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Growth Risks To The Economy Intensify – Forbes



Mask mandates now are a reality in many parts of the country. That can’t be good for economic growth in Q3. The first pass at Q2 GDP came in light, with growth of +6.5% where the consensus was north of 8%. Despite that disappointment, markets seemed to like the number, even as Amazon, the poster-child company for pandemic America, disappointed.


Some street economics departments are now seeing Q3 and Q4 with jaundiced eyes, as we do. Goldman Sachs, for example, has recently put the year’s second-half growth projection in the 1.5% – 2.0% range, while the overall consensus is still near 7%. And, as you will see in our comments below, the consensus has consistently missed on the optimistic side, suggesting to us that the upcoming slower growth hasn’t yet been priced into markets.

In fact, a look at the 6.5% Q2 GDP growth pattern reveals that nearly all that 6.5% was in the Q1 to Q2 handoff. Remember, the helicopter money drop in March propelled that month to new growth heights. Some of it spilled over into April, but May and June GDP growth rates were nonexistent. So, while Q2 maintained the March GDP levels providing the 6.5% Q2 bounce, the handoff to Q3 was flat. Maintaining June’s GDP levels would result in a no-growth Q3. While we are not in the predicting business, it is clear to us that the 7%+ consensus GDP forecast for Q3 is in left field. The equity market has yet to confront that reality. On the other hand, the bond market, which has befuddled many a media commentator, seems to have picked up on this growth issue, with yields across the spectrum continuing to march lower.


The labor scene continues to be bifurcated, with the states that have opted-out of the federal $300/week unemployment supplement making much faster progress on the employment front than the states that have opted in. We acknowledge that there is more at play here than just the federal subsidy (e.g., child-care issues, school openings, fear of infection, or maybe the opt-out states just opened their economies earlier and/or more fully). Nevertheless, the data say that the federal subsidy appears to be playing a major role. 

For the latest data week (July 24), the Initial Unemployment Claims (ICs) at the state level were a mixed bag with the seasonally adjusted number at 400K, a decline of -19K from last week’s number (419K, since revised up to 424K). The consensus view was on the optimistic side, at 385K, so a disappointment. Readers of this blog know that we don’t believe that the pandemic distortions are subject to seasonality, so we rely on non-seasonally adjusted data. On that score, there was a huge down move to 345K in the state ICs from 406K (since revised to 411K). That’s a -61K move in the right direction. 43 states reported fewer ICs, 10 reported higher, but in seven of those 10, the uptick was less than 1,000. Only in TN (+1,439), NV (+2,434), and CA (+10,937) was the uptick more than 1,000. CA is an outlier, both in ICs, and in Continuing Claims (CCs), those receiving benefits for more than one week (more on CA below).

We think that in the post-September 6 period, the opt-in states will show much faster unemployment declines as the federal subsidy disappears. 

The table shows the percentage changes in unemployment over the latest three weeks of data by date of opt-out using the May 15 data as the base. In this week’s table we’ve added a line to exclude CA from the opt-in states as CCs there have risen a gargantuan +234K over the past two weeks.

Here are some other aggregated observations:

  • Total State CCs July 17:                          3,247,071        100.0%
  • Opt-In State CCs July 17:                        2,453,666        75.6%
  • Opt-Out State CCs July 17:                      793.405         24.4%
  • Total Change in CCs July 10-17:             -28428
  • Total Change Opt-in July 10-17:           +56967
  • Total Change Opt-out July 10-17:         -85395

Convinced? The week of July 17 saw the opt-out states, with 24.4% of the total CCs, reduce their unemployed by -85K while the opt-in states (75.6% of the CCs) increased their unemployment levels by nearly +57K!!

OK – let’s exclude CA. The data now show that the opt-ins (ex-CA) have reduced their unemployment by a significant -15.4%, still behind the -26.5% of the opt-outs, but better than the -11.3% figure of the prior week. We expect rapid catch-up in the weeks ahead for the opt-ins. As for CA’s data for the past two weeks, the only plausible explanation we can fathom, and this is just speculation, is that the rapid rise in ICs and CCs there is due to the Delta-Variant. If this turns out to be the cause, and CA turns out to be a leading indicator, think of what this might mean for the Q3 and Q4 economic growth path!


The idea that the inflation we are currently experiencing is somehow “systemic” is still playing well in the financial media. At the press conference after the last Fed meeting (July 27-28), Chair Powell, while vague on dates and determinants of Fed policy actions going forward, was insistent (and consistent) that the Fed still sees the current inflationary bout as “transient.” On Friday, July 30, the Fed’s most closely watched inflation indicator, the Personal Consumption Expenditure (PCE) price deflator was reported as +0.5%, slightly lower than the +0.6% consensus expectation. The “core” reading (less food and energy) was +0.4%. On a Y/Y basis, headline was +4.0% with “core” at 3.5%. As indicated above, this is the Fed’s primary inflation guide. 

The blue line on the graph at the top shows the Y/Y percentage changes in this metric from January 2019 through June 2021. The right-hand side looks pretty scary: March 2021: +12%; April: +30%; May: +20%; June: +14%. But move your eye leftward on the blue line. There were 10 straight months of negative Y/Y readings. The financial media isn’t talking about these.

Most of these Y/Y gyrations are occurring because of “base effects,” i.e., the downdraft in this inflation gauge of a year ago in the denominator of the percentage change distorts the true picture. We have included a second line on the graph (orange) that uses 2019 data as the denominator. The resulting percentage changes are over a two-year period, so we annualized them. That is, if the resulting number is 4%, it means that, beginning in the 2019 month, multiplying the price by 1.04 twice (once for 2020 and once for 2021) would result in today’s price level. This method gets rid of the “base effect” issue. Now look at the right-hand side (orange line). Not so scary after all: March: 4.2%, April 4.4%, May: 4.2%, June: 4.6%. For comparison, the Y/Y percentage changes in this PCE measure were 4.5% in December 2019, 4.7% in January 2020, and 4.7% in February 2020. Today’s prices, then, after removal of the “base effects” are rising at the same rate as they were pre-pandemic. Back then, no one was talking or writing about inflation. As these “base effects” disappear over the next few months, so will the inflation angst. The Fed knows this.

Other Data

There is other data that convinces us that GDP growth will be flat over the next six months.

·     Housing: This looks to have peaked. Remember, despite levels, if M/M data are lower, growth is slowing. 

  • New Home Sales for June were 676K down -12.1% from the 769K May initially reported (since revised significantly downward to 724K). The consensus estimates, of course, use the latest available data (769K in this case), and thought that a 3.5% rise from 769K to 796K was in the cards. The miss was a gargantuan -15.1%. (See what we mean by overly optimistic estimates?)
  • Existing Home Sales, while slightly higher in June at 5.86 million units (annual rate) than in May (5.78 million), still represented a -26% fall for the last six months. The reason, as everyone knows, has mainly to do with rapidly rising prices with median prices up +23.4% Y/Y and at a hellish +38.0% annual rate over the last six months.
  • As a result, mortgage loan applications are off -21% in 2021.

·     Construction: Both residential and non-residential construction are negative M/M with non-residential looking to be in a recession of its own.

·     Supply Bottlenecks: Indications of supply delay times and backlog data from the latest regional Federal Reserve Banks (KC, Richmond, Philly, NY, and Dallas) show significant easing in the supply chains.

·     Moratoriums: The eviction moratorium supposedly expired on Saturday, July 31. There are eight million renters (15% of the total) that are behind on rent, and 1.55 million mortgagees (2.9% of active mortgages) are delinquent. Payments on student loans, too, have not been required for some time. 

  • Let’s consider the best possible outcome: mortgages get extended payment terms, and renters are required to pay increased rent until the back rent is repaid (no evictions). In both cases, consumers are left with fewer net dollars than they had when the moratoriums were in effect, as they must begin again to make mortgage and (higher) rent payments. This certainly can’t be a positive for the economic growth scenario.

·     Delta-Variant: We noted at the top of this blog that mask requirements have been re-imposed on a significant portion of the population. The accompanying map shows the U.S. regions most impacted. This is just another negative for economic growth going forward (but perhaps a positive for Amazon!).


  • The data and trends portend much weaker second half 2021 economic growth.
  • The opt-out states have made, to date, greater strides in reducing unemployment than have the opt-ins. Ex CA, however, as the September 6 supplement end date approaches, the opt-ins are starting to catch-up. We expect this trend to intensify in August and (especially) September.
  • The Fed closely watches the PCE deflator. Our analysis indicates that the four-month spike in the PCE index is, indeed, transient.
  • From an economic growth point of view, the ending of the moratoriums on rent, mortgage payments and payments on student loans can only be a negative.
  • Mask wearing has returned. CA’s employment data has rapidly deteriorated. We don’t know why, but if it is due to the Delta-Variant, economic growth could be severely impacted. 

(Joshua Barone contributed to this blog.)

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Why Disney's Earnings Report Is A Good Sign For The U.S. Economy – Forbes



Disney shares are up 5% following Wednesday’s third-quarter earnings report that surpassed expectations, largely due to higher spending at the company’s domestic theme parks.

But might Disney’s success also say something about the current state of the U.S. economy? Experts often view Disney’s theme parks as bellwether economic indicators, as the Financial Times explained several years ago. Essentially, the theory goes that when budgets tighten, families cancel trips to Disney theme parks. That does not appear to be happening right now.

What a difference a year makes. This time last summer, most of Disney’s theme parks were running at reduced capacity due to the pandemic and Disney Cruise Line was not operating at all.

Flash forward to Wednesday’s earnings call, where company executives announced that revenue for Disney’s parks, experiences and products division rose by more than $3 billion and operating income increased by $1.8 billion compared to the same period in 2021. The increase was driven by jumps in theme park attendance, occupied room nights at Disney’s on-site hotels and cruise bookings.

“Demand at our domestic parks continues to exceed expectations with attendance on many days tracking ahead of 2019 levels.”

—Christine McCarthy, Disney CFO

“All of our theme parks are now open,” said Disney CEO Bob Chapek on the earnings call, noting that the company has ramped up capacity on a phased basis and brought back many of the experiences that families love, such as character meet-and-greets, fireworks spectaculars and theatrical performances.

“Demand at our domestic parks continues to exceed expectations with attendance on many days tracking ahead of 2019 levels,” said Christine McCarthy, Disney’s chief financial officer. “We have not yet seen demand abate at all and we still have many days when people cannot get reservations.”

Chapek noted that the quarter included three major milestones for the parks and experiences business. The first was the launch of the immersive Guardians of the Galaxy: Cosmic Rewind roller coaster at Epcot in Walt Disney World Resort in Orlando.

The second was the expansion of the Disney Cruise Line fleet with the brand new Disney Wish ship, which is powered by liquefied natural gas. The cruise business “has been the most severely impacted by Covid in terms of duration of disruption to the business,” noted McCarthy. “But we have a competitive position overall in the cruise business, especially the family cruise market, so we generate pricing that’s well above the industry average.

The third big milestone was the opening of the Marvel-themed Avengers Campus at Disneyland Paris. “Guests are responding in a big way to our enhanced offering at Disneyland Paris’ per capita spending in Q3 was up over 30% versus 2019, a great sign of the site’s potential for growth,” said Chapek.

The strong performance in the third quarter of Disney’s resort in France was partially offset by closure-related impacts at its Shanghai resort, where the theme park was closed for all but the last three days of the quarter.

Though the average daily attendance at domestic Disney parks was down slightly compared to 2019, per capita spending is up 10% compared to last year and is 40% higher than fiscal 2019.

Higher per-person spending was driven in part by the Genie+ and Lightning Lane features introduced last year to replace the old FastPass system. With the new system, parkgoers can pay extra to bypass lines for the most popular attractions. “Now about 50% of the people that come through the gate actually buy up to that Genie product, which I think you can see the result of in our yields,” said Chapek.

McCarthy acknowledged that international visitors, which historically have accounted for up to 20% of total guests, have been slow to return to the U.S. parks. “During the pandemic, international visitation to our domestic park — primarily Walt Disney World — was basically nonexistent,” she said. “But it’s made significant progress, and we expect the international visitation, when it is fully back, to actually be additive to margins because those guests tend to stay longer at the parks, and they spend more money when they’re there as well.”

Disney’s rebound is about more than pent-up demand following the darkest days of the pandemic, said Chapek. “What we’re seeing is far more resilient, far more long lasting in terms of increase in the affinity for our parks, both from the willingness to come to our parks and its attendance, but also in terms of what guests are willing to spend when they get there in order to personalize their experience.”

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Putin's War Hurls Russian Economy Back Four Years in One Quarter – Bloomberg



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Putin’s War Hurls Russian Economy Back Four Years in One Quarter  Bloomberg

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At 75, India seeks way forward in big but job-scarce economy – Financial Post



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NEW DELHI (AP) — As India’s economy grew, the hum of factories turned the sleepy, dusty village of Manesar into a booming industrial hub, cranking out everything from cars and sinks to smartphones and tablets. But jobs have run scarce over the years, prompting more and more workers to line up along the road for work, desperate to earn money.

Every day, Sugna, a young woman in her early 20s who goes by her first name, comes with her husband and two children to the city’s labor chowk — a bazaar at the junction of four roads where hundreds of workers gather daily at daybreak to plead for work. It’s been days since she or her husband got work and she has only five rupees (six cents) in hand.

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Scenes like this are an everyday reality for millions of Indians, the most visible signs of economic distress in a country where raging unemployment is worsening insecurity and inequality between the rich and poor. It’s perhaps Prime Minister Narendra Modi’s biggest challenge as the country marks 75 years of independence from British rule on Monday.

“We get work only once or twice a week,” said Sugna, who says she earned barely 2,000 rupees ($25) in the past five months. “What should I do with a life like this? If I live like this, how will my children live any better?”

Entire families leave their homes in India’s vast rural hinterlands to camp at such bazaars, found in nearly every city. Out of the many gathered in Manesar recently, only a lucky few got work for the day — digging roads, laying bricks and sweeping up trash for meager pay — about 80% of Indian workers toil in informal jobs including many who are self-employed.

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India’s phenomenal transformation from an impoverished nation in 1947 into an emerging global power whose $3 trillion economy is Asia’s third largest has turned it into a major exporter of things like software and vaccines. Millions have escaped poverty into a growing, aspirational middle class as its high-skilled sectors have soared.

“It’s extraordinary — a poor country like India wasn’t expected to succeed in such sectors,” said Nimish Adhia, an economics professor at Manhattanville College.

This year, the economy is forecast to expand at a 7.4% annual pace, according to the International Monetary Fund, making it one of the world’s fastest growing.

But even as India’s economy swells, so has joblessness. The unemployment rate remains at 7% to 8% in recent months. Only 40% of working age Indians are employed, down from 46% five years ago, the Center for Monitoring the Indian Economy (CMIE) says.

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“If you look at a poor person in 1947 and a poor person now, they are far more privileged today. However if you look at it between the haves and the have nots, that chasm has grown,” said Gayathri Vasudevan, chairperson of LabourNet, a social enterprise.

“While India continues to grow well, that growth is not generating enough jobs – crucially, it is not creating enough good quality jobs,” said Mahesh Vyas, chief executive at CMIE. Only 20% of jobs in India are in the formal sector, with regular wages and security, while most others are precarious and low-quality with few to no benefits.

That’s partly because agriculture remains the mainstay, with about 40% of workers engaged in farming.

As workers lost jobs in cities during the pandemic, many flocked back to farms, pushing up the numbers. “This didn’t necessarily improve productivity – but you’re employed as a farmer. It’s disguised unemployment,” Vyas said.

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With independence from Britain in 1947, the country’s leaders faced a formidable task: GDP was a mere 3% of the world’s total, literacy rates stood at 14% and the average life expectancy was 32 years, said Adhia.

By the most recent measures, literacy stands at 74% and life expectancy at 70 years. Dramatic progress came with historic reforms in the 1990s that swept away decades of socialist control over the economy and spurred remarkable growth.

The past few decades inspired comparisons to China as foreign investment poured in, exports thrived and new industries — like information technology – were born. But India, a latecomer to offshoring by Western multinationals, is struggling to create mass employment through manufacturing. And it faces new challenges in plotting a way forward.

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Financing has tended to flow into profitable, capital intensive sectors like petrol, metal and chemicals. Industries employing large numbers of workers, like textiles and leather work, have faltered. This trend continued through the pandemic: despite Modi’s 2014 ‘Make in India’ pitch to turn the country into another factory floor for the world, manufacturing now employs around 30 million. In 2017, it employed 50 million, according to CMIE data.

As factory and private sector employment shrink, young jobseekers increasingly are targeting government jobs, coveted for their security, prestige and benefits.

Some, like 21-year-old Sahil Rajput, view such work as a way out of poverty. Rajput has been fervently preparing for a job in the army, working in a low-paid data-entry job to afford private coaching to become a soldier and support his unemployed parents.

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But in June, the government overhauled military recruitment to cut costs and modernize, changing long-term postings into four-year contracts after which only 25% of recruits will be retained. That move triggered weeks of protests, with young people setting vehicles on fire.

Rajput knows he might not be able to get a permanent army job. “But I have no other options,” he said. “How can I dream of a future when my present is in tatters?”

The government is banking on technology, a rare bright spot, to create new jobs and opportunities. Two decades ago, India became an outsourcing powerhouse as companies and call centers boomed. An explosion of start-ups and digital innovation aims to recreate that success – “India is now home to 75,000 startups in the 75th year of independence and this is only the beginning,” Minister of Commerce, Piyush Goyal, tweeted recently. More than 740,000 jobs have been created via start-ups, a 110% jump over the last six years, his ministry said.

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There’s still a long way to go, in educating and training a labor force qualified for such work. Another worry is the steady retreat of working women in India — from a high of nearly 27% in 2005 to just over 20% in 2021, according to World Bank data.

Meanwhile, the stopgap of farming appears increasingly precarious as climate change brings extreme temperatures, scorching crops.

Sajan Arora, a 28-year-old farmer in India’s breadbasket state of Punjab, can no longer depend on ancestral farmland his family has relied on to survive. He, his wife and seven-month old daughter, plan to join family in Britain and find work there after selling some land.

“Agriculture has no way forward,” said Arora, saying he will do whatever work he can get, driving a taxi, working in a store or on a construction site.

He’s sad to leave his parents and childhood home behind, but believes the uncertainty of change offers “better prospects” than his current reality.

“If everything was right and well, why would we go? If we want a better life, we will have to leave,” he said.



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