Inflation With Deflationary Overtones?

By Michael Ashton

So you should cheer for the “good” sort of deflation. At least, you should cheer for it if you are still earning wages.

The Employment report was weak, with jobs coming in below consensus with a downward revision to prior months. It wasn’t abysmally weak, and not enough to change the a priori trajectory of the Fed. If the number had been 125k below expectations or 125k above it, then it may have had implications for the FOMC. But this is a number that has big swings and is revised multiple times. Getting 160k rather than 200k isn’t cause for celebration, but neither is it cause for panic. So whatever the Fed was getting ready to do didn’t change because of this number.

To be sure, no one knows what the Fed was planning to do, so this mainly has implications for the day’s volatility…which is to say that the market quickly went to sleep for the day.

Now, interestingly the Average Hourly Earnings number ticked higher to 2.5%, continuing the post-crisis upswing. At 2.5%, hourly earnings growth is slightly higher than median inflation and thus potentially “supportive of the inflation dynamic” from the standpoint of the Committee. Yes, wages follow inflation but not in the Fed models – so, while I don’t think this has any implications for future inflation it will eventually have implications for Fed policy. But this is a dovish Fed, and 2.5% earnings growth is not going to scare another tightening out of them…unless they were already planning to tighten.

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The Pendulum of Inflation Complacency

By Michael Ashton

The pendulum of complacency on inflation has begun finally to swing back the other way

I am sure that in my career I have seen weirder reactions, but when the Durable Goods number came out and plainly was significantly weaker-than-expected and energy rallied I must admit it was hard to think of one.

Presumably the reaction was an indirect one: weaker growth means the Fed is less likely to tighten, which means a lower dollar and hence, higher global demand for oil. But that seems a wild overthink. If there is a recession in the offing, and if we care about demand in oil markets (and I think we should), then weak economic growth from one of the world’s largest economies probably ought to be reflected in lower oil prices.

There is part of me that wants to say “maybe investors have finally realized that any given month of Durable Goods Orders is almost meaningless because the volatility of the number makes it hard to reject any particular null hypothesis.” I haven’t done this recently, but many years ago I discovered that a forecast driven by the mechanical rule of -0.5 times last month’s Durables change had a better forecasting record than Street economists. Flip the sign, divide by two. However, I don’t really think the market suddenly got wise.

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Blow Off in Progress, But ‘Launch Phase’ Confirmed

By Biiwii

As posted at nftrh.com

On March 4 we reviewed the technical reasons why the gold sector was launching as opposed to blowing off. This, after articles began appearing calling the rise to that point a doomed parabolic blow off using daily charts. Those calling it a blow off were confused; silver in spring 2011 was a blow off in the terminal sense. But when a parabolic move comes off a bottom, it is an impulsive thrust to change the trend, possibly ending the bear market.

We have long noted that gold is the first mover to a new inflationary phase, as the previous deflationary backdrop gets played out. That is exactly what happened, even though the silver miners have made stunning strides in leading the exciting up move in silver that is currently in process. Silver, in taking over leadership from gold would confirm an inflationary phase. Gold is monetary and silver is an industrial commodity with monetary aspects as well; i.e. it is more positively correlated to inflated economies making the silver-gold ratio a sensitive indicator to inflation.

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Wage Inflation is Already Here

By Michael Ashton

Wage Growth Tracker – Wage Inflation is Already here

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I am often critical of central banks these days, and especially the Federal Reserve. But that doesn’t mean I think the entire institution is worthless. While quite often the staff at the Fed puts out papers that use convoluted and inscrutable mathematics to “prove” something that only works because the assumptions used are garbage, there are also occasionally good bits of work that come out. While it is uneven, I find that the Atlanta Fed’s “macroblog” often has good content, and occasionally has a terrific insight.

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Bi-Weekly Economic Review

By Joseph Calhoun of Alhambra

Economic Reports Scorecard

scorecard 4-1-16

The economic reports since the last update present a dichotomy. While there has been an improvement in the surprises – more better than expected reports – the overall tone of the reports has been fairly negative. Part of the explanation for that is the plethora of regional Fed reports over the last two weeks, almost all of which showed significant improvement. That contrasts somewhat with the real manufacturing data we received. The Durable Goods report in particular was quite weak, down 2.8% – and better than the -3% expectation. Ex-transportation orders were down 1% and core capital goods orders were down 1.8% (but down just 0.1% year over year).

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