Friday, April 15, 2016
We Are Not In The Mood For This.
Many Who Know claim that first quarter growth will not reflect the real health of our economy. Which is very vibrant and thrilling. Or something like that.
The NY Fed is going to get in the GDP forecasting game. But unlike Atlanta, they are going to modelize it, rather than depending on that irritating data. It's a model on top of data. Since they have already been publishing GDP models on Liberty Street, I don't understand what is so different?
But anyway, here is the link to the new " FRBNY Nowcast". As of this morning, 0.8 Q1 & 1.2 Q2.
Note for non-US persons reading this blog:
1) All US GDP numbers are always annualized.
2) No Fed bank ever forecasts recessions. It's an unwritten rule. Thus this is as close to a recession forecast as you are ever going to see from a Fed source.
3) The basic US annualized quarterly GDP error range is slightly more than one percent.
Admittedly, March was crappy:
The crappiness hardly began in March. Really, folks. So retail joined in the party, a bit. That in a March that included Easter? Hah, it will be revised up. There will be sales in the last week. But still, this is not a growing economy.
Of course, there is always April:
But now it is not just carloads joining the pity party. Intermodal has joined in.
April is the cruelest month? One suspects not, because of this:
That was February. Inventory to sales ratios can't keep rising forever (although they do contribute to GDP). Since March retail sales weren't very good, one can presume that we have additional adjustments ahead.
Since rail is lower, it ain't over. The trucking gauge has been running way better than rail, but look at the petroleum report. Four-week product supplied for distillate fuel oil is down 7% YoY. At this time of year, that's mostly trucking.
NFIB - ah, yes, the small business report. In March's version, the "R" word appeared in a dispirited manner:
For a broader perspective, the Index has turned decidedly “south” over the last 15 months falling from a reading of 100 in December 2014 to 92.8. A “chartist” looking at the data historically might conclude that the Index has clearly hit a top and is flashing a recession signal. The April survey will decide whether or not the alarm should be rung. This month’s change was not statistically significant, just not in a positive direction.This is what he's talking about:
It should be noted (you may read the report on the website) that small business hiring appears past peak,
small business openings look to be stalled or past peak,
and, you know, there's perhaps not much more there:
If you read the link to the pdf of the report and go through the earnings/sales/sales expectations, particularly the last on the bottom of page 9, you'll see that vibrant hiring is unlikely. Price cutting in small firms often precedes a recession:
You may imagine how thrilled they are with the campaign for a $15 hour minimum wage. When the law forces you to pay your workers more than you are earning, hiring preferences ratchet down.
April is the next "large" survey. I expect it to be slightly better. I think this is just going to ooze along, but not upwards. Ooze tends to follow gravity's pull.
Missing a recession bar, but you get the idea from looking at this long term Industrial Production graph:
Note: In case you weren't getting it, Industrial Capacity Utilization (missing a recession bar):
Yikes, even at $12.50 the rural areas are going to be crushed. A lot of the jobs in those areas are really low-value-add since the forest products industry took a nosedive. Not that anybody in the Willamette Valley cares.
There's going to be a period of adjustment, but there is one glaring loophole that I suspect will be used. There's no minimum wage for sole proprietors.
I believe this year it increases in July to $9.75 & $9.50.
Then in 2017 it increases to $10.25/$11.00/$10.00.
So the impact will be gradual, but I do think it will impact employment over 2017/2019.
The governor's trust fund is socked away in no-tax South Dakota.
Minnesota has always hit above its weight in terms of attracting and keeping the wealth builders. Even when our taxes were high, the quality of life or something kept folks here. This has changed in the last few years and dramatically so.
This magazine did some serious research. It turns out that the folks who make a lot--$25 million or so--are bailing out of Minnesota and they're cutting all ties when they do. No visits to the folks back home, no donations to museums, colleges or churches. Their tax advisors tell them that just flying into MSP for a wedding could trigger tax obligations.
These are the folks that fund startups. Minnesota used to be a good place for them. Not anymore, apparently. Medtronic, which makes pacemakers among other stuff, is trying to move out.
I've talked to two libs about this. They both said, nah, there have always been snowbirds who move to Arizona and come back in summer, this is no big deal. I point out that they aren't talking about Karl Larson who retired from 3M with his pension. The real wealth, and the talent behind it, is leaving and providing no forwarding address.