Posts Tagged ‘consumption’

Soaring Corporate Profits As US Worker Pay for Productivity Hits Record Lows

Soaring Corporate Profits As US Worker Pay for Productivity Hits Record Lows

Courtesy of JESSE’S CAFÉ AMÉRICAIN

Two sets of charts tell the story. 

The problem is that when workers are pressed to the wall on pay they lose the ability to consume without taking on debt. And at some point the debt leverage mechanism for consumption breaks down.

Perhaps the problem is related to the one Wall Street is now confronting. How do you continue on in business after having impoverished, alienated, or driven away most of your clientele in the heat of a short term greed enabled by a corrupted political and regulatory system? 

Those who were around in the late 1970′s will recall the absolute disrepute in which equities were held by the public after the grinding bear market of 1973-74. Pit traders spent the better part of the day practicing their origami skills, for lack of serious ‘outside participation.’ Skinning each other when you have run out of greater fools is truly a zero sum game.

Weather report: Cloudy, with a chance of whirlwinds.

Fat profits, slim wages: the fruits of monetary bubbles and trickle down economics.


 

Charts courtesy of ContraryInvestor


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Burning Down the House

Burning Down the House

Courtesy of DEAN BAKER at CEPR 

This column was originally published by The Guardian. 

Las Vegas, US housing market, foreclosures, mortgages

Trash is piled up outside houses at the abandoned Desert Mesa subdivision in Nevada. The north Las Vegas housing authority started the project in 2004, but the entire subdivision has since fallen into foreclosure. Nevada continues to lead the nation in foreclosures, unemployment and bankruptcies. Photograph: Ethan Miller/Getty Images

The howls of surprised economists were everywhere last week as the government reported on Tuesday that July had the sharpest single-month plunge in existing home sales on record. The next day the Commerce Department reported that new home sales hit a post-war low in July.

All the economists who had told us that the housing market had stabilized and that prices would soon rebound looked really foolish yet again. To understand how lost these professional error-makers really are it is only necessary to know that the Mortgage Bankers Association (MBA) puts out data on mortgage applications every week. The MBA index plummeted beginning in May, immediately after the last day (April 30) for signing a house sale contract that qualified for the homebuyers tax credit.

It typically takes 6-8 weeks between when a contract is signed and a house sale closes. The plunge in applications in May meant that homebuyers were not signing contracts to buy homes. This meant that sales would plummet in July. Economists with a clue were not surprised by the July plunge in home sales.

What should be clear is that the tax credits helped to pull housing demand forward. People who might have bought in the second half of 2010 or even 2011 instead bought their home before the tax credit expired. Now that the credit has expired, there is less demand than ever, leaving the market open for another plunge in prices. The support the tax credit gave to the housing market was only temporary.

It is worth asking what was accomplished by spending tens of billions of dollars to prop up the market for a bit over a year with these tax credits. First, this allowed millions of people to sell their home over this period at a higher price than would…
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Consumer Metrics Institute Growth Index

Consumer Metrics Institute Growth Index 

Courtesy of Doug Short; with data from Rick Davis at CMI

Note from dshort: The index data is now updated through August 24. The current Growth Index contraction continues.


 
For the past several months, the Consumer Metrics Institute’s Daily Growth Index has been one of the most interesting data series I follow, and I recommend bookmarking the Institute’s website. Their page of frequently asked questions is an excellent introduction to the service.

The charts below focus on the ‘Trailing Quarter’ Growth Index, which is computed as a 91-day moving average for the year-over-year growth/contraction of the Weighted Composite Index, an index that tracks near real-time consumer behavior in a wide range of consumption categories. The Growth Index is a calculated metric that smooths the volatility and gives a better sense of expansions and contractions in consumption.

The 91-day period is useful for comparison with key quarterly metrics such as GDP. Since the consumer accounts for over two-thirds of the US economy, one would expect that a well-crafted index of consumer behavior would serve as a leading indicator. As the chart suggests, during the five-year history of the index, it has generally lived up to that expectation. Actually, the chart understates the degree to which the Growth Index leads GDP. Why? Because the advance estimates for GDP are released a month after the end of the quarter in question, so the Growth Index lead time has been substantial.

Has the Growth Index also served as a leading indicator of the stock market? The next chart is an overlay of the index and the S&P 500. The Growth Index clearly peaked before the market in 2007 and bottomed in late August of 2008, over six months before the market low in March 2009.

The most recent peak in the Growth Index was around the first of September, 2009, almost eight months before the interim high in the S&P 500 on April 23rd. Since its peak, the Growth Index has declined dramatically and is now deep into contraction territory.

It’s important to remember that the Growth Index is a moving average of year-over-year expansion/contraction whereas the market is a continuous record of value. Even so, the pattern is remarkable. The question is whether the latest dip…
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BILL GROSS: EVERY NATION FOR ITSELF

BILL GROSS: EVERY NATION FOR ITSELF

Courtesy of The Pragmatic Capitalist 

As always Mr. Gross’ monthly outlook is a must read:

It is this lack of global aggregate demand – resulting from too much debt in parts of the global economy and not enough in others – that is the essence of the problem, which only economists with names beginning in R seem to understand (there is no R in PIMCO no matter how much I want to extend the metaphor, and yes, Paul Rugman fits the description as well!). If policymakers could act in unison and smoothly transition maxed-out indebted consumer nations into future producers, while simultaneously convincing lightly indebted developing nations to consume more, then our predicament would be manageable. They cannot. G-20 Toronto meetings aside, the world is caught up as it usually is in an “every nation for itself” mentality, with China taking its measured time to consume and the U.S. refusing to acknowledge its necessity to invest in goods for export.

Even if your last name doesn’t begin with R, the preceding explanation is all you need to know to explain what is happening to the markets, the global economy, and perhaps your own wobbly-legged standard of living in recent years. Consumption when brought forward must be financed, and that financing is a two-way bargain between borrower and creditor. When debt levels become too high, lenders balk and even lenders of last resort – the sovereigns, the central banks, the supranational agencies – approach limits beyond which private enterprise’s productivity itself is threatened. We have arrived at a New Normal where, despite the introduction of 3 billion new consumers over the past several decades in “Chindia” and beyond, there is a lack of global aggregate demand or perhaps an inability or unwillingness to finance it. Slow growth in the developed world, insufficiently high levels of consumption in the emerging world, and seemingly inexplicable low total returns on investment portfolios – bonds and stocks – lie ahead. Stop whispering (and start shouting) the words “New Normal” or perhaps begin to pronounce your last name with an RRRRRRRRRRRR. Our global economy, our use of debt, and our financial markets have changed – not our alphabet or dictionary.

Source: PIMCO 


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US GDP growth rate is unsustainable; recovery will fade

US GDP growth rate is unsustainable; recovery will fade

Magnifying glass on line graph

Courtesy of Edward Harrison at Credit Writedowns 

The US turned in a fairly robust quarter in Q1 2010, with real GDP growth meeting expectations at 3.2% annualized. This comes on the back of a very robust annualized 5.6% growth in the previous quarter. This is the best growth two-quarter growth we have seen since 2003.

However, when one digs deeper, it is obvious this growth is unsustainable because it is predicated on a reduction in savings rates and a releveraging of the household sector. As a result, I expect weak GDP growth in the second half of 2010.

The problem with the BEA reported numbers is the composition of GDP growth. The BEA says in its data release:

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 3.2 percent in the first quarter of 2010, (that is, from the fourth quarter to the first quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 5.6 percent.

The Bureau emphasized that the first-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see the box on page 3). The "second" estimate for the first quarter, based on more complete data, will be released on May 27, 2010.

The increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, exports, and nonresidential fixed investment that were partly offset by decreases in state and local government spending and in residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

The deceleration in real GDP in the first quarter primarily reflected decelerations in private inventory investment and in exports, a downturn in residential fixed investment, and a larger decrease in state and local government spending that were partly offset by an acceleration in PCE and a deceleration in imports.

So the gain in GDP was due to consumption, while GDP decelerated from Q4 2009 due to inventory, exports, residential investment, and state and local government spending. 

Young Couple Shopping at Shoe Store

Translation: These numbers are entirely dependent on an increase in consumer spending. Everything else is becoming a drag on…
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Savings Rates and Bond Yields

Savings Rates and Bond Yields

Courtesy of Michael Panzner at Financial Armageddon 

As the chart shows, the U.S. personal savings rate has loosely tracked notable moves in 10-year Treasury bond yields on both a short-term and long-term basis.

Savingsandyields

Another reason why policymakers keen to kick start consumption might not want to see long-term interest rates go up (any further)… 

 


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Dissonance Overload, Needs and “Innovation”

Dissonance Overload, Needs and "Innovation" 

Courtesy of Charles Hugh Smith Of Two Minds 

Are "businesses" which aggregate user-provided content in order to serve adverts to those users "innovative?" Are they serving a "need" or attempting to contrive a new "need"? 

While I usually present a specific thesis here, today’s topic is more a "work in progress" as I think through the paradoxes and connections between "needs" and contrived needs.

The two beginning data points are the South Pacific island nation of Vanuatu, formerly the New Hebrides, and an article from BusinessWeek on the dozens of Silicon Valley startups founded or funded by Google alumni: And Google Begat…The search giant’s former employees are seeding tech startups— and shaping another wave of innovation.

A friend’s son recently served a Peace Corps stint in a remote Vanuatu village. There is no electricity--illumination is provided by candles--and fresh potable water is a 2 kilometer walk away. The village pursues a generally traditional lifestyle apparently by choice; if you want to own a car and drive around in Western-style petroleum-based affluence, you can do so in the nation’s capital.

In the village, the women reportedly do most of the heavy lifting (agriculture, childcare, etc.) while the men have sufficient free time to brew up some hootch (kava) to enjoy in afternoon conviviality.

This "subsistance" is not poverty in the sense that people have enough to eat, shelter, some basic education, relative security from the predations of the State and/or external marauders (in our era, global Neoliberal Capitalism of the predatory/cartel variety).

This lifestyle is, with modest variations such as kerosene lamps or limited electricity, still lived by hundreds of millions of human beings. It is not to be romanticized or distorted by global-market, post-industrial definitions of "poverty." There are all sorts of poverty once you have enough to eat, a community and shelter, and definitions of a "good life" and a "better life" have to be carefully parsed.

We, on the other hand, are embedded in advanced, post-industrial Neoliberal Capitalism-- post-industrial in the sense that most of the nasty bits are performed elsewhere, so "we" get to live with high standards of environmental control, and Neoliberal in the sense that the Savior State is an active partner with global predatory finance Capitalism to exploit both foreign markets and domestic populations.

By the standards of our status quo, residents of Vanuatu are living at…
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Economic Bottom Calls: Willful Ignorance

Economic Bottom Calls: Willful Ignorance

Courtesy of Karl Denninger at The Market Ticker


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Expect Seven Years of Subpar Growth and High Unemployment

Expect Seven Years of Subpar Growth and High Unemployment

unemployment Courtesy of Mish

BLS data shows Unemployment Rate Tops 10% In 15 States.

Unemployment topped 10 percent in 15 states and the District of Columbia last month, according to federal data released Friday. The rate in Michigan surpassed 15 percent, the first time any state hit that mark since 1984.

The Federal Reserve this week projected that the national unemployment rate, currently at a 26-year high of 9.5 percent, will pass 10 percent by the end of the year.

The Labor Department said it’s the first time in 25 years that any state has suffered an unemployment rate of at least 15 percent. In 1984, it was West Virginia.

The state unemployment report underscores the damage that the longest recession since World War II has inflicted on companies, workers and communities.

The other 14 states where unemployment topped 10 percent last month were: Alabama, California, Florida, Georgia, Illinois, Indiana, Louisiana, Nevada, North Carolina, Ohio, Oregon, Rhode Island, South Carolina and Tennessee.

While Michigan’s rate was the highest in the U.S. in June, the record-high for the state was 16.9 percent in November 1982.

Fed Walks Prediction Up

As noted in Optimistic Unemployment and Housing Forecasts Looking Downright Silly the Fed previously forecast the unemployment rate at 8.4% for 2009 while I called for 9.8% by August. The Fed’s adverse scenario for 2009 was 8.9%.

Here are the Fed’s assumptions for the recently conducted "stress-free test" as laid out in the Fed’s Stress Test White Paper.

Economic Scenarios

Now that the unemployment rate is 9.5% the Fed is calling for 10% by the end of the year.

We could see that by September. What the Fed is doing is slowly walking its prediction up, to match the dismal jobs picture as it unfolds.

No Return to ‘Full’ Employment Until 2015

Former Fed governor Meyer sees No Return to ‘Full’ Employment Until 2015.

The U.S. won’t see a return to “full” employment for another six years, helping to hold down inflation, according to former Federal Reserve Governor Laurence Meyer.

“I think there’s going to be a long legacy of the financial crisis and the deep recession,” Meyer said in an interview today on Bloomberg Radio.

The economy is “a very, very long way off” from its potential growth rate, Meyer said.


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R.I.P. U.S. Consumer

more darn nice economic eye candy

R.I.P. U.S. Consumer

Courtesy of Jake at EconompicData 

Credit for the chart below goes to Wall Street Bear.

consumption expenditure

And where’d that money go (I used rolling 12-month as the monthly data is too choppy)?

personal savings

Before you celebrate the fact that the savings will be consumption at some point in the future, think again. Per Market Ticker:

"Saving", by the way, includes debt paydowns; the government in its "infinite wisdom" computes the "savings rate" as "income less spending", which is not actually correct; money that goes from income to paying down debt isn’t "saved". This increase shows that consumers continue to reduce borrowing activity (out of both choice and necessity) and are desperately trying to tread water in their sea of debt (never mind the occasional shark that comes by for a snack!)

Source: BEA

 


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Zero Hedge

Explosion Hits Russia's Largest Virus Lab Which Houses Plague, Smallpox, Ebola And Other Deadly Viruses

Courtesy of ZeroHedge View original post here.

A sudden explosion at a Siberian virus research center on Monday reportedly left the facility engulfed in flames, according to several Russian news outlets. 

Firefighters and other emergency personnel were dispatched to the "Vector Institute" located several miles from Novosibirsk - an emergency which was upgraded "from an ordinary emergency to a major incident," a...



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Phil's Favorites

The future of work will still include plenty of jobs

 

The future of work will still include plenty of jobs

Even though the future is unknown, Canada’s employment rate has risen steadily from 53 per cent in 1946 to more than 61 per cent today. (Shutterstock)

Courtesy of Wayne Simpson, University of Manitoba

There is now widespread anxiety over the future of work, often accompanied by calls for a basic income to protect those displaced by automation and other technological changes.

As a labour economis...



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Lee's Free Thinking

Is The Drone Strike a Black Swan?

Courtesy of Lee Adler

Pundits are calling yesterday’s drone strke a “black swan.” Can a drone strike on a Saudi oil facility, be a “black swan.”

According to Investopedia:

A black swan is an unpredictable event that is beyond what is normally expected of a situation and has potentially severe consequences. Black swan events are characterized by their extreme rarity, their severe impact, and the practice of explaining widespread failure to predict them as simple folly in hindsight.

I seriously doubt that no one expected or could have predicted a drone strike on a Saudi oil facility.

Call Me A B...

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Insider Scoop

New Relic Cuts 2020 Sales Guidance, Announces Changes In Management

Courtesy of Benzinga

New Relic (NYSE: NEWR) has reaffirmed its second-quarter guidance and cut its sales guidance for fiscal year 2020 from $600 million-$607 million to $586 million-$593 million.

The company’s chief technology officer, Jim Gochee, and chief revenue officer, Erica Schultz, have resigned. New Relic also named board member Michael Christenson as its chief operating officer. Christenson joins from his ...



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The Technical Traders

Metals are following downside sell off prediction before the next rally

Courtesy of Technical Traders

It is absolutely amazing how the precious metals markets have followed our October 2018 predictions almost like clockwork.  Our call for an April 21~24 momentum base below $1300 followed by an extensive rally to levels above $1550 has been playing out almost like we scripted these future price moves.

Now that the $1550 level has been reached, we are expecting a rotation to levels that may reach just below the $1490~1500 level before attempting to set up another momentum base/bottom formation.  And just like clockwork, Gold has followed our predictions and price is falling as we expected. Just look at our October 2018 chart where we forecasted the price of gold...



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Chart School

Crude Oil Cycle Bottom aligns with Saudi Oil Attack

Courtesy of Read the Ticker

Do the cycles know? Funny how cycle lows attract the need for higher prices, no matter what the news is!

These are the questions before markets on on Monday 16th Aug 2019:

1) A much higher oil price in quick time can not be tolerated by the consumer, as it gives birth to much higher inflation and a tax on the average Joe disposable income. This is recessionary pressure.

2) With (1) above the real issue will be the higher interest rate and US dollar effect on the SP500 near all time highs.

3) A moderately higher oil price is likely to be absorbed and be bullish as it creates income for struggling energy companies and the inflation shock may be muted. 

We shall see. 

...

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Kimble Charting Solutions

Bond Yields Due For Rally After Declining More Than 1987 Stock Crash

Courtesy of Chris Kimble

U.S. Treasury Bond Yields – 2, 5, 10, 30 Year Durations

The past year has seen treasury bond yields decline sharply, yet in an orderly fashion.

This has spurred recession concerns for much of 2019. Needless to say, it’s a confusing time for investors.

In today’s chart of the day, we look at a longer-term view of the 2, 5, 10, and 30-year treasury bond yields.

Short to long term bond yields are all testing 7 to 10-year support levels as momentum is at the lowest levels in a decade.

A yield rally is likely due across the board after a recent decline that was bigger than the stock crash in 1987!

If yields fail to ral...



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Digital Currencies

China Crypto Miners Wiped Out By Flood; Bitcoin Hash Rate Hits ATHs

Courtesy of ZeroHedge View original post here.

Last week, a devastating rainstorm in China's Sichuan province triggered mudslides, forcing local hydropower plants and cryptocurrency miners to halt operations, reported CoinDesk.

Torrential rains flooded some parts of Sichuan's mountainous Aba prefecture last Monday, with mudslides seen across 17 counties in the area, according to local government posts on Weibo. 

One of the worst-hit areas was Wenchuan county, ...



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Biotech

The Big Pharma Takeover of Medical Cannabis

Reminder: We are available to chat with Members, comments are found below each post.

 

The Big Pharma Takeover of Medical Cannabis

Courtesy of  , Visual Capitalist

The Big Pharma Takeover of Medical Cannabis

As evidence of cannabis’ many benefits mounts, so does the interest from the global pharmaceutical industry, known as Big Pharma. The entrance of such behemoths will radically transform the cannabis industry—once heavily stigmatized, it is now a potentially game-changing source of growth for countless co...



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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

...

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Members' Corner

Despacito - How to Make Money the Old-Fashioned Way - SLOWLY!

Are you ready to retire?  

For most people, the purpose of investing is to build up enough wealth to allow you to retire.  In general, that's usually enough money to reliably generate a year's worth of your average income, each year into your retirement so that that, plus you Social Security, should be enough to pay your bills without having to draw down on your principle.

Unfortunately, as the last decade has shown us, we can't count on bonds to pay us more than 3% and the average return from the stock market over the past 20 years has been erratic - to say the least - with 4 negative years (2000, 2001, 2002 and 2008) and 14 positives, though mostly in the 10% range on the positives.  A string of losses like we had from 2000-02 could easily wipe out a decades worth of gains.

Still, the stock market has been better over the last 10 (7%) an...



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Promotions

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Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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