12-year low:
Рис. 15
US housing starts at 5-year low (not counting Covid) and below 1950/90s averages:
Рис. 16
The same with building permits:
Рис. 17
The University of Michigan’s consumer survey’s current situation assessment is approaching post-Covid lows, which were the worst since late 2008:
Рис. 18
New Zealand PPI (Industrial Inflation Index) +1.1% q/q, 2-year high:
Рис. 19
The same peak is seen in incoming prices (+1.4% per quarter):
Рис. 20
South Korea’s export prices rise at fastest rate in 2 years (+12.9% per year):
Рис. 21
By the way, prices for exported goods from the US also increased significantly, +0.7% in July.
The number of unemployed in South Africa is a record for all 24 years of statistics:
Рис. 22
Australia’s unemployment rate hits 2.5-year high:
Рис. 23
The number of applications for unemployment benefits in the UK is +135 thousand per month (10 times higher than market expectations). Not counting the Covid surge in April-May 2020, in all 54.5 years of observations it was higher only once, in February 2009 (and then only slightly, +142.8 thousand):
Рис. 24
New Zealand’s central bank unexpectedly cut rates by 0.25% to 5.25%.
Main conclusions: Aggregate inflation figures often tell little about specific issues at hand. Instead, they paint a picture roughly like this (July annual inflation):
- Auto Insurance Inflation: 18.6%
- Transportation Inflation: 8.8%
- Hospital Inflation: 6.1%
- Homeowners Inflation: 5.3%
- Rent Inflation: 5.1%
- Energy Inflation: 4.9%
- Auto Repair Inflation: 4.6%
- Away Food Inflation: 4.1%
The U.S. dollar has lost 25% of its purchasing power since January 2020. In fact, many of the “middle” class’s basic necessities are now becoming luxuries. Or, as it is written in the book by M. Khazin “Remembrance of the Future. Ideas of Modern Economy), there is a gradual liquidation of this social group.
Well, and this is already for a more in-depth study of the issue of inflation, a comment by Pavel Ryabov:
“In the US, the rate of price growth has slowed sharply, so in July the CPI was 0.15% m/m (core CPI – 0.17% m/m, further in brackets), over three months the average monthly price growth was only 0.03% (0.13%), and over 7m24 the rate decreased to 0.22% (0.26%) compared to 0.28% (0.35%) over 7m23.
Over three months, core inflation is only 1.6% year-on-year, and the Fed typically uses a three-month average to smooth out volatility and assess the current trend.
Formally, the CPI level allows us to consolidate the arguments in favor of lowering the rate in September (the only question is the scale), since against the backdrop of slowing inflation, there is a degradation of conditions in the labor market and a cooling of demand.
Given that supply-side, inventories and producer costs have not changed significantly over the past three months, the slowdown in inflation signals a noticeable slowdown in consumer demand.
Annual inflation was 2.9% and 3.2% for core inflation, but it is important to assess shorter-term price impulses to understand current trends. For 7m24, inflation remains 1.5 times higher than the 2015-2019 norm (0.22 vs 0.15% average monthly rates), and a similar discrepancy for core inflation.
Why has inflation slowed so much over the past three months?
• Transport made a negative contribution (deflation) at the level of 0.13 percentage points. Everything became cheaper – air travel, gasoline, new and used cars.
• Medicine, education, communications, IT and computers, clothing and footwear, culture, sports and entertainment together contributed only 0.008 percentage points and are growing at or below pre-crisis rates, weighing in total about 22% in the CPI structure.
• Food, beverages and catering, as well as other goods and services, are growing at twice the long-term trend, together weighing over 17%, contributing 0.036 percentage points to the average monthly inflation rate over three months.
• Housing, taking into account hotels and housing and communal services, is growing 1.25 times higher than the norm, forming 0.124 percentage points of inflation.”
It should be noted that against this background, the shares of those IT companies that fell two weeks ago, causing some panic, have again briskly gone up. Stock market analysis is not exactly our profile, but it should be noted (as we have already written) that in the conditions of liquidity problems, the only way to keep the market from another, more serious collapse is to start a large-scale emission campaign.
“A similar case was in the city of Berdichev”, that is, we mean that the same outcome is practically inevitable to maintain the budget deficit. However, if there is a conspiracy between the liberal and conservative elites of the USA (some data indicate such a conspiracy, however, this topic is already beyond the scope of macroeconomic reviews), then the decline in the standard of living of the population will not be so fundamental.
And finally, the most important argument of the most powerful crisis:
Рис. 27
Gold reached a historic high this week. And it’s not the American stock market, it will continue to grow. And we wish our readers a pleasant vacation and not too tiring workdays for those who are just waiting for it!