Friday, May 18, 2018
Thursday, May 17, 2018
17/5/18: U.S. Labour Markets and the Trump Administration Record
The Global Macro Monitor have published an exhaustive study of the U.S. labour market trends over the first 15-16 months of the President Trump's tenure. The post is long, brilliantly detailed, and empirically and intuitively flawless (yeah, I know, I don't think I ever used this descriptor of an economics research piece before). So read it in full here: https://macromon.wordpress.com/2018/05/15/deconstructing-the-u-s-jobs-market/.
Top line conclusions are:
- Comparing the "first 15 [monthly] payroll reports of the Trump administration to the last 15 of the Obama administration", "as of the end of April 2018, the Trump economy has generated 2.7 million jobs versus 3.1 million in Obama’s economy, or 373k fewer workers added to payrolls"
- Growth in employment was of lower quality during the Trump tenure to-date too: "the private sector has also added 124k fewer jobs in the Trump economy. Net job creation in the government sector under President Trump is relatively flat." The latter metric puts a boot into the arguments that President Trump is a fiscal conservative aiming to reduce public sector weight in the economy.
- Earnings comparatives are also wobbly: "There is relatively little difference in the growth of average hourly earnings in the Trump and Obama employment reports." Which is more striking when one recognises that the Trump Administration inherited a tightening labour market, in which, normally, one would expect more wages inflation.
- "Job creation in President Trump’s economy outperforms the Obama economy in 5 of the 13 private sector industry groups, most significantly in manufacturing and mining", but "Almost all of the relative outperformance in mining is the result of the reversal in oil prices. Coal mining and auto manufacturing employment has not recovered". In other words, even in the core industries targeted by the Administration for growth, the Administration efforts have little to do with any recovery in the mining sector./
- Cyclically, the authors note that "The results are surprising as GDP growth was significantly higher during the Trump payroll reports, averaging of 2.53 percent on an annual basis, versus 1.56 percent during the last five quarters of the previous administration". However, this also means that current jobs creation is coming toward the end of the expansion cycle, and can be expected to be lower due to constraints of labour supply.
- Key observation, from macroeconomic environment point of view is that "the economy continues to reward capital over labor disproportionately". There is a fundamental problem with this development. The U.S. labour markets flexibility represents a net positive for the private sector productivity in the short run. However, as capital and technological deepening of production processes progresses, the very same flexibility leads to lower degree of upskilling and re-training of the existent workforce. This is a huge source of risk and uncertainty for the U.S. economy forward in terms of longer run potential growth and productivity growth.
In short, read the original post - it is packed with highly informative and very important data and observations!
Source: https://macromon.wordpress.com/2018/05/15/deconstructing-the-u-s-jobs-market/
Tuesday, May 15, 2018
15/5/18: S&P500 Earnings Diversification: International Trading Pays
An intersting (and occasionally covered on this blog) chart via FactSet on earnings and revenue growth for S&P500 constituents based on their exposures to international markets:
As the above clearly shows, globally diversified (by source of activity) companies have stronger growth in earnings and aggregate earnings. Not surprising, in general, but given the relative strength of the U.S. growth, compared to other regions' dynamics, this shows the value of income diversification.
15/518: Four macro charts that explain Trumpvolution
The current growth cycle has been the second longest on record:
Source: FactSet
But it has been much shallower than the previous cycles: "real GDP growth in the current expansion lags the other three expansions—by a lot. As of the first quarter of 2018, real GDP has expanded by 21% since the beginning of the current expansion; this is far lower than the 36% compound growth we saw at this point in the 1991‑2001 expansion. The chart also shows that the growth path for the longest expansions has continued to shift lower over time; the 1961‑1969 expansion saw real GDP grow by 52% by the end of its ninth year, while the economy had grown by just 38% by the end of year eight of the 1982‑1990 expansion."
Source: FactSet
And here's a summary of why loading risks of recession onto households is not such a great idea: "Real consumption has grown by 23% since the summer of 2009, compared to growth rates of 41% and 50% at the same point in the expansions of 1991‑2001 and 1961‑1969, respectively. The reluctance of consumers to spend in this expansion is not surprising when you consider how much of the brunt of the last recession was borne by this group."
Households' net worth collapse in the GFC has been more dramatic and the recovery from the crisis has been less pronounced than in the previous cycles:
Source: FactSet
Hey, you hear some say, but the recovery this time around has been 'historic' in terms of jobs creation. Right? Well, it has been historic... as in historically low:
Source: FactSet
So, despite the length of the recovery cycle, current state of the economy hardly warrants elevated levels of optimism. The recovery from the Global Financial Crisis and the Great Recession has been unimpressively sluggish, and the burden of the crises has been carried on the shoulders of ordinary households. Any wonder we have so many 'deplorables' ready to vote populist? As we noted in our recent paper (see: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3033949), the rise of populism has been a logical corollary to (1) the general trends toward secular stagnation in the economy since the mid-1990s, and (2) the impact of the twin 2008-2010 crises on households.
15/5/18: Beware of the Myth of Europe's Renaissance
My article for last Sunday's Business Post on why the Euro area growth Renaissance is more of a fizzle than a sizzle, and what Ireland needs to do to decouple from the Go Slow Europe: https://www.businesspost.ie/business/beware-myth-europes-renaissance-416318. Hint: not an Irexit... and not more Tax Avoidance Boxes...
15/5/18: TrueEconomics makes top 100 blogs list
Delighted to see True Economics blog making Top 100 Economics Blogs list with the Intelligent Economist https://www.intelligenteconomist.com/economics-blogs/. Huge thanks to all my readers for making this possible!
Monday, May 14, 2018
14/5/18: Seeking Alpha on the U.S. Household Savings Pains
Great to see Seeking Alpha's Senior Editor covering my blog post on the pains of American household savings rates: https://seekingalpha.com/article/4167541-one-emergency-away-financial-disaster-financial-advisors-daily-digest.
The original post referenced is here: http://trueeconomics.blogspot.com/2018/04/28418-great-recovery-with-no-savings-us.html.
14/5/18: Irish Tax Avoidance Machine and the Balance of Payments
One blog post and one paper tackling one of the greater mysteries of the Irish National Accounts, the Balance of Payments, peeling the layers of tax avoidance onion:
- Tax Avoidance and the Irish Balance of Payments paper: https://www.cfr.org/blog/tax-avoidance-and-irish-balance-payments?utm_medium=social_share&utm_source=tw;
- The 2017 Balance of Payments post: http://economic-incentives.blogspot.com/2018/04/the-2017-balance-of-payments.html.
Both worth digesting.
Saturday, May 12, 2018
12/5/18: Monetary Activism at ECB: A Chart of Failure
A simple chart, a great observation by Holger Zschaepitz @Schuldensuehner: "Chart of failure: #Eurozone core inflation has plunged to 0.7% despite #ECB balance sheet at record high. If ECB permanently fails to hit its #inflation target, it's time to rethink target. By the way, there is inflation in stocks, bonds, real estate not measured in official CPI."
The story of ECB racing away from the Fed and even BoJ in pursuit of the inflation Nirvana:
Which brings us to a bigger question: with ECB at play, what is there to brag about when it comes to Europe's latest growth "renaissance"? Read my article in the Business Post tomorrow...
12/5/18: U.S. War in Afghanistan: when the patient yields to the compulsion to repeat
On and off, I have written occasionally about the complete lack of value-for-money accounting in the U.S. military spending and its imaginary successes. This is just another one of such occasions.
Here is a summary of the Special Report by the U.S. military watchdog, filed by the neoconservative in it is geopolitical positioning Foreign Policy magazine (the folks who support wars, like the one conducted in the Afghanistan): http://foreignpolicy.com/2018/05/01/the-afghan-war-isnt-being-won-says-new-pentagon-audit/.
I have summed the main findings in a series of tweets reproduced here:
Special Inspector General for Afghanistan reconstruction report of May 1: suicide attacks in Afghanistan up 50% in 2017, opium production +63%. Last GDP growth was recorded in 2012, since then, continued recession +
+ U.S. spent $126bn in relief & investment in Afghanistan over 17 years. The country now ranks 183 in the world to "do business.” < 1/3 of Afghans are connected to power grid. +
+ Number of bombs dropped by the West in Afghanistan in Jan-Feb 2018 was the highest it's been since 2013. Suicide attacks in Afghanistan are up 50% in 2017. Casualties from attacks are steadily rising. Sectarian attacks tripled in 2017. +
+ Only 65% of the Afghan population lives under government control, even though direct US expenditures to Afghan security forces of $78bn > than third largest military budget in the world. +
+ Number of serving Afghan military & police fell sharply in 2017, but U.S. forces presence is rising. "Insider attacks by Afghan soldiers are rising".
Note: the IMF data does not show decline in Afghanistan's GDP since 2013 in real terms (domestic currency), or in current US dollar terms, or in PPP-adjusted terms. The issue here is that the IMF data shows national accounts that include U.S. and Western Coalition spending and investment in the country and does not account for population growth. In fact: Afghanistan ranked 23rd lowest in the world in income per capita terms (using PPP-adjusted international dollars) in 2012. In 2017 it was ranked 19th lowest. This does mean that the economy got worse in Afghanistan in recent years. In line with this, Reuters reported earlier this year that Afghanistan's poverty rates have risen "sharply" over the last five years (https://www.reuters.com/article/us-afghanistan-economy/afghanistans-poverty-rate-rises-as-economy-suffers-idUSKBN1I818X) from 38% in 2011-2012, to 55% in 2016-2017. "Food insecurity has risen from 30.1 percent to 44.6 percent in five years, meaning many more people are forced to sell their land, take their children out of school to work or depend on food aid".
More details? In September 2014, Foreign Policy wrote about another report by the same watchdog, headlining their story with a telling tag line: "Watchdog: United States Made Corruption in Afghanistan ‘Pervasive and Entrenched’". It is worth repeating that Foreign Policy is an intellectual bulwark of neoconservative doctrine that saw nothing wrong with any war the U.S. has started in the past.
In January this year, to make the valiant efforts by the Western Coalition (read: Washington) in Afghanistan more transparent, Pentagon sought to withhold key information about the campaign from the public (https://www.reuters.com/article/us-afghanistan-usa-oversight/pentagon-blocks-release-of-key-data-on-afghan-war-watchdog-idUSKBN1FJ0GZ).
Yet, despite the U.S. larger-than-reported presence in the country, January report by SIGAR noted that "43 percent of Afghanistan’s districts were either under Taliban control or being contested". This was after more than 16 years of war waged against the Taliban and other extremist groups by the largest, the mightiest and the best-equipped military force in the world. "Last year [2017], U.S. forces in Afghanistan restricted the amount of data it provided on the ANDSF, including casualties, personnel strength and attrition rates - data that has now been completely withheld." (See https://www.cbsnews.com/news/pentagon-fails-to-disclose-troop-numbers-in-syria-iraq-afghanistan/ for more details).
In 2011, ten years into the campaign that promised to bring democracy and human rights to Afghanistan, the U.S. State Department stopped listing human rights as an objective for the U.S. Afghanistan policies. Not because these rights have been fully restored (or rather instituted), but because it became too embarrassing to keep them in policy documents as a reminder of the U.S. failures.
Seventeenth year into what amounts to a small war for the enormous military machine of the Fourth Rome, and the 'most brilliant', 'highly decorated', grossly overpaid and deeply revered in the popular media culture U.S. generals and politicos are clueless as to why the exceptionalist U.S. of A. has failed to control a dispersed gang of resistance fighters that, unlike the Vietnamese of the 1970s and the North Koreans of the 1950s, do not even have a superpower standing directly behind them. The reason, of course, is in the very ethos of the American power, the notions of exceptionalism and self-appointed mandate, both of which imply zero capacity to think based on historical and rational premises. As one of the authors on the topic quipped, quoting from Freud's 1914 paper Recollecting, Repeating, and Working Through, "...the patient yields to the compulsion to repeat, which now replaces the impulsion to remember... The greater the resistance, the more extensively will acting out repetition replace remembering."
The Freud's quote (part of it) appears in this article from 2017 on the depressing comprehensiveness of the American war failure. It is worth a read: https://www.thenation.com/article/what-the-us-military-still-doesnt-understand-about-afghanistan/ for it narrates in some detail the process of the repeated denial of reality by, at this stage, the third presidential administration in Washington engaged in an imperial dance of victory amidst the defeat.
The staggering cost of the Washington's adventurism in Afghanistan (and Iraq, and Libya, and next up - Syria, as well as in other parts of the world) has now cost the U.S. one of its historically closest proxies/allies, Pakistan (https://www.reuters.com/article/us-usa-trump-pakistan-idUSKCN1B3125). This is a major, strategic defeat, given Pakistan's role in the region and the potential for the strengthening of the Pakistan-India-China-Iran cluster of power contests that will undoubtedly shape the entire region into the future. In simple terms, the U.S. has lost not just the war in Afghanistan, but it is losing dominance over the large swath of land that constitutes the largest cluster of world's population and has strategically central importance to the global economy and resources.
These failures are not surprising, once one takes a more rational look at the U.S. military machine and the religious devotion to it exhibited by Washington and American press. Quoting at length from Forbes (https://www.forbes.com/sites/realspin/2016/11/21/war-and-debt-and-fiscal-ramifications-to-2053/#370435f3d51a):
"As it happens, the Pentagon is unique among federal agencies in having never undergone a full audit, an oversight with serious national security consequences. ...The good news is Congress has finally mandated an audit be completed by September of 2017, a deadline reached after the Department of Defense managed to skirt a government-wide audit requirement for more than two decades. The bad news is likely the audit results themselves. After all, a recent audit of the Army General Fund found bookkeepers somehow screwed up their accounting by $6.5 trillion in 2015. That number is particularly remarkable given that it is 13 times the size of the entire Pentagon budget for that year. “How could the Army misplace, fudge, misappropriate or otherwise lose $6.5 trillion?” asked an incredulous Matthew Gault reporting on the Army audit for War Is Boring. “It’s simple. Years of no oversight, bad accounting practices and crappy computer systems created this problem. And remember, this is just the Army and just its general fund.” If that’s the sort of rot we find in a single branch of the military, imagine the fiscal horrors yet to be uncovered throughout."
Note: the Defense Department delayed the audit start until December 2017 and is now promising a report from the auditors by November 2018. Worse, the audit is conducted by internal teams, in other words, the lunatics who run the asylum are now counting plates and pills in the place too. To put some veneer on this exercise, the Inspector General has hired 'external audit firms' to help analyse data collected by Pentagon's teams. The same 'audit firms' are some of the largest military and security consulting contractors, of course.
Meanwhile, the idiotic parroting of the past and failed narratives remains the leitmotif of the Washington's policy. Best exemplified by the amnesia-ridden, Ivy League-trained army of status quo dependent 'experts' and the headlines in the U.S. media echoing them: https://www.usnews.com/news/politics/articles/2017-11-27/victory-or-failure-in-afghanistan-2018-will-be-the-deciding-year. "Armed with a new strategy and renewed support from old allies, the Trump administration now believes it has everything it needs to win the war in Afghanistan." This, pretty much, sums up the best that the American-trained 'intellectual class' of the West Point-graduated generals and Harvard-trained 'analysts' can produce in place of a strategy.
The logical denouement of the U.S. failure to learn from Afghanistan adventure is the loss of the U.S. position in the region to China, followed by Iran, Pakistan, India and Russia - in that exact order. Afghanistan is likely to be the next - much larger than Syria - theatre of confrontation between Iran and Saudi-U.S. coalition, with Israel at a play too, and the American liabilities in such a conflict will be well beyond anything experienced in Iraq and Afghanistan combined. A proxy war between Iran and the U.S. via Afghanistan can risk spilling into an outright war between the two countries, which the U.S. will lose more decisively than Afghanistan, although the toll on Iran will be huge as well.
What Afghanistan has been exposing over the last 16 years, plus, is that the Pax Americana lacks not fire power, but vision, and that the lack of vision is what loses wars, and ends empires. Sail on, my thought-lacking friends from the Western Academia, military colleges, Washington's circles of Byzantine power-brokering expertise, and 'influential media'. Keep those aircraft carriers busy circling the globe. Keep awarding your military ranks free parking spaces at Walmarts and rent subsidies in the Paradise.
Wednesday, May 9, 2018
8/5/18: BRICS DECK: Part 2: PMIs, Investment and Inflation
In a recent post (http://trueeconomics.blogspot.com/2018/05/3518-brics-deck-2018-imf-updates.html) I have provided top level analysis of growth dynamics in the BRICS economies based on the IMF WEO April 2018 update. Here is the section of my BRICS deck with updated view on PMIs, Aggregate Investment and Inflation:
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