Under the painted face the real one is being seen…

The main news. Inflation has apparently begun to rise in the US. In fact, this is exactly how it should be according to economic theory, but it contradicts the basic narrative of the US monetary authorities. In fact, if we consider, for example, the total volume of industrial goods, then the narrative takes place:

Pic. 1

But if you look at consumer inflation separately, the picture is different. In the overall picture, everything looks good:

Pic. 2

For “pure” consumer inflation (excluding highly volatile food and fuel components), it’s worse:

Pic. 3

Naturally, oil prices were falling in September, and they started to rise in October). But if you look at the raw data for September, they look like this:

Core inflation (month-on-month): 0.3% vs. forecast of 0.2% and previous value of 0.3%;

The same, year-on-year: 3.3% with a forecast of 3.1% and the previous value (August to August 2023) of 3.2%;

Consumer inflation rate (MoM): 0.2% vs. forecast of 0.1% and previous value of 0.2%;

Same, year-on-year: 2.4% with a forecast of 2.3% and a previous value of 2.5%. Well, we already know that, a decline in oil prices.

If this is a decline in inflation, then sorry… More likely, growth. So the basic narrative of the monetary authorities did not work.

Macroeconomics. Industrial production in Germany -2.7% per year, 15th monthly minus in a row:

Germany Industrial Production
Pic. 4

In Italy -3.2% per year, 19th minus in a row:

Italy Industrial Production
Pic. 5

In Sweden it’s also -3.2% per year, the 5th minus in a row:

Sweden Industrial Production Value Index YoY
Pic. 6

UK industrial output is down 1.6% per year, the 11th consecutive negative; overall, the indicator has been declining for 3 years with a mini-pause in the summer of 2023:

United Kingdom Industrial Production
Pic. 7

Let’s not forget, all this is against the backdrop of greatly understated inflation.

Leading indicators in Japan are the weakest in 12 years (not counting the Covid slump):

Japan Leading Economic Index
Pic. 8

It makes sense to take a closer look at the US situation here, see the last section of the Review.

US Initial Jobless Claims Near 3-Year High:

United States Initial Jobless Claims
Pic. 9

As well as the number of repeat requests:

United States Continuing Jobless Claims
Pic. 10

The New Zealand Central Bank cut the rate by 0.50% to 4.75%, the South Korean Central Bank cut the base rate by 0.25% to 3.25%.

The Indian Central Bank left its monetary policy unchanged.

Judging by the minutes of the last meeting of the US Federal Reserve, disagreements on the pace and scale of monetary easing within the Central Bank’s board remain. There is nothing surprising about this: against the backdrop of rising inflation, monetary policy needs to be tightened, while against the backdrop of falling industrial production and GDP in general, it needs to be relaxed. However, we have already discussed this topic many times.

Meanwhile, the Fed’s balance sheet continues to shrink, but not very quickly – clearly less than half of the entire increase during the Covid era has been cut so far:

United States Central Bank Balance Sheet
Pic. 11

Main conclusions. A typical situation for a structural crisis: some indicators require certain actions, while others require the exact opposite. There is no good way out here, any actions lead to an acceleration of the decline. Ideally, you just need to maintain consumption and not twitch, but this is impossible for political reasons.

And the overall picture of the US economy shows a continuation of the decline. Pavel Ryabov’s analysis of the leading indicators index.

Pic. 12

“US Leading Indicators Signal Plunge into Crisis

The Conference Board Leading Economic Indicators (LEI) has been declining continuously since early 2022 with no signs of stabilization, although the rate of contraction has slowed, but the intensity of the contraction is consistent with crisis periods.

Every time the LEI has declined by 2% or more, there has been a recession or crisis in the US without exception. This time, the LEI has declined by 8% and stabilized a 5% decline over the year on a low base.

Pic. 13
Pic. 14

Over 70 years, there have been 7 times when the LEI has fallen by 8% or more: in 1975-1976, 1981, 1991-1992, 2001-2002, 2008-2009 and 2020 and since 2022.

Only once, not counting the current moment, when the contraction phase has lasted more than 30 months – the 2008 crisis.

In all cases, real GDP has declined and only now the economy in the “pump” phase is close to 3% in terms of growth.

Considering the brutality with which they revise retrospective data, it will not be surprising if 2.5-3% growth is then turned into 0-0.5%, or even go into minus, if the Republicans take over.

All the main components of the index are declining or depressed, except for … the labor market (so far without signs of a crisis) and the S&P 500 index, which is storming another maximum at a record pace in history in a mode of total insanity.

Either part of the economic statistics is falsified (fictitious 800 thousand employed have already been written off from the labor market), or the leading indicators no longer work. They always worked, but in 2022 they stopped working and suddenly the S&P 500 switched to the “brain off” mode. Coincidence? Not really.

Another interesting chart is the ratio between the leading indicator and the current (lagging) indicator. What is important here is not the levels, since this is pure synthetics, but the dynamics and strength of the impulse.

A downward trend in this ratio always precedes negative macroeconomic dynamics in the next 3-4 months. The downward trend has been going on for more than two years, and the strength and speed of the contraction is the greatest since the 2008 crisis, so where is the crisis?

All this indicates a total desynchronization of economic and financial indicators and a breakdown of all the old rules of the game.”

Readers of our reviews understand that in reality the decline in the US has been going on for three years already (it began in the fall of 2021), but due to statistical distortions it is carefully hidden from the public. A similar situation, by the way, is in the economy of the European Union. Sooner or later, of course, it will be recognized (tying it to some significant political event, such as a sharp rise in oil prices due to Israel’s strike on Iran). Unless, of course, colossal growth suddenly begins. But miracles do not happen, there is no resource for this growth and none is expected.

And our readers understand that there is no need to be nervous, that big fortunes are made precisely in a falling market, you just need to pursue the right policy. So they can calmly rest on the weekends and go into the work week with a positive attitude!

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