U.S. Industrial Production Rose 0.9% in December U.S. industrial production rose sharply in December, boosted by gains in utilities output as cold weather swept across the nation and increased demand for heating.
(…) November industrial production was revised to a 0.1% decline from an originally reported gain of 0.2%.
From a year earlier, industrial production rose 3.6% in December, the largest annual gain since 2010. In the fourth quarter as a whole, industrial production jumped 8.2% at an annual rate “after being held down in the third quarter by Hurricanes Harvey and Irma,” the Fed said. (…)
Manufacturing output, the biggest component of industrial production, edged up 0.1% in December. The December increase shows a pullback in growth from October and November, when output grew 1.5% and 0.3% respectively.
Capacity use, a measure of slack in the industrial economy, increased 0.7 percentage point to 77.9% in December. (…)
Fed Reports Tight Labor Markets but Modest Wage Gains Economic activity across the U.S. expanded into 2018, with tight labor markets and modest wage and price growth, according to the Federal Reserve beige book report.
Most of the Fed’s 12 regional districts reported modest to moderate economic gains, while the Dallas Fed district saw robust growth, the Fed said in a roundup of anecdotal information about regional economic conditions known as the beige book. The latest report was based on information collected through Jan. 8.
Employment continued to grow at a modest pace, with most districts reporting labor shortages, which were said to constrain growth in some cases, the report said.
Wages grew at a modest pace, though a few districts said firms were raising wages across more industries and positions, the report said.
(…) businesses in some districts said they now have the ability to increase their selling prices. (…)
GOP tax-cut proponents promise 3-4% growth. This economic milestone shows that’s nearly impossible.
(…) The CBO combines estimates of the country’s labor potential—how many people are working or looking for work, and how many hours a week people are working—with estimates of the nation’s capacity to produce goods and provide services.
The government economists use that data to determine how much the economy would produce if most hot dog stands had busy vendors, most cubicle setups had software jockeys with clients to please and most drill presses had drill-press operators and a full list of orders. Most people who want a job have one, and most factories that need workers have them. (…)
Federal Reserve forecasters put the economy’s long-term growth rate at 1.8 percent at their September meeting. Productivity expert John Fernald, an economics professor at the global business school INSEAD and senior research adviser at the San Francisco Fed, pegged that same rate at 1.6 percent. (…)
Also in Canada:
Source: Scotiabank Economics (via The Daily Shot)
America Has a Foreign Tourist Problem
(…) Over the past few years, though, that gravy train has begun to dry up, a trend that accelerated as President Donald Trump began to make good on campaign promises to restrict immigration. As a result, businesses that make up the multibillion-dollar industry relying on that revenue have grown increasingly nervous. (…)
Last week, the Commerce Department reported a 3.3 percent drop in traveler spending for last year, through November, the equivalent of $4.6 billion in losses and 40,000 jobs. The U.S. share of international long-haul travel fell to 11.9 percent last year, from 13.6 percent in 2015, according to the U.S. Travel Association, a slippage the group said equates to 7.4 million visitors and $32.2 billion in spending. (The average “long-haul” visitor to the states spends 18 nights and $4,400, according to U.S. Travel.) (…)
ECB’s Nowotny says strengthening euro “not helpful”
The ECB is gradually turning more hawkish…
China Growth at 6.9%: In 2017, the State Struck Back
China’s economy expanded a hefty 6.9% last year, the first growth acceleration in seven years, though the roaring property market and infrastructure spending that helped drive the pickup showed signs of flagging.
The pace of growth for 2017 beat market expectations and ticked up from the 6.7% reached in 2016, bucking a slowing trend that began in 2011.
In the final quarter of 2017, the economy grew by 6.8% from a year earlier, the same pace as the previous quarter, which also topped analysts’ expectations. (…)
The communist party holds its national congress every 5 years and Xi Jinping made sure that the economy was humming nicely by the time the delegates met in October 2017. So
(…) despite recognizing the need to bring down the nation’s debt that is estimated to have reached 265% of China’s economy as of December, the government has largely kept the credit tap open. Bank lending hit a record last year. Local officials across the country boosted spending on slum renovations, rail lines and other infrastructure projects. (…)
A number of indicators for the last quarter of 2017, from industrial output, fixed-asset investment to retail sales, showed weakening momentum for expansion in 2018, as Beijing’s efforts to restrain risky lending begin to bite. (…)
Authorities are also slowing down approval of new infrastructure projects in a bid to control rampant borrowing, officials say. In recent months, for instance, the central government has outright canceled some subway and other projects. (…)
(…) Most of the reliable indicators tied to industry show growth peaking in mid or late 2017, and now trending gradually down. Since income growth tends to follow corporate profits in China, it’s a good bet consumption will initially hold up in 2018, helping offset the slowdown in investment. (…)
From ZeroHedge:
‘Melt-Up’ Powers Dow Past 26000 as Fear Turns to Greed The market’s most recent gains have been powered in part by a sudden hunger for stocks among certain money managers and individual investors who have long been wary of the nearly nine-year bull market.
(…) Some admit it is hard to justify staying out of the market when stocks rise on a regular basis. (…)
A recent Bank of America Merrill Lynch survey concluded fund managers are increasingly bullish. Average cash balances among portfolio managers also fell to 4.4% this month, a five year low, the survey found. The majority of investors who participated in a January poll said they expect the stock market to peak in 2019 or beyond. A month ago, the majority expected a top in the second quarter of 2018. (…)
About 60% of individual investors said this month they think the stock market will go higher over the next six months, the highest percentage since 2010, according to a recent American Association of Individual Investors survey. (…)
The small investor has done a 180!
(Bespoke)
And the so-called bigger guys join the bandwagon: the Bank of America-Merrill Lynch January fund manager survey reveals that hedge fund net equity exposure has risen to 49%, its highest reading since 2006.
RBC has nice Price/Operating Cash Flow charts back to 1989. Nowhere to hide, is there?
Apple to Pay Big Tax Bill on Foreign Cash, Touts U.S. Spending Apple will pay a one-time tax of $38 billion on its overseas cash holdings and ramp up spending in the U.S., as the world’s most valuable public company seeks to emphasize its contribution to the American economy.
2018 midterm congressional elections
From the excellent Angelo Katsoras at National Bank Financial:
(…) The party in power has lost House seats in 9 of the last 10 congressional elections held at the midpoint of a president’s first term. As for the Senate, the odds are better. The sitting president’s party has only given up seats in 6 of those 10 elections. Historically, supporters of the party not in power have tended to be more motivated to show up at the polls.
If we consider all the midterm elections in the post-war era, the president’s party has lost House seats 16 out of 18 times. The president’s party gained midterm seats only twice: in 1998 under Bill Clinton (66% approval) and in 2002 under George W. Bush (63% approval). The fact that Trump has the lowest approval rating of any modern president at this point in his tenure has heightened fears that Republicans will suffer heavy losses. Trump’s approval in a Gallup poll was 35% at the end of 2017. (…)
Republicans currently hold a comfortable majority in the House of Representatives (241 to 194). In order for the Democrats to seize control of the House, they would have to gain 24 seats. Their greatest hope for gains lies in the 23 Republican-controlled districts won by Hillary Clinton in the last presidential election.
However, the Republicans do enjoy some important structural advantages. Their control of the House has been strengthened by two factors: 1) Democrats’ tendency to win with overwhelming margins in heavily Democratic urban areas, thus wasting votes; and 2) gerrymandering, which is the process of redrawing the boundaries of legislative districts to favour one’s party. This is done essentially by moving likely non-supporters to other electoral districts lost in advance. In order to overcome these barriers, Democrats would have to win the congressional popular vote by at least 8% to 10% to have a chance of regaining control of the House of Representatives. As the following chart illustrates, they are currently just above this threshold in the polls.
As for the Senate, the Republicans’ margin of control is much slimmer (51 to 49, if we include the two independents that often vote with the Democrats). However, the Democrats will be defending 25 seats, compared with just eight for the Republicans.
The situation has been made even more challenging for the Democrats by the fact that 10 of their seats up for re-election are in states Trump won. In contrast, only one Republican seat is at stake in a state that Clinton won (Nevada).
In all, 435 seats in the House of Representatives and 34 of the 100 seats in the Senate will be contested in November 2018.
The loss of one or both chambers of Congress would constitute a major setback for President Trump and the Republicans for the following reasons:
The GOP would not be able to pass any more major bills with just Republican support.
Regardless of whether Muller has completed his investigation, it would increase the risk of Democrats beginning impeachment proceedings against Trump.
Republican loss of Senate control would give Democrats veto power over Trump to nominate judges and heads of regulatory agencies. Trump needs a majority of votes in the Senate to confirm nominees. (…)
