miércoles, 6 de mayo de 2015

miércoles, mayo 06, 2015
Ignore the 'whiff of panic' as US economy stalls

The economy contracted in the first quarter once inventories are stripped out. 'It is hard to put lipstick on that pig,' said UniCredit.

By Ambrose Evans-Pritchard, in Washington

9:17PM BST 29 Apr 2015

A woman looks at 'Three Flags' by Jasper Johns during the opening preview at The Whitney Museum of American Art in New York April 23, 2015
A woman looks at 'Three Flags' by Jasper Johns. Fed hawks have been itching to raise rates for the first time in eight years to end rampant moral hazard in the asset markets Photo: Reuters


The US economy has suddenly stalled. A blizzard of shockingly weak figures raise the awful possibility that America's six-year growth cycle since the Great Recession has already rolled over, with unsettling implications for the world.

Worse yet, this apparent exhaustion is taking hold even before the Federal Reserve has begun to raise interest rates or to drain any of its $3.7 trillion of quantitative easing and balance-sheet expansion.
 
Former US Treasury Secretary Larry Summers warned in Davos earlier this year that the Fed typically needs to cut rates by three or four percentage points to combat each cyclical downturn. It is currently at zero. "Are we anywhere near the point when we have 3pc or 4pc running room to cut rates? This is why I am worried," he said.
 
"Nobody over the last 50 years, not the IMF, not the US Treasury, has predicted any of the recessions a year in advance, never," he said.
 
We should not ignore his warnings lightly, yet for once I am an optimist, clinging to the belief that the US will recover from the strange "air pocket" of early 2015. A siege of snow and ice across the North East over the late winter - for the second year in a row, and some say evidence of a drastically slowing Gulf Stream - has obscured the picture. The first flash of data is often wrong, in any case.
 
Yet the latest GDP figures are indisputably atrocious. "It is hard to put lipstick on that pig: This is unequivocally a very weak report," said Harm Badholz from UniCredit.

The slump in the annual growth rate to 0.2pc in the first quarter does not convey the full horror of it. Once you strip out a surge in inventories - often a pre-recession warning - the economy contracted sharply. Investment in business buildings and factories fell 23pc. "A whiff of panic is in the air," said the Economic Cycle Research Institute.

The putatitve post-winter rebound keeps disappointing. Citigroup's economic surprise index has tumbled to deeply negative levels. The Conference Board's index of consumer confidence fell from 101.4 to 95.2 in April.



The Fed has clearly been caught off-guard. Bill Dudley, the New York Fed chief, said as recently as last week that the growth rate had probably dipped to around 1.5pc in first quarter but would soon climb back to its two-year trend path of 2.7pc.

It is by now clear that the 15pc surge in the dollar's trade-weighted index since June - one of the two most dramatic dollar spikes of the post-war era - has done more damage than expected. It has tightened monetary policy through the exchange rate before the Fed has even pulled the trigger.

Exports fell 7.3pc in the first quarter, further evidence that the rotating devaluations carried out by one economic bloc after another are doing little more than stealing demand from others in a beggar-thy-neighbour world of quasi-depression.




The eurozone and Japan are passing the toxic parcel back to the US by driving down their currencies. This is what Mr Summers means when he says "deflation and secular stagnation are the threats of our time".

It is clear too that the energy slump has battered the primary industrial growth engine of the Obama years. The rig count for US shale gas and oil drillers has halved to 932 since October, amounting to a job shock for Texas, Oklahoma, the Dakotas and, increasingly, Pennsylvania. More than 120,000 oil and gas workers have been laid off, and they earn double the blue-collar average.




The Fed thought that the micro-recession in the fossil states would be trumped by the oil dividend for everywhere else, given that cheaper energy acts as a tax cut and has boosted real disposable incomes by 6.2pc (annualized). The spending boom has not yet happened. People are saving the money instead.

The Fed's statement on Wednesday was a masterpiece of obfuscation. It offered no clues on the date of lift-off. It blamed the slowdown on "transitory factors", though only in part. Ellen Zentner from Morgan Stanley said the Fed seems to "lack conviction" that the economy is really back on track.

The one surprise was that it made no reference to the strong dollar. You could take that as faintly hawkish.

Yet all in all, it looks as if the great inflexion point is delayed again. Fed hawks have been itching to raise rates for the first time in eight years to end rampant moral hazard in the asset markets. They cannot yet do so.

Investors no longer think it will come in June. They have pushed out the long-feared moment to September, and repriced the pace of monetary tightening along the maturity curve into 2016.

Citigroup said there would be no rate rise until December.

It is another reprieve for all those around the world who borrowed $9 trillion in dollars during the era of QE and Fed largesse, half of it in Russia, China, Brazil, South Africa and the emerging market bloc, and typically at real interest rates of 1pc. This is up from $2 trillion 15 years ago.

The International Monetary Fund warned earlier this month of a "liquidity shock" for the global system once the Fed pulls the trigger. The fear is that yields on 10-year Treasury bonds could jump abruptly by 100 basis points or more, combining with a further dollar spike to set off a "cascade of disruptive adjustments". The Fund can rest easy for a little longer.

Yet I doubt that this reprieve will last. The fiscal headwinds have abated. The US economy has already shrugged off the most drastic budgetary squeeze since demobilisation after the Korean War, without falling into recession. Fiscal policy is finally neutral again after five years of hard slog.

The money supply is igniting. Gabriel Stern from Oxford Economics says "broad" M3 money has been rising at an annual rate of 8.2pc over the past six months, harbinger of a reflationary revival and perhaps a mini-boom that will catch people by surprise by year's end.

Commercial and industrial loans are growing even faster, accelerating to 15pc on a six-month basis. It is very hard to square this with an economy trapped in doldrums.

The New York Fed says the post-Lehman purge of household debt has "largely run its course".

The overhang of unsold houses on the market has essentially been cleared, and hot spots are booming. My current host in Washington just had to pay a 5pc premium above the asking price for a house in a middle-class neighbourhood, competing against a frenzy of offers.


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The ratio of job openings to applicants is now higher than it was at the top of the last boom in 2007 by a substantial margin. Hours worked have surged. The labour market is tightening hard. Unless Americans have gone through a Puritan conversion, their swelling disposable income must soon start flowing into the shopping malls.

This is not the picture of a country on the cusp of recession.

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