Pelosi, Mnuchin Disagree on Coronavirus Testing, Continue Stimulus Talks House speaker, Treasury secretary work to hash out policy disputes over another round of relief
(…) Mr. Mnuchin said that although he and Mrs. Pelosi were making progress on certain issues, disagreements remained not only on the size of the bill, but on policy measures. (…)
It isn’t clear that even if Mrs. Pelosi and Mr. Mnuchin were to reach an agreement, it would be able to pass the GOP-controlled Senate. Mr. Mnuchin and White House chief of staff Mark Meadows faced resistance from Senate Republicans on a call over the weekend. Republicans were critical of the proposal’s overall spending level and provisions including an expansion of the Affordable Care Act subsidies for people who lost employer-sponsored health care during the pandemic. (…)
In an interview with Fox Business Network Wednesday, Mr. Mnuchin reiterated that about $300 billion in unspent funds that Congress authorized in the March Cares Act could be repurposed immediately for additional aid to small businesses and airlines. That includes funding left over from the Payroll Protection Program, and money provided to the Treasury Department to support Federal Reserve lending programs. Those measures are supported by lawmakers on both sides of the aisle. (…)
U.S. Consumer Price Index Growth Continues to Slow in September
The Consumer Price Index increased 0.2% (1.4% y/y) during September following a 0.4% August rise and a 0.6% gain in July. The increase matched expectations in the Action Economics Forecast Survey. The CPI excluding food & energy also rose 0.2% (1.7% y/y) last month after increasing 0.4% in August and 0.6% in July, also matching expectations.
Goods prices excluding food & energy increased a firm 0.8% (1.0% y/y) after a 1.0% increase in August. Used car & truck prices remained strong and posted a 6.7% gain (10.3% y/y). New vehicle prices rose 0.3% (1.0% y/y). Elsewhere, goods prices declined. The cost of appliances weakened 1.8% (+3.9% y/y) after three consecutive months of strength. Household furnishings costs eased 0.2% (2.1% y/y) after five straight months of strength. Apparel prices fell 0.5% (-6.0% y/y) after a 0.6% rise. Recreation goods prices fell 0.4% (-0.8% y/y) following a 1.1% rise. Prices for education & communication goods weakened 2.5% (-6.0% y/y) following a 0.5% rise. Prices for medical care goods held steady (0.9% y/y) after a 0.1% dip.
Food prices held steady (3.9% y/y) last month after a 0.1% rise. Food-at-home prices declined 0.4% (+4.1% y/y), the third straight monthly fall.
Services prices eased slightly (+1.9% y/y) last month following a 0.2% gain. Education & communication prices held steady (2.8% y/y) as tuition costs fell 0.3% (1.5% y/y). Medical care service prices also were unchanged (4.9% y/y) after a 0.1% rise. Shelter costs rose 0.1% (2.0% y/y) as the owners’ equivalent rent of primary residences also increased 0.1%, but by a greatly reduced 2.3% y/y. To the upside, recreation services prices improved 0.5% (2.7% y/y) for a second straight month. The cost of public transportation rose 1.3% (-16.5% y/y), reversing the August decline. (…)
Nobody seems to care much about inflation these days. Even the WSJ digital edition did not mention the CPI nor the PPI this week (unless I missed after looking). Anyway, core prices declined 0.6% in March-May and bounced back +1.43% in the last 4 months. March to September: +1.4% annualized.
Another look, quarterly trends: Q1: +0.5%, Q2: -0.4% and Q3: +1.08%. Last 2 quarters averaged +0.68%, red line below. That’s +2.8% annualized. This in a pretty, pretty, pretty weak economy as Larry David might say. Hmmm…
Yes there are big outliers but the median CPI is up 2.5% YoY and has stayed above the Fed’s 2.0% FAIT (flexible average inflation target) since 2010.
- NY Fed’s Underlying Inflation Gauge (UIG) For September 2020, trend CPI inflation is estimated to be in the 1.3% to 2.2% range, which is similar to the currently estimated August 2020 range of 1.3% to 2.1%.
The Producer Price Index for final demand rose 0.4% both m/m and y/y during September following a 0.3% August increase. A 0.2% rise had been expected in the Action Economics Forecast Survey. Underlying pricing power remained firm. Producer prices excluding food & energy rose a steady 0.4% (1.2% y/y). A 0.2% rise had been expected. Another measure of underlying pricing power is the PPI excluding food, beverages and trade services. It also rose 0.4% in September (0.7% y/y), following three straight 0.3% increases.
A 1.2% increase (1.0% y/y) in food prices bolstered the change in the PPI overall. Energy prices eased 0.3% (-11.5% y/y) as gasoline prices fell 2.8% (-28.3% y/y). Natural gas prices increased 2.2% (2.7% y/y). Electric power costs strengthened 1.2% (-0.3% y/y).
Final demand goods prices less food & energy rose 0.4% last month (1.3% y/y) following two straight 0.3% increases. Prices for finished consumer goods less food & energy rose 0.1% (1.5% y/y) after two straight 0.3% increases. Core nondurable goods prices held steady (1.7% y/y). Women’s apparel prices declined 4.1% y/y, but men’s clothing costs rose a steady 0.4% y/y. Durable consumer product prices improved 0.2% (1.0% y/y) as household appliance prices rose 2.1% y/y and furniture prices improved 1.4% y/y. (…)
Haver Analytics’ PPI table suggest more inflation in the pipeline. Core Goods: +4.0% a.r. last 3 months. Services: +5.7%. Is demand for Services greater than supply these days?
BTW, 5-year Treasuries yield 0.34%. 10Y: 0.8%. 30Y: 1.5%.
How Have Households Used Their Stimulus Payments and How Would They Spend the Next?
Yesterday, in BLIND LOU, I showed that most of the rescue money the government sent Americans last spring has been saved. The NY Fed just published its own analysis, concluding that only 29% was actually used for consumption.
(…) We find in this analysis that as of the end of June 2020, a relatively small share of stimulus payments—29 percent—was used for consumption, with 36 percent saved and 35 percent used to pay down debt. Reported expected uses for a potential second stimulus payment suggest an even smaller MPC [marginal propensity to consume], with households expecting to use more of the funds to pay down their debts. We find similarly small estimated average consumption out of unemployment insurance (UI) payments, but with somewhat larger shares of these funds used to pay down debt. (…)
An average 18 percent of these funds was used for essential spending and an average 8 percent used for non-essential spending, resulting in a total MPC of 29 percent after including the 3 percent of the funds donated. (…) The unprecedented high uncertainty about the duration and the economic impact of the pandemic, the social distancing rules and restrictions on in-person shopping, and delayed rent payments (which economists count as consumption) may all have contributed to the small MPC estimates we find. (…)
In the special August survey, we elicited similar information about expected uses of a potential second round of federal transfer payments, asking how respondents would use an additional $1,500 if received. (…) respondents are expecting to spend an average 14 percent on essential items and an average 7 percent on non-essential items, for an aggregate MPC of 24 percent (including donations). (…)
These findings indicate that the economic impact payments, by increasing both household income and the debt pay down, contributed importantly to the sharp increase in the overall saving rate during the early months of the pandemic.
The finding that a larger share of any additional payment would be saved (actually saved or used to pay debt down) supports the thesis that the savings rate might well stay high for quite some time since it indicates a high propensity to build precautionary savings. If so, money velocity would remain low and Hoisington’s Lacy Hunt’s views would gain weight vs Jeremy Siegel’s inflationary spending boom forecast.
While on the BLIND LOU post, I omitted to take into account the impact of forex on Fiera Capital’s Matrix of Expected Returns which is shown in CAD, expected to appreciate 4.0% under the Rapid Recovery scenario and lose 1.3% and 13.3% in the other 2 scenarios respectively. Expected returns in USD for U.S equity markets are thus +7.9%, +2.8% and -29.0% for probability-weighted returns of -2.9% in USD.
When Morning Consult first began tracking consumer comfort levels during the spring lockdowns, people became steadily more confident that they would be able to safely return to public spaces in the near future.
Following a brief downturn in comfort levels, the public’s attitudes did not budge significantly for 12 weeks during the summer. At the beginning of fall, comfort levels for some activities started to creep up, but by mid-October, they now seem to be falling or showing signs of stagnation again. (…)
China’s Households Are Shouldering the Burden of Its Recovery The nexus between banks, households and real estate has helped lift the Chinese economy back from the pandemic, but it compounds the country’s vulnerabilities too.
This year, Chinese consumption has been far weaker than other varieties of economic activity, with year-over-year retail sales of consumer goods still negative. But that doesn’t mean Chinese families are sitting on the sidelines: the scale of household borrowing marks a major difference between China and the West this year. (…)
Most of that debt, and likely most from this year too, goes toward property purchases, which explains why real-estate investment is now effectively back to normal, growing at a double-digit rate year-over-year. (…)
OH CANADA!
(…) Canada holds the distinction of being the nation whose financial position is expected to worsen the most in 2020 (19.6% of GDP) as per the IMF’s recently released October Fiscal Monitor. (…)
The recovery in Canada’s labour market by nearly all measurements has been much stronger than in the US where fiscal uncertainty and inaction has provided a headwind in recent months. Moreover, Canada’s federal government entered the crisis with fiscal room to spare (less so the for the provinces)—at least if general government net debt was your focus. Even allowing for this year’s outsized shortfall, the IMF puts Canada’s general government net debt burden at less than 50%—easily the best among G7 nations. (…)
(To be fair, Canada’s advantage isn’t anywhere near as impressive in gross debt terms. And if you add private sector debt to government liabilities, Canada’s overall debt load is looking pretty heavy… trailing just Japan and France in the G20.) (NBF)
GOING VIRAL AGAIN?
Coronavirus infections jumped by almost 17% over the past week as the number of new cases increased in 38 states and Washington, D.C.. The pace of new infections slowed down in only one state: Texas. (Axios)
(The COVID Tracking Project, state health departments. (After a database error, Missouri has not reported cases since Oct. 10.) Map: Andrew Witherspoon, Sara Wise/Axios)
Fathom Consulting:
With the number of COVID-19 cases on the rise once again in Europe, governments have announced a host of new measures targeted at bringing the virus back under control. However, politicians remain reluctant to reimpose the kinds of nationwide lockdowns seen earlier in the year. Rather, the tendency has been to adopt a more targeted approach, with a preference for imposing measures on selected industries or on targeted regions.
(…) monthly GDP data are already consistent with Fathom’s view that the rapid bounceback would slow a little towards the end of the year, but that the global economy is nevertheless likely to be within 3-4% of pre-crisis levels by the start of 2021.
Israeli Businesses Seek Workarounds as Covid-19 Lockdown Hits Their Bottom Lines Israel’s second national lockdown is fraying as businesses buck operating restrictions and Israelis grow desperate to secure their livelihoods while the government assesses whether to extend an unpopular shutdown.
Lilly CEO Says Covid Will Be ‘Endemic,’ Even With Vaccines
(…) the best vaccines early won’t protect more than 50% or 60% of those who receive them. That’s the FDA standard. And not everyone will choose to be vaccinated, so this disease will become endemic and will continue to spread. Medicines like monoclonal antibodies could help prevent the worst parts of this illness. (…)
It would be surprising to have a highly effective vaccine on the first go. We’re using relatively new technology for these early vaccines. Most of them require two shots. The other big factor is many people may choose not to be vaccinated, and that’s a tragedy. We need something much closer to 100%. We need media, social media and trusted authorities to help people understand why it’s in everyone’s interest to become vaccinated. In that gap between ideal and what will happen, we have medicines. That’s why we’re working on the antibodies. (…)
Apple Counts on 5G to Boost iPhone Fortunes in China Late to the next-generation smartphone market, Apple looks to win back fans in China despite trade tensions with U.S.
(…) A crucial battle for Apple is in the premium smartphone market Apple once ruled before losing ground to Huawei Technologies Co. in recent years. (…)
Homegrown rivals have been chipping away at Apple’s market share in China for years, though the launch of its second-generation iPhone SE gave shipments a 14.1% lift during the first half of the year, according to market tracker Canalys, as the broader smartphone market in China contracted.
Apple’s revenue in its Greater China region fell 3.1% in the first half of the year to $18.8 billion, while its overall revenue rose 5.5% in the same period. (…)
A worrisome trend for Apple is its shrinking share of China’s market for high-end handsets. In 2017, Apple dominated the premium $600-and-up smartphone market with an 86% share, versus Huawei’s 5%, according to Canalys. But in the first half of 2020, Huawei controlled almost half the market, while Apple had fallen to 42%. (…)
“Except for Apple, everyone has” a 5G phone on the market, Mr. Shah said. “Now that it has 5G capability, that will work heavily in Apple’s favor.”
The Stock Trading Revolution: How Robinhood and Its Rivals Are Changing Markets
- 20%of stock trades are made by retail investors, according to Bloomberg Intelligence
- 50%of Robinhood’s new customers this year say they are first-time investors
- 75%of all options trades in July expired in less than two weeks, a record, according to Goldman Sachs. Shorter-dated trades are seen as a tell-tale sign of retail investors
(…) Not since the dot-com mania of the late 1990s — when starry-eyed day traders dreamed of quick riches — has a brokerage platform drawn a frenzied following like Robinhood has. Skeptics warn the hype could set up home-bound novices for disaster, while some say it’s a step in the right direction to equalize access to financial markets.
“A step in the right direction to equalize access to financial markets”: Right, walking blind towards a precipice…