Quiet Economic Day to Start the Week
Economic news and commentary for August 21, 2023
No major economic releases today
Still to come…
N/A
Morning Reading List
Other Data Releases Today
German producer prices fell -1.1% MoM and -6.0% YoY in July, down from slight growth of 0.1% MoM in June. The annual decline was mostly a result of base effects. Durable consumer good & capital goods producer prices grew 5.8% YoY and 5.5% YoY.
US
GDPnow…wow!? (CIBC) - Don’t look now, but the Atlanta Fed’s nowcasting model is projecting a stunning 5.8% growth rate for the US economy in Q3. Actually, we mean literally don’t look now, because it’s likely too soon to rely on the GDPnow tool to get a sense of how hot this summer has been economically, given how it works. But that said, we’ve seen enough to suggest that this quarter won’t be the start of the long awaited slowdown, but also enough on the inflation front to worry less about that fact than we might have a few quarters ago.
U.S. Economy: Summer Breeze (BMO) - The U.S. economy likely picked up this summer, leading us to bump up our 2023 annual call to 2.2%. But we left the 2024 forecast unchanged at 1.0%, as it’s likely just a matter of time before mounting headwinds—notably the lagged effect of tighter Fed policy and lending conditions—overwhelm fading tailwinds, such as excess savings and revenge spending.
A Banner Year For Strikes (Northern Trust) - But 2023 is shaping up to be a big year for labor actions. There have already been several prominent strikes in developed countries: transit and health workers in the U.K., writers, actors and (potentially) automakers in the United States. Tight job markets have emboldened workers and provided companies with limited options for replacing picketers.
Getting Really Real (BMO) - Where are the serious economic and/or financial cracks going to first emerge? Some version of that has been the most common question we have fielded since the Fed and other central banks embarked on the intense tightening campaign of the past 18 months. Could the answer be China? It certainly felt that way this week, as deepening property woes and another raft of disappointing economic data from the world’s second biggest economy sent shudders through global financial markets.
Macro & Markets: Steeper for longer (Nordea) - Rates have risen and curves have steepened markedly the last month. While some of the moves can be attributed by better economic data, increased attention on the funding needs of the US government has probably been a larger driver.
Do Immigration Restrictions Affect Job Vacancies? Evidence from Online Job Postings (Kansas City Fed) - The U.S. workforce relies heavily on immigration, with one out of every six workers originating from outside the country’s borders in 2021. However, the supply of new immigrant labor has varied widely over the past decade. Although an average of 1 million immigrants entered the country annually from 2000 to 2016, a series of policy changes and the COVID-19 pandemic led to a rare decline in immigrant arrivals from 2016 to 2021. This period of reduced immigration coincided with and exacerbated already severe labor shortages in the U.S. labor market, leading employers and firms to look for new sources of labor.
Productivity: Earning Our Keep (Northern Trust) - Higher compensation is not always inflationary. Workers’ pay should reflect their output. More productive workers are more valuable. In a well-functioning labor market, they will receive higher pay. The latest measures of productivity suggest this stage of the cycle has commenced, calming some of our worst fears of the inflationary effects of higher wages.
Ceasing Interest Payments on Reserve Balances in a Fiscal Dominance Regime (Saxo Bank) - The article delves into the potential paradigm shift in monetary policy, suggesting discontinuing interest payments on reserve balances while increasing reserve requirement ratios as a response to escalating public debts. It explores the impacts of this approach on fiscal dominance, economic stability, and the intricate interplay between central banks and fiscal authorities.
Addressing Baltimore’s Abandoned Housing (Richmond Fed) - Abandoned housing has afflicted many Rust Belt cities since the mid-20th century as their populations declined and housing stocks aged. Many of these cities have attempted policy solutions to address excess abandoned housing due to its association with higher crime, lower nearby property values, and public health issues. In this post, we explore Baltimore's abandoned housing problem and how the city has addressed it with policy as well as a promising proposed strategy by a community organization.
Employment Situation in July: State-Level Analysis (NAHB) - Nonfarm payroll employment increased in 36 states in July compared to the previous month, while 14 states and the District of Columbia lost jobs. According to the Bureau of Labor Statistics, nationwide total nonfarm payroll employment increased by 187,000 in July, following a gain of 185,000 jobs in June.
How Do the Rich Become and Stay Wealthy? (St Louis Fed) - Where do the wealthiest get their wealth? In a May Regional Economist article, St. Louis Fed Research Officer Serdar Ozkan looked at how the rich acquired and retained their wealth.
Europe
Further signs of weakness in the Polish labour market (ING) - Average wages in the corporate sector increased by 10.4% year-on-year in July, weaker than in June (11.9%) and slightly below expectations (10.9%). While this largely reflects base effects, employment remains lacklustre, suggesting mounting pressures in the labour market.
Poland’s industrial production and producer prices fall sharply in July (ING) - July industrial production fell by 2.7% year-on-year, well below the consensus forecast of 0.6%. There were yearly declines in all four major commodity groups, double-digit drops in mining and quarrying of 10.2%, and in manufacturing by 2.4%. Producer price deflation was deeper than expected, with July PPI falling 1.7% YoY against a consensus of -1.2%.
Canada
Real Estate Investment: The Good, the Bad and the Implications (BMO) - Investors have played a large role in the Canadian housing boom, accounting for a large and growing share of buyers in recent years. This is a double-edged sword. On the one hand, outright speculation adds to market froth, stretching valuations and affordability. At the same time, investors help bring new projects to construction and much-needed rental units to the market. Does real estate investment make sense at this stage of the cycle? And if not, what are some implications?
Stubborn Inflation a Problem for the BoC (BMO) - Following the stronger-than-expected inflation report, the next Bank of Canada policy announcement appears to hinge on Q2 GDP. No matter the result, look for the Bank to keep the door open for further tightening as inflation remains a long way from the 2% target.
China
China: On the Brink Again? (BMO) - Concerns that China’s economy is heading for a hard landing have re-emerged over the past week. They were triggered by a weaker-than-expected set of July economic data (e.g., retail sales, fixed asset investment, industrial production) and news that both a major homebuilder (Country Garden) and a large trust company (Zhongrong International) have missed payments.
Reshoring Is Real (Northern Trust) - Recent trade data shows that China’s status as the world’s largest exporter, which was further enhanced during the pandemic, is now under threat. China’s exports fell for the third month in a row in July. The 14.5% year over year contraction was the biggest drop in more than three years, with declines among most of its major trade partners. Shipments to the U.S. fell for the twelfth consecutive month. Exports to both the European Union (EU) and to the Association of Southeast Asian Nations declined by 21% on the year.
Demographics
Global | The changing effects of demographics on inflation (BBVA) - According to our analysis, global demographic trends and, more specifically, the ongoing process of population aging are contributing to current inflationary pressures.
Global | Demographic challenges: urgent need for better labor market policies (BBVA) - The demographic challenges facing developed countries are well known: rapid aging and populations that in are already beginning to shrink in some regions. Less well known, however, is that the demographic transition is already changing the landscape in the vast majority of developing countries.
Commodities
Weekly Pricing Pulse: Commodities down as demand continues to falter (S&P Global) - The Material Price Index (MPI) by S&P Global Market Intelligence decreased 0.4% last week, the second consecutive decline in August after rising each week in July. Last week's decrease was broad with eight out of the ten subcomponents falling. A return to price declines in the last two weeks reinforces the trend so far in 2023 with the index 28.5% lower than its year-ago level.
PMIs
Weekly Focus - PMIs next week could be decisive for ECB and Fed (Danske Bank) - Early soft data for August is so far sending mixed signals and it will be very interesting to see the PMI data in the coming week. Overall, we still see unchanged rates at the September meeting as the most likely outcome.
FX
Seasons Change (BMO) - I can’t quite put my finger on it. The USD index was broadly stronger this week, with all of the majors tumbling. Concerns about China’s economy ramped up, prompting the PBoC to cut rates, while the CNY hurtled past 7.32, a level not seen since the lockdowns began last October. The currency regained some of its composure but only after officials ordered state-owned banks to intervene.
Markets
Bulls Hate the Rate (BMO) - Equity markets slumped this week amid concern about China's economy and another move higher in bond yields. The S&P 500 fell 2.1%, with all sectors in the red. Banks lagged, down 5%, while consumer stocks were only slightly better. Earnings results on the latter were mixed, with Walmart raising its outlook, although hinting at some pressure on discretionary spending, while Target chopped its guidance. Meantime, the TSX was down 2.9% on the week, with materials, banks and telecom all struggling.
Outlook
U.S. Economic Outlook, August 2023 (Northern Trust) - The longer a soft landing remains possible, the more likely it starts to feel. Falling odds of recession are an optimistic signal, but celebration is premature. The battle against inflation is not yet won, and will be complicated by continued wage gains and the recent rise in energy prices.
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