Work day begins

August 26 – September 1, 2023

Big news. Nothing extraordinary happened in the last week of summer, but the US government securities market gave a very interesting signal:

Pic. 1

As you can see, the yield has grown to the crisis levels of 2007-08. But at the same time, at that time, the yield of the longest, ten-year securities was approximately at the same level as that of shorter ones (which already contradicts economic logic), but now it is significantly lower. That in itself is a very clear sign of a crisis.

In other words, another, additional factor has appeared, which shows that the US economy is in an extremely unstable position. Of course, these signals do not say when something will happen that will change the situation, but the fact that something should happen is obvious.

Macroeconomics. Swedish GDP -0.8% per quarter:

Sweden GDP Growth Rate
Pic. 2

And -1.0% per year:

Sweden GDP Annual Growth Rate
Pic. 3

Italian GDP -0.4% per quarter:

Italy GDP Growth Rate
Pic. 4

In Japan -2.5% per year – over the past 9 months there was only 1 plus:

Japan Industrial Production
Pic. 5

Note that with such an industrial downturn, GDP growth can only be due to various kinds of accounting fraud with financial assets.

The official PMI (expert index of the state of the industry; its value below 50 means stagnation and decline) of China’s industry (49.7) has been in the red for 5 consecutive months:

China NBS Manufacturing PMI
Pic. 6

In other sectors of the economy, growth is still (51.0), but the weakest in 8 months:

China Non Manufacturing PMI
Pic. 7

However, private studies are more optimistic – in industry 51.0:

China Caixin Manufacturing PMI
Pic. 8

We will only note that, given the habit of modern statistics to seriously underestimate inflation, most likely, the recession is already everywhere.

UK Industrial PMI 43.0 – minimum since May 2020, and before that – since 2009:

United Kingdom Manufacturing PMI
Pic. 9

In Canada, 48.0 is also the bottom since the spring of 2020, previously such numbers were (for a short time) in 2015:

Canada Manufacturing PMI
Pic. 10

The Texas Federal Reserve Area Industrial Activity Index has been in the red for 16 consecutive months:

United States Dallas Fed Manufacturing Index
Pic. 11

The same region’s service sector index is minus 15 months in a row:

United States Dallas Fed Services Index
Pic. 12

Business confidence in the Netherlands has been at the bottom since the end of 2020, and before that these numbers were 10 years ago:

Netherlands Business Confidence
Pic. 13

The same picture in Sweden:

Sweden Business Confidence
Pic. 14

And in Italy:

Italy Business Confidence
Pic. 15

A similar situation in the industry of the eurozone:

Euro Area Industrial Sentiment
Pic. 16

And in general, in its economy:

Euro Area Economic Sentiment Indicator
Pic. 17

Accordingly, some other indicators show the crisis:

Eurozone household loans +1.3% per year – 8-year minimum:

Euro Area Household Credit Growth
Pic. 18

There is no more money to pay back loans.

Monetary supply M1 (without going into subtleties – cash) -9.2% per year:

Euro Area Money Supply M1
Pic. 19

Aggregate M3 (extended money supply serving the money circulation) -0.4% per year – this has never happened in 42.5 years of observations:

Eurozone M3 Money Supply YoY
Pic. 20

A little clarification: the expanded money supply must correspond to the structure of the economy and, given its more or less fixed structure, change along with it (if it is artificially overestimated or underestimated, either inflation or deflation begins). Since there are no fundamental changes in prices, they were growing a year ago, now the situation is more or less balanced (see below), in the consumer sector there is an increase in prices, in the industrial sector there is a decline, then such a picture with the money supply suggests that the EU economy is in the worst crisis in half a century…

Australian building permits -8.1% m/m after -7.9% m/m:

Australia Dwelling Approvals MoM
Pic. 21

And -10.6% per year – the 22nd monthly negative in a row:

Australia Building Permits YoY
Pic. 22

The indicator is at the levels of 2009-12, half of the peak values:

Building Approvals, Australia
Pic. 23

New buildings in Japan -6.7% per year – the 5th minus in the last 6 months:

Japan Housing Starts
Pic. 24

House prices in Britain -5.3% per year – 14-year low:

U.K. Nationwide HPI YoY
Pic. 25

U.S. pending existing home sales -14.0% per annum – 26th consecutive negative:

United States Pending Home Sales YoY
Pic. 26

No wonder, as US housing prices are rising again, and according to private researchers:

United States Case Shiller Home Price Index MoM
Pic. 27

and according to the authorities:

United States House Price Index MoM
Pic. 28

The US 30-year mortgage rate remains at a 23-year high (7.31%):

United States MBA 30-Yr Mortgage Rate
Pic. 29

French CPI (Consumer Price Index) +1.0% per month – over 33 years of data collection, it was higher only once, in March 2022:

France Inflation Rate MoM
Pic. 30

Apparently, consumer prices went up again. Given the decline in the money supply, this most likely means that the costs of producers are growing significantly, on a scale of 10-15% per year. Against the backdrop of falling demand, this is natural, but there is deflation in industry. That is, the profitability of the business falls significantly (and how else to compensate for the increase in costs). The next stage is an increase in the number of bankruptcies and a further fall in aggregate demand.

PPI (industrial price index) of Brazil -14.1% per year – an anti-record for 72 years of statistics:

Brazil Producer Prices Change
Pic. 31

PPI Italy -10.2% per year – also a record weak value:

Italy Producer Prices Change
Pic. 32

Apparently, these countries are ahead of the rest of the world, in the US PPI is even higher than 0, although prices for the entire set of industrial goods have been actively falling for many months, we noted this in one of our previous reviews.

Import prices in Germany -13.2% per year – over 60 years of observations, it was lower only in 1987:

Germany Import Prices YoY
Pic. 33

The number of open vacancies in the US is the lowest in almost 2.5 years:

United States Job Openings
Pic. 34

And the unemployment rate is the highest in 1.5 years:

United States Unemployment Rate
Pic. 35

As usual, these statistics are extremely doubtful: labor statistics are painfully distorted (due to their politicization). But a much less distorted graph of the average working week shows that it is gradually decreasing:

United States Average Weekly Hours
Pic. 36

The number of unemployed in Germany has been growing for 7 months in a row:

Germany Unemployment Change
Pic. 37

And already for the maximum of 26 months, and excluding the covid surge – from the end of 2016:

Germany Unemployed Persons
Pic. 38

And, finally, one of the most informative indicators of the general economic state of affairs for some EU countries:

Retail sales in Sweden -2.1% per year – the 15th negative in a row:

Sweden Retail Sales YoY
Pic. 39

German retail -2.2% per year – also the 15th negative in a row:

Germany Retail Sales YoY
Pic. 40

Main conclusions. The structural crisis continues, but it seems that its scale is growing. This should not be in accordance with the theory, but only in a situation where the state does not interfere in the economy. And it actively intervenes, and on a fairly large scale. As a result, structural changes begin. Car theft is on the rise in the US

Pic. 41

And the ratio of prices for rent and purchase of housing is changing:

Pic. 42

The relationship between the two is very stable (if the price of a house goes up, households stop buying and start renting), so such a strong distortion indicates a serious problem in the economy.

Well, another graph showing sharp structural changes in the US economy:

Pic. 43

We will not even comment on the possible reasons for such changes, just their presence is enough.

Well, in conclusion, we state that, as we showed in recent reviews, the surplus of household income created during the covid period (at the expense of the budget) is practically consumed. And this means that if you do not start a new campaign to issue budget money to households, then a serious drop in aggregate demand will begin. And this is extremely dangerous in an election year.

As an illustration, here are two graphs published by Pavel Ryabov (Spydell) in his telegram channel:

Pic. 44
Pic. 45

In general, there is a feeling that the summer is over (calendarly, for sure) and you need to prepare for harsh everyday life. So we wish our readers to have a good rest on the weekend, apparently, difficult working weeks are starting!


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