Mish's Global Economic Trend Analysis |
| Posted: 30 Oct 2015 11:21 AM PDT Personal Income, Consumer Spending Weaker Than Economists Expect Today's Personal Income and Outlays report came in below Consensus Estimates. 4th Quarter Acceleration? Action in shippers except those most impacted by online shipping, store hiring plans, new home sales, and consumer spending expectations do not point to a robust acceleration in holiday spending. Housing I sometimes wonder if Bloomberg reads its own reports. Let's take a look at the new home sales numbers that came out on Monday as reported by Econoday. The housing outlook just received a jolt! New home sales fell to an annual rate of 468,000 in September which is 67,000 below Econoday's low-end estimate and the lowest rate since November last year. Making matters worse is a steep 33,000 downward revision to August.New home sales contribute to sales. People buy furniture, appliances, etc., etc. Shipping Testosterone Pit reports And Now Trucking is Suddenly Slowing Down. September is the beginning of the holiday shipping season. Volume should be sharply higher. But it's not happening. US Freight Shipments Have Worst September since 2010. FedEx does expect increased volumes, but I would attribute that to online purchases. Increasing online purchases will not balance out weak in-store sales. Store Hiring Plans Perhaps stores are mistaken, but they are not ramping up for holiday sales according to outplacement firm Challenger, Gray & Christmas is correct. For details, please see Weak Holiday Hiring Coming Up? Household Spending Estimates Every month, the Fed conducts a survey of consumer spending projections. Here are the results of the latest Fed Spending Survey.  Something clearly happened to consumer spending expectations this year. Of course, consumers can spend away anyway. I don't know what they will do, nor does anyone else. Regardless, the signs seem to point to weaker or flat 4th quarter spending, not an acceleration. Mike "Mish" Shedlock |
| Posted: 30 Oct 2015 10:06 AM PDT As a guest post, here is the opinion of IMD Professor Carlos A. Primo Braga on on the economic, political and psychological drivers of Brazil's currency slide. Real Depreciation in Brazil What a difference a year makes! For visitors to Brazil, a steak lunch in a top restaurant would have cost USD $120 per capita in October 2014 (not including caipirinhas or wine). Today the same meal costs roughly USD $65. The Brazilian real has experienced one of the most dramatic depreciations among currencies from emerging economies over the last 12 months. The good news is that this adjustment will help the tradable sector of the economy improve its international competitiveness. For an economy which is currently in free-fall (with an expected GDP contraction of roughly 3% in 2015), this is most welcome even though the low exposure of the Brazilian economy to international markets implies that this help will be at best moderate in terms of its macroeconomic impact. The bad news is that this will add to inflationary pressures and it will also impact the financial health of corporations that have borrowed abroad. International Depreciation Trends Over the last two years, many countries have experienced significant movements in the value of their currencies. As discussed in detail in the latest World Economic Outlook of the IMF (October 2015), these changes have often extrapolated the range of historical adjustments experienced by major currencies. Among industrialized countries the US dollar and the Swiss franc have appreciated more than 10%, while the Japanese yen has depreciated more than 30% in real terms (since mid-2012). Many emerging economies have also experienced significant depreciation of their currencies. The Brazilian real - which was identified by Morgan Stanley in 2013 as one of the so-called fragile five (a group that also included the Turkish lira, the Indian rupee, the South African rand, and the Indonesian rupiah) - has depreciated more than 35% in real terms since 2014 against a basket of relevant currencies of major trading partners. Actually, with the exception of the Indian rupee, the currencies of the other members of the "fragile five-club" have been among the worst performers among emerging economies currencies over the last two years. Currency War Irony It is ironic that Brazil, which as recently as 2010 had warned about the dangers of a "currency war" - reflecting concerns about interventions by major monetary authorities to limit upward pressures on their currencies in an effort to boost net exports - is now leading the "contest" in terms of global depreciation trends. First, the current political gridlock associated with the tug-of-war between the Executive branch and Congress, amid the reverberations of the Petrobras corruption scandal, does not help. There is not only a crisis of governance, but also a crisis of ethics. The logic of the mob seems to be leading the country to the lowest common denominator for ethical behavior in the absence of credible leadership. Needless to say, this creates a field day for speculation against the real. Second, the international environment does not help. This goes beyond the implications of the Chinese slow-down for Brazil. In reality, the current crisis provides another illustration of the behavior under stress of complex financial networks. The triggering event may be small in macroeconomic terms - e.g., the losses associated with the Petrobras scandal - but resulting collateral damage can be substantial, particularly, when the external environment suggests that in the near term additional headwinds will impact the country (for example, the expected increase of US interest rates). In short, markets tend to overshoot in their expectations about the future of a currency under stress. There is, however, a silver lining. Economics does not stop operating below the Equator. As already mentioned, the depreciation of the real is impacting the tradable sector in a positive manner. Actually, the depreciation, combined with the slow-down of the economy, has translated into a substantial decrease in the Brazilian current account deficit (by roughly 30% compared with last year). Moreover, Brazilian assets are becoming increasingly attractive to foreign investors. In sum, no foreign exchange crisis is expected in the near future. But the economic crisis and the fate of the real will continue to be driven by the political imbroglio. In other words, more pain ahead. Carlos A. Primo Braga End Guest Post - Guest Post Guidelines This is actually the first unsolicited guest post I recall using. I receive at least one offer a week from people offering to write guest posts, then asking me what I want them to write. I typically do not respond to such offers. The above post is an example of what I want to see: A well thought out, already written article (not a proposal), that strongly pertains to the global economy, generally in-line with my own views, and offered with no strings attached, contains no overwhelmingly self-promotional links, and absolutely no product or service endorsements of any kind. If the author has a blog or website, I will link back to it, as I did at the top. If you care to submit articles with those guidelines, I will consider them. To date, the only guest posts on my blog were those where I requested reprint rights, or those from readers like Tim Wallace who send me much-appreciated articles accompanied with charts without even vying for a "guest post". Mike "Mish" Shedlock |
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