Core Inflation Hits Fed’s 2% Target as Spending Heats Up
The personal-consumption-expenditures price index, a broad inflation gauge closely watched by the Federal Reserve, rose a seasonally adjusted 0.1% in July from June, the Commerce Department said Thursday. From July 2017, the index was up 2.3%, the biggest increase since early 2012.
More importantly for the Fed, the so-called core PCE index, which excludes volatile food and energy prices, rose 0.2% in July from June and 2% from a year earlier, matching the central bank’s target. (…)
Upward revisions to the PCE price index showed that core inflation also hit the 2% target in March and May. (…)
Consumer Spending Rose 0.4% in July The increased outlay partly reflects the fact that U.S. firms are charging more for goods and services
(…) Household income—including what Americans earned from salaries and investments—rose 0.3% in July. (…) After accounting for inflation, consumer spending rose 2.8% in July, compared with the same month a year ago—an annual gain last exceeded in March 2017. (…)
Trump to Freeze Pay of Civilian Federal Workers
President Trump said Thursday he would invoke his emergency authority to freeze pay for more than two million civilian federal workers next year, citing the need to restrain the growth of federal spending.
“We must maintain efforts to put our nation on a fiscally sustainable course, and Federal agency budgets cannot sustain such increases,” Mr. Trump said in a letter to Congress on Thursday.
Democrats and federal workers’ unions decried the Republican president’s move, coming at a time of vigorous economic growth and after Congress passed a sweeping tax cut that congressional scorekeepers estimate will increase the budget deficit by $1 trillion over a decade. Congress also reached a budget agreement this year to boost federal spending by nearly $300 billion in 2018 and 2019.
“Trump has the nerve to eliminate pay raises for federal employees to ‘put our nation on a fiscally sustainable course,’ ” said a spokesman for the Democratic National Committee, pointing to the GOP tax law. He called the move “yet another slap in the face to American workers.”
Under current law, federal civilian employees are set to receive a 2.1% across-the-board pay increase beginning on Jan. 1, 2019, but Mr. Trump said he is eliminating those raises. He also said he would scrap additional raises, which vary by location, aimed at bringing federal pay in line with private-sector salaries. (…)
The president is authorized to submit alternative plans for federal employee pay if a “national emergency or serious economic conditions affecting the general welfare” would render the planned pay increases inappropriate.
The pay freeze “will not materially affect our ability to attract and retain a well‑qualified Federal workforce,” said Mr. Trump, a billionaire businessman who campaigned for president in part by promising to cut government waste. (…)
Congress could override Mr. Trump’s decision by including a pay raise in legislation. (…)
Totally surreal…
DEAL OR NO DEAL
EU Trade Official Proposes Ending All Car Tariffs With U.S. Cecilia Malmström did not say whether her suggestion included the issue of light truck duties
Cecilia Malmström told members of the European Parliament that for autos, the EU is “willing to bring down even our car tariffs to zero, all tariffs to zero, if the U.S. does the same.” (…)
Ms. Malmstrom’s comment, made at a meeting of the EU parliament’s international trade committee, was more an explanation of her approach than a formal policy statement. (…)
Mr. Trump has attacked the EU’s 10% tariff on imports of passenger cars from the U.S., which levies a tariff of 2.5% on EU passenger cars. But the U.S. imposes a 25% duty on light trucks, which today account for roughly 60% of the U.S. passenger-vehicle market.
(…) U.S. Trade Representative Robert Lighthizer said that talks on slashing vehicle tariffs should also bring in agriculture—a sector that the EU has deemed not open for negotiation.
“When you go to zero,” Mr. Lighthizer told the Senate Finance Committee on July 26, “it has to have agriculture as part of it.”
Mr. Juncker had told Mr. Trump the day earlier that if the U.S. wanted to discuss tariffs on agricultural products, no deal would be possible. (…)
MarketWatch:
The president quickly brushed away an offer made just Thursday for zero tariffs on cars as “not enough” as he said the European Union was “almost as bad as China.”
Trump Makes Clear EU Won’t Escape His Ire Over Trade for Long
Juncker vows to lift auto tariffs if Trump reneges on agreement The European Union will respond in kind if U.S. President Donald Trump reneges on a pledge to refrain from imposing car tariffs, European Commission President Jean-Claude Juncker said, as trade tensions between Europe and the United States rose again.
Trump to Back $200 Billion China Tariffs as Early as Next Week, Sources Say
Trump threatens to pull US out of the WTO
China’s Factories Show Resilience Amid Trump Tariff Danger
The manufacturing purchasing managers index stood at 51.3 in August versus 51.2 in July and exceeded the forecast of 51 in a Bloomberg survey of economists. The non-manufacturing PMI, covering services and construction, also rose to 54.2, the statistics bureau said Friday, compared with 54 in July. (…) New export orders dropped to 49.4, the lowest level since February, when the Chinese New Year disrupted production.
The official PMI result runs counter to some leading data as collated by Bloomberg Economics’ deck of early indicators. That showed output weakening again in August, as demand from key trading partners softened and sentiment among stock investors worsened. (…)
Euro-Area Inflation Unexpectedly Slows as Trade Risks Rise
Consumer-price growth came in at 2 percent, below the 2.1 percent reading in July that economists expected to see repeated. The core measure, which strips out volatile components such as energy and food, fell to 1 percent, also below expectations. (…)
…but wage inflation now the bigger focus than price inflation (RBC)
Alongside this morning’s inflation data we also got the unemployment data for July which showed the unemployment rate at 8.2% and, as we have noted on a number of occasions pay pressure in the euro area is now firming with a notable increase in euro area wage inflation in the first half of this year – something that President Draghi has referred to in recent meetings.
In Q1, whole economy pay rose by 1.8% y/y from 1.6% previously while the latest ECB data shows negotiated wage settlements running at 2.2% y/y in Q2; for 2017 as a whole negotiated wages had posted an increase of 1.5% y/y and we would expect the Governing Council to place greater emphasis on those developments rather than the recent inflation data.
ECB’s Nowotny Signals Italian Woes Shouldn’t Delay Rate Hikes
Argentina’s Central Bank Lifts Policy Rate to 60%
SEC Seeks to Ease Investment in Private Firms by Individuals The SEC wants to make it easier for individuals to invest in private companies, including some of the world’s hottest investments, which have been out of reach for many people, the agency’s chairman said.
(…) For decades, regulators have typically walled off most private deals from smaller investors, who must meet stringent income and net-worth requirements to participate because of the added risk private investing holds.
Mr. Clayton said the SEC is now weighing a major overhaul of rules intended to protect mom-and-pop investors, with the goal of opening up new options for them. (…)
President Trump also has pressured the SEC to consider the balance between public and private markets, using Twitter two weeks ago to call on the SEC to study letting public firms report earnings every six months, instead of quarterly.
“I’m not wedded to a particular result, but I think we should look at it,” Mr. Clayton said in the interview, conducted Wednesday. He said that the commission is studying the move, and added that even if companies reported earnings less frequently they would still update investors on important trends.
Private securities, mostly off the radar of federal regulators, are usually sold to sophisticated investors such as venture capitalists. There is typically less information available about the firms, increasing risks for investors.
Those markets also have traditionally been a major source of fraud afflicting small investors. Securities firms with a higher number of troubled brokers are more likely to sell private stakes in companies, often targeting seniors, an analysis this year by The Wall Street Journal found.
Rules aim to protect individual investors from riskier private deals. Only those who meet certain wealth or income standards—such as household income of $300,000—can participate.
Adjusting the rules could offer Mr. Clayton, a former Wall Street deals lawyer, a way to make good on his goal to help small investors access more high-quality investments for retirement or other needs. (…)
You can read this extract several times, I am not sure if you will find any sense to all of this. Make it easier for small investors to invest in startups which typically fail at a 65% rate. At the same time, restrict information to public shareholders supposedly because executives are too focused on the short term.
Last time I looked, equity markets were doing pretty well over the long term. Last time I looked, executives were doing pretty well pay-wise, much, much, much better than most of their shareholders. Pity them to have to live with the pressure to perform and report quarterly. Perhaps they should own fewer stock options and more shares outright to help them focus on the longer term.
End of cycle stuff!
U.S. stocks remain attractive even at current highs, Buffett says
The billionaire Warren Buffett says U.S. stocks remain attractive investments even at today’s high prices when compared to bonds or real estate.
Buffett reiterated his view that stocks are the best long-term investment during an interview on CNBC Thursday.
“If you had your choice between buying and holding a 30-year bond for 30 years or holding a basket of American stocks, there’s just no question you’re going to do better owning stocks,” he said. (…)
Buffett said the U.S. economy overall continues to improve gradually just as it has done ever since the fall of 2009, although a number of Berkshire’s businesses are seeing their costs increase a bit because of inflation.
“Across the board, business is good,” Buffett said. “It was good two years ago. It keeps getting better.”
Buffett also noted Berkshire had also repurchased some of its own stock in the past month since it relaxed its own rules on buybacks.