23/6/21: Covid19 Deaths and Income Inequality

 

An interesting, although intuitively straight forward note on the determinants of Covid19 deaths: https://twitter.com/youyanggu/status/1407418434955005955. 

As Youyang Gu @youyanggu states, "I believe income inequality is the single best predictor of total Covid deaths in the US. Not income, but income *inequality*. The R^2 is surprisingly high: 0.35."

There are some potentially important issues with this analysis (some are explored here: https://github.com/jsill/usstatecovidanalysis/blob/main/usStateCovidAnalysis.pdf), but the conclusion seems to be qualitatively robust. 

20/6/21: COVID19: Europe and EU27

 

Updating pandemic numbers for the past week for EU27 and Europe:

As the charts clearly show, 

• Europe experienced significant declines in new cases and deaths in recent weeks, in part due to improved rates of vaccinations.
• The third wave is now clearly behind us in both the EU27 and Europe, although European cases are remaining at much higher levels than those in the EU27. A similar pattern is evident in deaths.
• In terms of Covid19 mortality (deaths per 1,000 cases) the rate of mortality has been effectively flat since week 45 of 2020 and is currently running at around 22 deaths per 1,000 cases in the EU27 and Europe.

While these figures show the effectiveness of vaccinations and past lockdown measures, they also present evidence for the need of more robust international efforts in sharing vaccines with countries with lower incomes. Until similar declines are evidenced globally, it is hard to make an argument that any specific region (be it Europe or North America) can be immune from the risks of the pandemic contagion from other countries. More on this risk here: https://trueeconomics.blogspot.com/2021/06/19621-covid19-worldwide-data.html. 

19/6/21: COVID19: Worldwide Data

 

With some time passing since my last update, and the rates of vaccinations ramping up globally, it is easy to forget the simple, but devastating fact: we are still in a global pandemic. Here are the latest weekly totals for new cases and new deaths, worldwide:

Just as the charts show,

• New cases have fallen significantly from the pandemic peak (Wave 4), but remain above the prior trough between Waves 3 and 4. 
• New deaths recorded are still at extremely high levels, and showing an uptick week-on-week in the latest data.

Meanwhile, mortality of new Covid19 cases is stubbornly at the levels observed over the last two waves of the pandemic:

Put differently, the 'rich' world is getting vaccinated (albeit with some variation in the rates), while the emerging markets and middle-income economies remain well behind on vaccinations curve. Which means there is continued threat of a global pandemic re-igniting and the looming uncertainty over the new variants emerging.

So much for the 'reopening' future...

8/6/21: U.S. Investor Confidence under Biden

 My recent comment on the Biden Administration early successes for the Euromoney: https://www.euromoneycountryrisk.com/article/b1rqlvl15wr2mw/special-country-risk-survey-us-investor-confidence-is-returning-under-biden?LS=Adestra2055255%E2%80%A6 

8/6/21: World is more VUCA. Less Risk.

 For those who have been my students in recent years none of this will come as a surprise: the world around us is becoming less 'risk-driven' and more 'VUCA-prone'. By VUCA, of course, we mean volatile, uncertain, complex and ambiguous. 

Here is a neat summary via McKinsey:

None of the above data sets are 'risk' in any structured or definitional sense of that terms. None carry known, easy-to-define probability distributions, none have strictly identifiable impact distributions and none adhere to the normal laws of large numbers. These are uncertain events that are also inter-related through complex contagion pathways. 

Good luck fitting actuarial tables to them... 

8/6/21: This Recession Is Different: Corporate Profits Boom

 

Corporate profits guidance is booming. Which, one might think, is a good signal of recovery. But the recession that passed (or still passing, officially) has been abnormal by historical standards, shifting expectations for the recovery to a different level of 'bizarre'.

Consider non-financial corporate profits through prior cycles: 

Chart 1 above shows non-financial corporate profits per 1 USD of official gross value added in the economy. In all past recessions, save for three, going into recession, corporate profit margins fell below pre-recession average. Three exceptions to the rule are: 1949 recession, 1981 recession and, you guessed it, the Covid19 recession. In other words, all three abnormal recessions were associated with significant rises in market power of producers over consumers. And prior abnormal recessions led to subsequent need for monetary tightening to stem inflationary pressures. Not yet the case in the most recent one.

The second chart plots increases in corporate profit margins in the recoveries relative to prior recessions. Data is through 1Q 2021, so we do not yet have an official 'recovery' quarter to plot. If we are to treat 1Q 2021 as 'recovery' first quarter, profits in this recovery are below pre-recovery recession period average by 2 percentage points. Again, the case of two other recessions compares: the post-1949 recession recovery and post-1980s recovery are both associated with negative reaction of profits to economic cycle shift from recession to recovery.

Which means two things:

1. Market power of producers is rising from the end of 2019 through today, if we assume that 1Q 2021 was not, yet, a recovery quarter (officially, this is the case, as NBER still times 1Q 2021 as part of the recession); and
2. Non-financial corporate profits boom we are seeing reported to-date for 2Q 2021 is a sign not of a healthier economy, but of the first point made above.

In effect, some evidence that Covid19 pandemic was a transfer of wealth from people to companies that managed to trade through the crisis. 

6/6/21: BRIC PMIs for May: Volatile Growth and Surging Inflationary Pressures

 

BRIC PMIs for May 2021 show uneven pace of recovery within the group of the largest Merging and Middle Income economies and a uniform evidence of pressure on inflation side.

• Brazil: Manufacturing PMI is currently running at 53.0 for 2Q 2021 for two months into the quarter, down from 1Q 2021 reading of 55.9. This marks second consecutive quarter of decreases in Manufacturing sector activity in Brazil. Brazil Services PMI is currently running at a deeper recessionary reading of 45.6, compared to 1Q 2021 at 46.1. As the result, Brazil's Composite PMI fell from the already recessionary reading of 47.9 in 1Q 2021 to 46.9 in 2Q 2021 to-date. Prices, meanwhile continued to show severe inflation pressures. Per Markit: "The rate of input cost inflation across the private sector softened further from March's record high, but remained one of the strongest since composite data became available in early-2007. ... In contrast to the trend for input costs, there was a quicker increase in aggregate selling prices. In fact, the rate of charge inflation was the strongest seen in the series history. Manufacturers again saw the sharper rise, despite inflation here softening during May."
• Russia: Manufacturing PMI remains at the same level through the first two months of 2Q 2021 (51.2) as in 1Q 2021, implying steady, but relatively weak growth. That said, monthly numbers have been more volatile in 2Q 2021 so far (range of 50.4 to 51.9) compared to 1Q 2021 (range of 50.9 to 51.5). Russia Services PMI rose to a robust reading of 57.5 in May, pushing the quarterly average to 56.4 2Q 2021 so far, up on 1Q 2021 average of 53.6. All in, Russian PMIs for both sectors are now in the second consecutive > 50.0 readings territory - a good signal. Composite PMI rose to 55.1 in 2Q 2021 to-date, compared to 53.2 in 1Q 2021. This marks the highest composite PMI for any BRIC economy for 2Q 2021 to-date. Just as with global and rest-of-BRICs cases, Russian inflationary pressures were running high in May. per Markit: "Price pressures remained high in May, with rates of private sector cost and charge inflation quickening notably. Sharper supplier price hikes and greater fuel costs reportedly spurred increases in cost burdens."
• India: Manufacturing PMI slipped from 56.9 in 1Q 2021 to 53.2 in 2Q 2021 to-date, marking the second consecutive quarter of declining PMIs. May 2021 reading was at 50.8, signaling, statistically, zero growth conditions in the sector. Services PMI fell below 50.0 mark in May reaching 46.4, with 2Q 2021 reading so far standing at 50.2, down from 54.2 in 1Q 2021. Statistically, the 2Q 2021 reading to-date implies zero growth in the Services sector. As the result, India's Composite PMI fell to 51.8 in 2Q 2021 to-date, down from 56.4 recorded in 4Q 2020 and 1Q 2021. With domestic demand slipping, inflationary pressures remained high, but did not accelerate. per Markit: "The rate of input cost inflation at the composite level eased to a four-month low in May, with slower increases noted at manufacturing firms and their services counterparts. Aggregate selling prices rose moderately and at a rate that was similar to April's. The quicker rate of charge inflation was seen in the manufacturing industry."
• China: China Manufacturing PMI remains relatively robust in 2Q 2021 so far (52.0) compared to 1Q 2021 (51.0), with levels of activity somewhat higher than historical average (50.7). Meanwhile, activity in the Services sector has accelerated, with Services PMI rising from 52.6 in 1Q 2021 to 55.7 in 2Q 2021. The latest Composite PMI reading remains robust at 54.3 for the first two months of 2Q 2021, compared to 52.3 in 1Q 2021, and above, statistically, historical average of 52.6. On inflation, Markit note states: "Both the gauges for input costs and output prices rose higher into expansionary range, indicating tremendous inflationary pressure. ...  "Policymakers mentioned rising commodity prices at the State Council executive meetings on May 12 and May 19. They issued instructions about stabilizing commodity supplies and prices. ... Inflationary pressure would limit the room for monetary policy maneuvering, which could hinder the economic recovery. Some enterprises began to hoard goods in response to rising raw material prices, while others suffered raw material shortages. Supply chains were also significantly affected.""

Per Markit, globally: "Higher employment also reflected companies' efforts to combat rising capacity pressures. Backlogs of work expanded at the fastest rate in 17 years, with stronger increases at both manufacturers and service providers. Demand outstripping supply also led to increased price inflation. Input costs rose to the greatest extent since August 2008 and output charges at the quickest rate on record (since at least October 2009)."

Two charts to illustrate the above trends:

5/6/21: Ireland PMIs for May: Booming Growth and Inflation Signals

 Both inflationary pressures and economic activity indicators are going through the roof in May, signaling a roaring run for 2Q 2021 growth. 

• Manufacturing PMI for Ireland is up at 64.1 in May, compared to 60.8 in April. This is a historical high for the series, for the second month in a row.
• Services PMI for Ireland moved up from April's 57.7 to May reading of 62.1. This marks third consecutive month of above 50 readings, with all of these being statistically above 50.0 line. 
• Construction Sector PMI (data through mid-May) improved, but remains (at 49.3) still in the contracting activity territory. 
• Markit's Composite PMI, based on Manufacturing and Services sectors activity indices, rose from 58.1 in April 2021 to 63.5 in May, setting a new all time high. Again, this is the third consecutive month of above 50.0 readings for the Composite PMI.

The chart above plots my own 3-Sectors Activity Index which is based on all three indices reported by Mrkit and uses Value Added contributions by each sector as weights. 3-Sectors Activity Index rose from 58.69 in April to 62.58 in May, setting an all time high. 

In line with robust economic growth, we are witnessing - just as is the case around the world - continued build up of inflationary pressures. Per Markit release: "Input price inflation accelerated for the fifth successive month in May, reaching the highest since July 2008. Manufacturers continued to see much steeper increases in input prices than service providers, although the differential narrowed in the latest period. Companies passed on higher costs to customers, with output prices increasing at a record pace in May (since September 2002)." Emphasis is mine.