Month: December 2016

Chemical Activity Barometer Ends Year on Strong Note; Suggests Expanded Business Growth in Early 2017

The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), ended the year on a strong note, posting a monthly gain of 0.3 percent and a year-over-year gain of 4.4 percent, a significant improvement over the first half of the year, and a pace not seen since September 2010. All data is measured on a three-month moving average (3MMA). On an unadjusted basis the CAB climbed 0.6 percent in December, and 4.8 percent for the year. 

The Chemical Activity Barometer has four primary components, each consisting of a variety of indicators: 1) production; 2) equity prices; 3) product prices; and 4) inventories and other indicators. 

In December all of the four core categories for the CAB improved. (…)

The chemical industry has been found to consistently lead the U.S. economy’s business cycle given its early position in the supply chain, and this barometer can be used to determine turning points and likely trends in the wider economy. Month-to-month movements can be volatile so a three-month moving average of the barometer is provided. This provides a more consistent and illustrative picture of national economic trends.

Applying the CAB back to 1912, it has been shown to provide a lead of two to fourteen months, with an average lead of eight months at cycle peaks as determined by the National Bureau of Economic Research. The median lead was also eight months. At business cycle troughs, the CAB leads by one to seven months, with an average lead of four months. The median lead was three months. The CAB is rebased to the average lead (in months) of an average 100 in the base year (the year 2012 was used) of a reference time series. The latter is the Federal Reserve’s Industrial Production Index.

This has historically been a very good indicator although it missed a few beats more recently. Great chart from CalculatedRisk (H/T):

Young Americans Living With Parents at a 75-Year High Almost 40% of young Americans were living with their parents, siblings or other relatives in 2015, the largest percentage since 1940, according to an analysis of census data by real estate tracker Trulia.

Almost 40% of young Americans were living with their parents, siblings or other relatives in 2015, the largest percentage since 1940, according to an analysis of census data by real estate tracker Trulia.

Despite a rebounding economy and recent job growth, the share of those between the ages of 18 and 34 doubling up with parents or other family members has been rising since 2005. Back then, before the start of the last recession, roughly one out of three were living with family. (…)

The number of adults under age 30 has increased by 5 million over the last decade, but the number of households for that age group grew by just 200,000 over the same period, according to the Harvard Joint Center for Housing Studies. (…)

Household formation is closely correlated with housing affordability and income. Among those aged 25 to 34, 40% of those earning less than $25,000 headed their own household. The share rose to 50% for those earning between $25,000 and $50,000, and 58% for those with incomes above $50,000, according to the Harvard Joint Center.

Census data also show younger Americans are getting married and having children later in life than previous generations. Even so, economists project the historically large millennial generation will more than double its current number of households through 2025.

Rising mortgage rates won’t help. Results from a Redfin survey conducted Dec. 2-14 among 3300 respondents:

Census Says U.S. Population Grew at Lowest Rate Since Great Depression This Year The U.S. population this year grew at its lowest rate since the Great Depression, and the state of New York shrunk for the first time in a decade, according to Census Bureau figures.

An uptick in deaths, a slowdown in births and a slight drop in immigration all damped American population growth for the year ended July 1. The 0.7% increase, to 323.1 million, was the smallest on record since 1936-37, according to William Frey, a demographer at the Brookings Institution. (…)

Besides New York, Pennsylvania and Illinois also shrunk in notable ways, with the land of Lincoln losing more people than any other state. (…)

The Census Bureau revised downward its estimates of immigration for each year since 2010 by an average of 10%. For this year, it estimated that 999,000 immigrants arrived, down 4% from the prior year.

Full US Census release here.

 

CHINA: THAT CAN’T BE GOOD!

The corporate bond selloff is forcing some deleveraging, and it’s not clear how far it will spread. Here is the AA+ corporate yield. (The Daily Shot)

   

Largest U.S. Pension Fund Eyes Drop in Investment Target to 7% Officers of the largest U.S. pension fund recommended that their investment targets drop to 7% because of a cash crunch and changing market conditions, a move that would set a more cautious tone for those who manage retirement assets around the country.

The proposal to abandon a long-held goal of 7.5% over three years came during a board committee meeting of the California Public Employees’ Retirement System in Sacramento. The rate would drop to 7.375% in fiscal 2017-18, 7.25% in fiscal 2018-19, and 7% in fiscal 2019-20. (…)

A reduction would have real-life consequences for taxpayers and cities. It would likely trigger an increase in yearly pension bills for the towns, counties and school districts that participate in California’s state pension plan. Any loss in expected investment earnings must be made up with significantly-higher annual contributions from public employers as well as the state.

A drop in Calpers’s return assumptions could also put pressure on other pension funds to be more aggressive about their reductions and concede that investment gains alone won’t be enough to fund hundreds of billions in liabilities. (…)

If the rate drops to 7%, the state and school districts participating in Calpers would have to pay at least $15 billion more over the next 20 years, said spokeswoman Amy Morgan. That number doesn’t include cities and local agencies.

(…) more than two thirds of state retirement systems have trimmed their assumptions since 2008, according to an analysis of 127 plans by the National Association of State Retirement Administrators, and some are now dropping to 7% and lower.

Earlier this month, Connecticut’s state employee fund dropped its assumption to 6.9% from 8%. The Hawaii Employees’ Retirement System had been scheduled to drop its rate only slightly, to 7.5% in 2017, from 7.55%, but the board this month voted to instead drop the rate to 7%.

The average target among 127 plans surveyed by the National Association of State Retirement Administrators is currently 7.56%. That is the lowest since at least 1989.

THE BIG SHIFT

The global stock market capitalization has increased by $3 trillion recently, while the global bond market value declined by roughly the same amount. (The Daily Shot)

Ray Dalio: Reflections on the Trump Presidency, One Month after the Election

Now that we’re a month past the election and most of the cabinet posts have been filled, it is increasingly obvious that we are about to experience a profound, president-led ideological shift that will have a big impact on both the US and the world. This will not just be a shift in government policy, but also a shift in how government policy is pursued. Trump is a deal maker who negotiates hard, and doesn’t mind getting banged around or banging others around. Similarly, the people he chose are bold and hell-bent on playing hardball to make big changes happen in economics and in foreign policy (as well as other areas such as education, environmental policies, etc.). They also have different temperaments and different views that will have to be resolved. (…)