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Inflation Jumped by 3.8% in Q1, “Real GDP” Rose 1.6%, Dragged Down by Record Trade Deficit and Drop in Inventories

May 1, 2021

Inflation Jumped by 3.8% in Q1, “Real GDP” Rose 1.6%, Dragged Down by Record Trade Deficit and Drop in Inventories

Even the Fed’s repressed inflation measure without food and energy rose 2.3% annual rate in Q1.

The US economy, as measured by inflation-adjusted GDP, grew by 1.6% in the first quarter from Q4 2020, according to the advance estimate of the Bureau of Economic Analysis this morning.

If you read in the headline that it grew by “6.4%,” that sounded impressive, but it was “annualized”; it essentially multiplied the quarterly growth rate (1.6%) by 4. There are not many countries outside the US, if any, that report “annualized” GDP growth rates, because they’re really just misleading for normal people.

GDP inflation jumped by 3.8%, PCE inflation by 3.5%.

The BEA’s broadest inflation measure, the price index that roughly parallels the inflation adjustment to GDP (the “price index for gross domestic purchases”), jumped by 3.8% annual rate in Q1, more than double the rate of 1.7% in Q4.

The BEA’s narrower PCE (“personal consumption expenditure”) price index jumped by 3.5% annual rate in Q1.

And the BEA’s price index that has become the Fed’s measure for inflation, “core PCE” (PCE without food and energy) rose by 2.3% annual rate, tracking above the Fed’s former target of 2.0%. “Former target” because now the Fed is looking for inflation above 2%.

GDP in dollars.

In dollar terms, real GDP in Q1 amounted to a “seasonally adjusted annual rate” of $19.09 trillion. This was still down about 0.9% from the peak in Q4 2019 – catching up:

Consumer spending rose 2.6% from the prior quarter, to an annual rate of $13.3 trillion in “chained 2012 dollars” (to adjust for inflation), a tad below the peak in Q4 2019.

This jump was powered by the $600 stimmies that went out in late December and the first waves of the $1,400 stimmies that went out in the latter part of March. In Q1, consumer spending accounted for 69.7% of GDP:

…click on the above link to read the rest of the article…

Inflationary Financing and GDP

August 27, 2019

INFLATIONARY FINANCING AND GDP

This article demonstrates that only government borrowing in the US and UK drives GDP growth. This surprising conclusion is confirmed by long-run statistics. GDP does not represent economic progress, nor does it include the expansion of activity in the non-financial private sector, because that marries up with larger trade deficits, which are excluded from GDP. These findings have important implications for how the global downturn will be reflected in national statistics for the US and UK and the eventual prospects for the dollar and sterling.

Introduction

We tend to think of a nation’s accounts as being split between government and the private sector. It is for this reason that key tests of a nation’s economic sustainability and prospects for the currency are measures such as a government’s share of a nation’s economic output, and the level of government debt relative to gross domestic product.

While there is value in statistics of this sort, it is principally to give a quick overview in comparisons with other nations. For a more valuable analysis it is always worthwhile following different analytical approaches in assessing the prospective evolution of a currency’s future purchasing power.

Bald comparisons between government and non-government activity are a bad indicator of the true position. A more practical approach would admit that government finances are inextricably linked with the private sector. As Robert Louis Stevenson might have put it, a public servant is a Mr Hyde, who is a non-productive cost on productive society, while being a Doctor Jekyll spending his salary into the private sector as a consumer and contributing to a nation’s production in a demand role. The source of Mr Hyde’s income is the production of others, and increasingly his pay is made up by the debasement of everyone’s currency. Governments also spend money acquiring private sector goods and services, further distorting the overall picture. It all takes some untangling, a long way beyond a simplistic or conventional approach.

…click on the above link to read the rest of the article…

GDP: Fake News

April 28, 2019

GDP: Fake News

The first-quarter GDP number was released this morning. And at 3.2%, it came in far above estimates. Consensus was about 2.3%. It was also the highest Q1 GDP print since 2015.

But there’s probably less here than meets the eye.

About half the GDP gain came from a surge in inventories and a sharp reduction in the trade deficit, neither of which is sustainable. They are likely one-time boosts.

The economy has been growing since June 2009, making this the second-longest economic expansion on record. However, it has also been the weakest economic expansion on record. That has not changed under President Trump.

Even during Obama’s weak expansion we saw strong quarters including the first quarter of 2015, which was 3.2%, and the second quarter of 2015, which was almost 3%. The problem is that these strong quarters soon faded; growth in the fourth quarter of 2015 was only 0.5%, almost recession level.

Under Trump, second-quarter 2018 growth was a very impressive 4.2% annualized. Third-quarter 2018 growth was 3.4%. Trump’s tax cuts seemed to be producing exactly the kind of 3–4% sustained trend growth Trump had promised.

But then the economy put on the brakes and growth slowed to only 2.2% in the fourth quarter. It looked like the 2018 “Trump bump” in growth was over and growth was returning to the 2.2% trend that had prevailed during the Obama administration.

And despite the first quarter’s 3.2% outlier, I expect lower GDP in the quarters ahead, returning to the same punk levels we’ve seen for nine years.

For the year, economists believe GDP will expand 2.4%, down from last year’s 2.9% gain, as the boost from the 2017 tax cuts and increased government spending over the past two years start to fade.

What about the possibility of recession?

Most investors are familiar with the conventional definition of an economic recession. It’s defined as two consecutive quarters of declining GDP combined with rising unemployment and a few other technical factors.

…click on the above link to read the rest of the article…

Savings–Not Tariffs Will Make America Great Again

October 20, 2018

Savings–Not Tariffs Will Make America Great Again

While the farcical Kavanaugh confirmation hearings dominated the news cycle for the past couple of weeks, little mention was made of a disturbing economic headline – the August US trade deficit. Despite all the bluster from the Trump Administration about “winning trade wars” and “trade wars are easy,” America’s trade imbalances for August were the highest ever and its deficit with its most contentious partner – China – reached an all-time high.

Some highlights or low lights for the Trump Administration and the clueless economic nationalists were:

August imports of industrial supplies and materials ($49.7 billion) were the highest since December 2014 ($51.8 billion).
August imports of automobile vehicles, parts, and engines ($31.7 billion) were the highest on record.
August imports of other goods ($9.1 billion) were the highest on record.
August petroleum imports ($20.5 billion) were the highest since December 2014 ($23.6 billion).*

These numbers will probably mean that the Trump Administration will push for more and stiffer tariffs, although the President is set to meet with Chinese President Xi Jinping next month. Yet, if anything comes out of the meeting, it will have little impact on US trade imbalances or the economy overall.

President Trump does not have to meet with the Chinese President or, for that matter, any other head of state, for the cause of US trade problems emanate right where he currently resides – Washington, D.C. The US trade deficit is the culmination of years of ruinous Congressional and Presidential polices of high taxes, onerous regulations, and deficit spending which have gutted the nation’s manufacturing base. The US simply does not produce goods like it used to and has been kept afloat by its status as the world’s reserve currency. “King Dollar” has allowed America to consume without having to produce.

…click on the above link to read the rest of the article…

Record Deficits, Stronger Dollar Equals Record China Trade Deficit

July 16, 2018

Record Deficits, Stronger Dollar Equals Record China Trade Deficit

Sometimes math is a real bitch. Donald Trump is a smart guy. I know he knows math.

Too bad he’s ignoring it.

Here’s the gig. The title says it all. Government spending is rising rapidly. More actual money is flowing into the US economy. Where is that spending going? To buy cell phones, computers, cars, office supplies and all the rest.

It doesn’t matter if the purchase is made at Best Buy through a Purchase Order, the money still goes to stuff built and imported from China. The second order effect is that even if it goes to subsidize a farmer in Iowa or a defense contractor in California, that money winds up in the hands of a consumer who does what?

Goes to Best Buy and buys a new TV. This isn’t rocket science folks, it is simple cause and effect.

More money chases those goods. Despite the naysayers, Apple is selling a crap-ton of $1200 phones…. built where? China.

So, the budget deficit thanks to record spending is fueling the very trade deficit with China that Trump is complaining about daily.

Here’s the math.

Big Badda Boom

First up is the budget deficit numbers through nine months of fiscal year 2018, courtesy of Zerohedge.

This resulted in a June budget deficit of $75 billion, better than the consensus estimate of $98BN, and an improvement from the $147 billion deficit in May and as well as slightly less than the deficit of $90.2 billion recorded in June of 2017.This was the second biggest June budget deficit since the financial crisis…

…The June deficit brought the cumulative 2018F budget deficit to over $607BN during the first nine month of the fiscal year, up 16% over the past year; as a reminder the deficit is expect to increase further amid the tax and spending measures, and rise above $1 trillion.

…click on the above link to read the rest of the article…

China: Something Must Burst

September 10, 2016

CHINA: SOMETHING MUST BURST

“I know from a common sense financial standpoint that something has to burst. When a country is losing billions and billions and billions of dollars a year and when other countries are making hundreds of billions of dollars, something is going to burst” That was businessman Trump on America’s trade deficit 27 years ago. It could be candidate Trump on the trade deficit today. The worry then, widely shared, was Japan. Now it is China. Now, as then, the worries are on the wrong side.

In the first half of the 1980s the dollar surged as a result of the Federal Reserve’s tight money to fight inflation. Partly as a consequence, Japanese imports poured into America and US companies lost market share. So pressured was America’s car industry that the Reagan administration forced Japan to agree to Voluntary Export Restraints. As the ill-fated Mr Takagi explained to John McClane in 1988’s Die Hard, “Pearl Harbor didn’t work so we got you with tape decks”

The Louvre Accord of 1985 ended this. Central banks worldwide agreed to boost their currencies against the dollar. Now, as the dollar/yen rate shifted the other way, Japanese capital poured into America buying iconic assets such as the Biltmore Hotel and the Mobil Building. There were worries about a “corporate Japanese takeover” of America.

And, in 1989, something burst but not, perhaps, what businessman Trump expected. To meet its Louvre Accord commitments the Bank of Japan brought its policy rate down from 7.44 per cent in November 1985 to 3.37 per cent in August 1987 and kept it there. This fuelled an asset price boom: in 1988 the land surrounding Japan’s Imperial Palace was said to be worth more than the whole of California. The Nikkei Stock Index rose from 22,621 in November 1987 to 38,130 in December 1989 when it accounted for more than one third of the world’s stock market capitalization.

…click on the above link to read the rest of the article…

All is Not Well

March 28, 2016

All is Not Well

The 1987 stock market crash raised concerns for the dangers associated with mounting U.S. “twin deficits.” Fiscal and trade deficits were reflective of poor economic management. Credit excesses – certainly including excessive government borrowings – were stimulating demand that was reflected in expanding U.S. trade and Current Account Deficits. Concerns dissipated with the revival of the bull market. These days we’re confronting the consequences of 30-plus years of mismanagement.

Japan was the early major recipient of U.S. Bubble excess (throughout the eighties). The world today would be a much different place if the policy onus had fallen upon the Fed and congress to rein in U.S. borrowing excesses. Instead, enormous pressure was placed on Japan (and, later, others) to ameliorate trade surpluses with the U.S. by stimulating domestic demand. Such stimulus measures were instrumental in (repeatedly) stoking already powerful Bubbles to precarious extremes.

Fiscal and Current Account Deficits exploded in the early-nineties post-Bubble period. And as the nineties reflation gathered momentum, the boom in Wall Street and GSE finance pushed the Current Account to previously unimaginable extremes. Then, as the decade progressed, the associated global boom in dollar-based finance proved ever more destabilizing. Always ignoring root causes, each new crisis provided an excuse to further stimulate/inflate.

The fundamentally unsound dollar proved pivotal for European monetary integration, as the strong euro currency coupled with global liquidity abundance ensured runaway Bubble excesses throughout Europe’s periphery. If the U.S. could run perpetual Current Account Deficits, why not Greece, Italy, Spain and Portugal? Having ignored problematic financial and economic imbalances for years, when European troubles erupted everyone turned immediately to pressure the big surplus economy (Germany) to further stimulate their Bubble economy.

Economists traditionally viewed persistent Current Account Deficits as problematic. But as New Paradigm and New Era thinking took hold throughout the nineties, all types of justification and rationalization turned conventional analysis on its head.

…click on the above link to read the rest of the article…

G-20 Needs To “Man Up” Or Risk Sparking Market Chaos, Citi Warns

February 26, 2016

G-20 Needs To “Man Up” Or Risk Sparking Market Chaos, Citi Warns

Two days ago, the man who now signs your Federal Reserve notes threw cold water on hopes for a so-called “Shanghai Accord.”

Over the past month or so, anticipation has built among market participants for some manner of coordinated policy response at this weekend’s G20 summit in Shanghai. The hoped for agreement would ideally be something akin to the 1985 Plaza Accord between the United States, France, West Germany, Japan, and the United Kingdom, which agreed to weaken the USD to shore up America’s trade deficit and boost economic growth.

Calls for coordinated action come on the heels of a turbulent January in which collapsing crude, RMB jitters, and worries that central banks are out of bullets have sowed fear in the minds of investors. “We remain sellers into strength in coming weeks/months of risk assets at least until a coordinated and aggressive global policy response (e.g. Shanghai Accord) begins to reverse the deterioration in global profit expectations and credit conditions,” BofA said last week, ahead of the summit.

“Don’t expect a crisis response in a non-crisis environment,” Lew said in an interview broadcast Wednesday with David Westin of Bloomberg Television. “This is a moment where you’ve got real economies doing better than markets think in some cases.”

Whether or not you agree with Lew’s assessment of “real economies” or not, the message was clear. The US isn’t set to support some kind of joint statement on fiscal stimulus and may not even be willing to be part of a consensus on the need to implement emergency measures to juice global growth and trade.

On Friday, the soundbites are rolling in as the world’s financial heavyweights opine on the state of the decelerating global economy and the turmoil that likely lies ahead for markets.

…click on the above link to read the rest of the article…

China’s Hard Landing To Trigger Meltdown In India: “We Will See Another Crisis”

January 11, 2016

China’s Hard Landing To Trigger Meltdown In India: “We Will See Another Crisis”

In late September, India “surprised” 51 out of 52 economists by cutting rates a larger than expected 50 bps.

Despite RBI Governor Raghuram Rajan’s penchant for catching markets off guard and despite the fact that exports had fallen for eight consecutive months, economists still failed to predict that anything more than 25 bps was in the cards.

“The weakness in India’s exports is striking, not only in terms of past trend, but also from a cross country perspective,” Deutsche Bank wrote at the time. “Indeed, India’s exports performance has been the weakest in the region in 2015.”

In short: in a world gone Keynesian crazy, you live and die by your willingness to engage in competitive easing and with China having just a month earlier moved to devalue the yuan, India had little choice but to cut lest the export picture should darken further.

Since then the malaise has deepened.

Exports have now fallen for 12 straight months and although some of the decline is probably attributable to slumping prices (as opposed to lower volumes), it’s worrisome nevertheless.

“India’s external trade likely fell for second consecutive year in FY16E, with both exports and imports contracting by 18.5%YoY and 17.2%YoY in the period Apr-Nov’15,” Citi notes, adding that “the meltdown in India’s exports and imports was even sharper than the global tradewhich contracted by 12- 13%YoY.”

On Friday, in the wake of China’s continued devaluation of the yuan, Indian Trade Minister Nirmala Sitharaman expressed concern about the effect a sharply weaker RMB will have on her country’s trade deficit with Beijing. “It’s worrying,” she said. “My deficit with China will widen.”

India is now looking at ways to prevent a flood of cheap imports from hitting domestic producers. “India steel companies such as JSW Ltd have asked the government to set a minimum import price to stop cheap imports undercutting them,” Reuters writes. “A similar measure was adopted in 1999.”

…click on the above link to read the rest of the article…

Exclusive: “And It’s Gone… It’s All Gone” – The One Gold Scandal That Goes To The Very Top

December 25, 2015

Exclusive: “And It’s Gone… It’s All Gone” – The One Gold Scandal That Goes To The Very Top

Long before Turkey was flagrantly arming and funding the CIA-created “terrorist organization” known as ISIS, there was another, far more elaborate way in which Turkey was flaunting international sanctions against an ostracized state – in this case Iran – which involved an epic gold smuggling triangle of Hollywood-thriller proportions, all made possible thanks to the United Arab Emirate city of Dubai.

Best known known for its luxury shopping, ultramodern architecture including the world’s tallest building, a lively nightlife scene, and a facade of openness and decorum, what Dubai is less known for is its unprecedented seedy underbelly of corruption and untouched criminality among the handful of billionaire oligarchs, princes, sheiks and sultans, who quietly dominate the local (and global) power and financial structure.

But first, a little history.

It may seem like a distant memory now, but just a few short years ago, instead of a close ally of Barack Obama, Iran was a pariah state subject to international financial sanctions due to its nuclear program development, one which Israel had repeatedly (and famously) threatened would attack preemptively to prevent Iran from obtaining a nuclear weapon.

Iran, of course, had no choice but to find ways to keep its economy going, and in order to circumvent these sanctions, it resorted to the oldest form of trade known to man: gold.

This, in itself, is not surprising. What is surprising is how and with whom Iran collaborated to breach the international embargo in order to obtain this valuable and much needed gold, which it could then barter with other countries – notably those along the Pacific Rim – in exchange for any and all needed products and services.

…click on the above link to read the rest of the article…

Forget China: This Extremely “Developed” Country Just Suffered Its Biggest Money Outflow Ever

November 2, 2015

Forget China: This Extremely “Developed” Country Just Suffered Its Biggest Money Outflow Ever

While understandably all eyes have been fixed on every monthly capital outflow update from China (even the ones that the Politburo is clearly massaging), few have noticed that one of the biggest total outflows currently in the global developed economy is taking place right in America’s own back yard.

According to BofA’s Kamal Sharma, Canada’s basic balance – a combination of the capital and the current account: a measure of national accounts that spans everything from trade to financial-market flows – swung from a surplus of 4.2% of GDP to a deficit of 7.9% in the 12 months ending in June. That’s the fastest one-year deterioration among 10 major developed nations.

Citing Sharma’s data Bloomberg writes that “money is flooding out of Canada at the fastest pace in the developed world as the nation’s decade-long oil boom comes to an end and little else looks ready to take the industry’s place as an economic driver.” In fact, based on the chart below, the outflow is the fastest on record.

“This is Canadian investors that are pushing money abroad,” said Alvise Marino, a foreign-exchange strategist at Credit Suisse Group AG in New York. “The policy in Canada the last 10 years has greatly favored investments in energy. Now the drop in oil prices made all that investment unprofitable.”

The reasons for the accelerating otflows are familiar, or mostly one reason: the collapse in crude oil, among the nation’s biggest exports, has dropped to half of its 2014 peak. “The slump has derailed projects this year in Canada’s oil sands – one of the world’s most expensive crude-producing regions. Royal Dutch Shell Plc’s decision to put its Carmon Creek drilling project on ice last week lengthened that list to 18, according to ARC Financial Corp.”

Worse, there does not appear to be any improvement, despite the recent stabilization in Brent prices:

…click on the above link to read the rest of the article…

The Currency Manipulation Charade

May 28, 2015

The Currency Manipulation Charade.

NEW HAVEN – As the US Congress grapples with the ever-contentious Trans-Pacific Partnership – President Barack Obama’s signature trade legislation – a major stumbling block looms. On May 22, the Senate avoided it, by narrowly defeating – 51 to 48 – a proposed “currency manipulation” amendment to a bill that gives Obama so-called “fast-track” authority to negotiate the TPP. But the issue could be resurrected as the debate shifts to the House of Representatives, where support is strong for “enforceable currency rules.”

For at least a decade, Congress has been focusing on currency manipulation – a charge leveled at countries that purportedly intervene in foreign-exchange markets in order to suppress their currencies’ value, thereby subsidizing exports. In 2005, Senators Charles Schumer, a liberal Democrat from New York, and Lindsey Graham, a conservative Republican from South Carolina, formed an unlikely alliance to defend beleaguered middle-class US workers from supposedly unfair competitive practices. Stop the currency manipulation, went the argument, and America’s gaping trade deficit would narrow – providing lasting and meaningful benefits to hard-pressed workers.

A decade ago, the original Schumer-Graham proposal was a thinly veiled anti-China initiative. The ire that motivated that proposal remains today, with China accounting for 47% of America’s still outsize merchandise trade deficit in 2014. Never mind that the Chinese renminbi has risen some 33% against the US dollar since mid-1995 to a level that the International Monetary Fund no longer considers undervalued, or that China’s current-account surplus has shrunk from 10% of GDP in 2007 to an estimated 2% in 2014. China remains in the crosshairs of US politicians who believe that American workers are the victims of its unfair trading practices.

Read more at http://www.project-syndicate.org/commentary/currency-manipulation-legislation-tpp-by-stephen-s–roach-2015-05#VmdR75E4svhYI0m8.99

UK trade deficit narrows after oil price falls

January 9, 2015

UK trade deficit narrows after oil price falls

The falling price of oil helped to narrow the UK’s trade gap with the rest of the world in November to its lowest since June 2013, official figures show.

The Office for National Statistics (ONS) said the UK’s deficit in goods and services was £1.4bn in November, compared with £2.2bn in October.

But it said this reflected a fall in the value of imports rather than an increase in export activity.

Imports fell £1.1bn in the month, which included a £0.7bn fall in oil imports.

The price of Brent crude oil has fallen by more than 50% since August. The drop has been blamed on oversupply, in part as a result of increased domestic oil production in the US, and slowing demand, particularly in China.

The UK’s £8.8bn deficit in goods was partly offset by its £7.4bn surplus in the supply of services.

The trade gap represents the difference between the value of goods and services we export around the world against the value of those we import.

…click on the above link to read the rest of the article…

Fed looks past a world in turmoil, confident in U.S. recovery

January 8, 2015

Fed looks past a world in turmoil, confident in U.S. recovery

(Reuters) – U.S. central bankers have looked beyond a global deflation threat, fear of energy-sector bond defaults, and a surge of oil patch layoffs to reach what appears to be a firm conclusion: the U.S. recovery is here to stay.

New trade data released on Wednesday and signs of ever-stronger consumer spending confirmed the United States remains the bright spot in a global economy plagued by uncertainty.

The trade deficit shrank in November to less than $40 billion, providing a boost to growth as Americans spent less on imported oil.

Meanwhile, the first corporate reports from the Christmas season showed at least some of that money trickling into stores as J.C. Penney Co Inc. (JCP.N) said same-store sales rose 3.7 percent in November and December, pushing the company’s stock up nearly 20 percent.

At its December policy-setting meeting, according to minutes released on Wednesday, the Federal Reserve took close stock of plunging world oil prices and turmoil in Europe and decided that those negative trends would not undo that underlying strength.

…click on the above link to read the rest of the article…

Canada Posts Trade Deficit In November, And It Turns We Had One In October, Too

January 7, 2015

Canada Posts Trade Deficit In November, And It Turns We Had One In October, Too

OTTAWA – Canada had a larger-than-expected trade deficit in November as a drop in crude oil and bitumen led a broad decline in exports.

Statistics Canada said Wednesday that the country posted a merchandise trade deficit of $644 million in November compared with a deficit of $300 million that had been expected by economists, according to Thomson Reuters.

The federal agency also revised its results for October to show a deficit of $327 million, compared with an initial reading of a $99-million surplus.

BMO Capital Markets senior economist Benjamin Reitzes called the November report “bleak, with negatives almost across the board.”

“While trade performed solidly in 2014 as a whole, it’s not ending the year in particularly good shape,” Reitzes wrote in a note to clients.

“And, the trade deficit is likely to worsen materially due to the steep drop in energy prices, suggesting it will be some time before we see another surplus.”

…click on the above link to read the rest of the article…

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