RECESSION WATCH
Chicago Fed National Activity Index Improves
The Federal Reserve Bank of Chicago reported that its National Activity Index rose to 0.10 during August from -0.41 in July. The three-month moving average, which irons out volatility in the monthly figures, rose to -0.06 last month versus July’s reading of -0.14. It was the highest level since January and sharply above the April low. During the last twenty years, there has been a 70% correlation between the Chicago Fed Index and the q/q change in real GDP.
The National Activity Diffusion Index, which measures the breadth of movement in the monthly series, also improved to -0.12 from -0.20. That remained below the peak of 0.41 in December 2017.
Improvement in the August index reflected increases in each of the component series. The Production & Income series led the gains with improvement to 0.16, its highest level in 12 months. The Sales, Orders & Inventories sub-group rose to -0.02 from -0.07, but remained well below its earlier highs. The Employment, Unemployment & Hours series recaptured its July decline and rose to -0.02 from -0.05. It has been moving sideways for six months. The Personal Consumption & Housing reading edged higher to -0.02 from -0.03, yet remained above February’s low of -0.11. (…)
- The next chart highlights the -0.7 level. The Chicago Fed explains (via Advisor Perspectives):
When the CFNAI-MA3 value moves below -0.70 following a period of economic expansion, there is an increasing likelihood that a recession has begun. Conversely, when the CFNAI-MA3 value moves above -0.70 following a period of economic contraction, there is an increasing likelihood that a recession has ended.
China’s Central Bank Won’t Follow Others in Easing The head of China’s central bank said that the country’s interest rates were appropriate and that it wouldn’t aggressively ease monetary policy, even as other central banks lower borrowing rates in a bid to spur growth.
(…) He told reporters that the economy, despite recent signs of weakness, was still performing within expectations, while inflation was relatively mild.
Mr. Yi emphasized instead the importance of preserving flexibility on policy options as the economy slows to its lowest rate of growth in nearly three decades.
“We should cherish the space for normal monetary policy,” Mr. Yi said, adding that while Beijing has room to take monetary and fiscal measures, it should continue with normal policy as along as possible. (…)
German Stimulus Program Not on the Cards, Economy Minister Says
(Nordea and Macrobond)
The survey showed a sustained decline in underlying demand, with total inflows of new business falling for the third month running and at the quickest rate for seven years. Slumping manufacturing orders led the decline, recording the steepest drop in more than a decade in September, though notably there was also a drop in service sector new business – the first recorded since December 2014.
Lower-Income Americans Increasingly Job Hopping A crucial driver of job changes is the prospect for higher wages
A New York Fed survey released Monday showed the share of lower-income heads of household, defined as earning a household income of $60,000 a year or less, who moved to new jobs in April, May, June or July was 12%, up from 8% in the same period a year earlier and the highest rate for records dating back to 2014.
Meanwhile, job changes among higher-income workers have been declining since early 2018.
The lower-income workers had more opportunities: About 4% of lower-income Americans received three job offers in the four months ended in July, up from 1.4% over the same period in 2018, according to the data in the New York Fed Survey of Consumer Expectations. (…)
The median wage growth among job switchers was +4.4% in August compared with + 3.2% for job stayers:
Real hourly earnings have accelerated in lower wage industries, primarily in Services (charts from Ed Yardeni):
China’s Soybean Move Lands With a Thud for U.S. Farmers
China trade talks will happen in two weeks, US’ Mnuchin says
Brazil Opens Up an Economy Long Shielded From Competition President Jair Bolsonaro’s administration is opening up one of the world’s most closed big economies, slashing import tariffs on more than 2,300 products and exposing local industries long accustomed to protectionism to the challenges of free trade.
EARNINGS WATCH
Yesterday I showed the collapse in South Korea exports. This chart links this with MSCI earnings:
(Nordea and Macrobond)
U.S. corporate insiders selling shares at fastest pace since financial crisis a decade ago
(…) According to research firm TrimTabs, in the month of August insiders at American companies were selling, on average, about $600 million worth of shares in their own companies a day (all figures US).
Five times this year already they’ve sold more than $10 billion worth of stock in a single month. The last time the markets saw that much selling that many times in a year was in 2006 and then again in 2007 — right before the stock market imploded in late 2008.
Analyst Winston Chua with TrimTabs says there’s nothing necessarily alarming about insiders cashing in, but it’s certainly “not a very positive sign.”
“It can be a bad sign of lack of corporate confidence.”
It’s also quite telling to note where much of the selling is taking place: tech stocks. (…)
INK president Ted Dixon tabulates that U.S. firms are seeing, on average, 55 net buys by insiders for every 100 sells at the moment. That’s not as low as the 30-per-100 seen earlier in the year but still considered low by experts — suggestive of an insiders’ market that is, on the whole, getting out. (…)
Dixon says it’s not necessarily a broad-based sell-off, since a number of sectors are actually seeing a lot of buying — particularly the hard-hit industrial and energy sectors in both the U.S. and Canada. (…)
Insider selling does not have the same weight as insider buying but nonetheless…