No Really,… it's the New Normal
This week a deluge of vital economic statistics and relevant policy decisions were released:
- - First estimates of 2nd quarter U.S. growth came in at 1.7%, using the new calculation methodology (otherwise they would have been worse). For reference, the U.S. Economy has experienced real growth at an average rate of 3.3% from 1929–2012
- - The ISM Manufacturing report (which is one of the most important monthly releases to gauge the health of the U.S. Manufacturing sector) showed improvement for the 2nd month in a row
- - The Employment Situation Release showed that 162,000 jobs were added in July and the unemployment rate declined to 7.4%, although the Labor Force -- those actually seeking work -- also declined
- - Personal Income & Outlays showed that Real Disposable Income declined 0.1% this month
- - The minutes from the Federal Open Market Committee ("FOMC") meeting were released, and the committee agreed to the same amount of monetary support ($85BB per month) while reinforcing their unemployment rate bogey of 6.5% (i.e. purchases of mortgage backed securities and treasuries will remain until that bogey is hit)
The Takeaway: Domestic growth and job creation simply will not return to pre-recession levels (in this business cycle) because there has been a fundamental change in the way that global surpluses are recycled. I think this means that the newest breed of successful enterprises over the coming decades will be based on "agglomerative consumption," as more efficiently aggregating marginal demand (instead of cheaper production) helps to solve the global output gap, and not the other way around.
Noteworthy Reads / Events of the Week
- - China's Slow-Motion-Train-Wreck: Reduced growth expectations (that have been pointed out in many Weekly Wraps) in China is gaining momentum with a variety of big banks' economic forecasts. However, there are some that actually believe China is imploding (and make a decent case of it as well). one way to gauge the decline is the growing disparity between local and central government calculations for output in respective provinces -- the Central Government reports numbers as well as the local provinces.
- - Not this Time: On Thursday the European Central Bank ("ECB") left its benchmark interest rate unchanged, however, Draghi repeated that rates would either "stay where they are or go lower," depending on the economic condition of the Eurozone (which comes out August 16th). The ECB also refused to initiate a program where they would release the minutes of ECB meetings. The ECB is the only major Central Bank that doesn't publish its current meeting minutes.
- - He…could…go… all… : Guy Bruten of Alliance Bernstein does a great job of summarizing the impact of of Japan's July 21st elections. The door is now open for Prime Minister Abe toimplement the remainder of his "three arrow" plan (1. aggressive monetary easing, 2. deficit-financed supplemental government budget 3. a program of reforms to achieve growth through stimulating private investment)
- - Overestimated… Again: First quarter GDP was revised downward to 1.1% from 1.8%, the initial release on the data was growth of 2.4%
- - Hold…… hold!: On Wednesday, the Federal Reserve released its most recent FOMC Notes where the Fed confirmed monetary stimulus until "the outlook for the labor market has improved substantially in a context of price stability." (the number specifically stated was a 6.5% rate of unemployment)