Philadelphia Fed Forecast: Slightly Stronger vs. Three Months Ago

According to the Philadelphia Fed’s Real-Time Data Research Center, the outlook for 2017 is slightly upbeat, particularly compared to a few months back:

The U.S. economy over the next four quarters looks slightly stronger now than it did three months ago…forecasters predict real GDP will grow at an annual rate of 3.1 percent this quarter, up from the previous estimate of 2.3 percent. Quarterly growth over the following three quarters also looks improved. On an annual-average over annual-average basis, the forecasters predict real GDP will grow 2.1 percent in 2017, 2.5 percent in 2018, 2.1 percent in 2019, and 2.3 percent in 2020.

An improved outlook for the unemployment rate accompanies the outlook for growth. The forecasters predict that the unemployment rate will average 4.5 percent in the current quarter, before falling to 4.4 percent in the next two quarters, and 4.3 percent in the first two quarters of 2018. The projections for the next four quarters (and the next four years) are below those of the last survey, indicating a brighter outlook for unemployment.

The forecasters assign the following mean probability to GDP growth rates this year:

Mean Probability

Note on Inflation

One persistent element is the inflation outlook in the coming years.  The forecasters note a downward revision:

The forecasters expect current-quarter headline CPI inflation to average 1.6 percent, lower than the last survey’s estimate of 2.3 percent. Similarly, the forecasters predict current-quarter headline PCE inflation of 1.2 percent, also lower than the 2.0 percent predicted three months ago.

Measured on a fourth-quarter over fourth-quarter basis, headline CPI inflation is expected to average about 2.3 percent in each of the next three years, little changed from the last survey. The forecasters have revised downward their projections for headline PCE inflation in 2017 to 1.8 percent, but they pegged the rates for 2018 and 2019 at 2.0 percent, unchanged from the last survey.

Over the next 10 years, 2017 to 2026, the forecasters expect headline CPI inflation to average 2.30 percent at an annual rate, unchanged from the last survey. The corresponding estimate for 10-year annual-average headline PCE inflation is 2.09 percent, little changed from the 2.10 percent predicted in the previous survey.

While not completely unexpected, this inflation forecast demonstrates an interesting shift, especially given the state of full employment. See the full writeup with lots of stats here.

The Distinctive Skill Set of a Leader

What could you learn (or benefit) from a Harvard Business Review article from nearly twenty years ago? Quite a bit. Emotion Intelligence, according to its great champion Daniel Goleman is remarkable in terms of impact among effective leaders:

To create some of the competency models, psychologists asked senior managers at the companies to identify the capabilities that typified the organization’s most outstanding leaders…When I analyzed all this data, I found dramatic results. To be sure, intellect was a driver of outstanding performance. Cognitive skills such as big-picture thinking and long-term vision were particularly important. But when I calculated the ratio of technical skills, IQ, and emotional intelligence as ingredients of excellent performance, emotional intelligence proved to be twice as important as the others for jobs at all levels. (From Goleman, What Makes a Leader? in The Harvard Business Review, 1998).

EI is arguably the skill set above many, if not all others that distinguish a leader who is able to move things forward because she or he is good with others, being first and foremost, at ease with themselves, mature, experienced and in command of themselves. Goleman identified five distinctive elements that identify leaders who possess emotional intelligence in action, shown in the table below:

Goleman Emotional Intelligence Five Characteristics

See an overview below from the HBR blog and re-issue of the 1998 article, What Makes a Leader.

 

 

 

Fed: One Foot on the Brake, One on the Gas

Per the Wall Street Journal, Federal Reserve Chairwoman Janet Yellen sees enough strength in the economy to continue the process of normalizing interest rates over this year and the next, after finally topping a 2.1% inflation target in February. The Fed chair reports growth, but “at a modest pace.” As such, the policy calls for action seeking a middle ground:

Where before we had our foot pressed down on the gas pedal trying to give the economy all the oomph we possibly could, now [we’re] allowing the economy to kind of coast and remain on an even keel,” she said. “To give it some gas, but not so much that we’re pressing down hard on the accelerator.”

Another interesting note is what may happen to the Fed’s $4.5 trillion portfolio:

Fed officials raised rates in March for only the third time since the financial crisis, to a range between 0.75% and 1%. But they have penciled in two more rate increases this year, followed by three in 2018. They are also considering reducing the Fed’s $4.5 trillion portfolio of cash and securities, acquired during three rounds of asset purchases aimed at lowering long-term borrowing costs after the recession.

It also seems the inflation target is going hold at 2%, which may be much more realistic in the long term, per the chair, “Evidence suggests that the population roughly expects inflation in the vicinity of 2%.”

Brand Value! Los Pollos Hermanos and the New Season of Better Call Saul

Talk about brand value! For the upcoming (and very anticipated) Season 3 of Better Call Saul, AMC promotes with a very clever tie-in to a social icon from Breaking Bad: Los Pollos Hermanos. From Forbes, “Los Pollos Hermanos was an iconic location in Breaking Bad, with the Mexican themed chicken restaurant serving as the front for Fring’s meth empire.”

From the AMC site:

This imminent existential threat presses Jimmy’s faltering moral compass to the limit. Meanwhile, Mike searches for a mysterious adversary who seems to know almost everything about his business. As the season progresses, new characters are introduced and backstories are further illuminated with meaningful nods to the Breaking Bad universe.

Yes, the end won’t be better than the beginning but the journey is going to be excellent.

BCS

Volume at the Ports: Record Year at the Port of Los Angeles

It was a record year at the Port of Los Angeles:

Cargo volumes at the Port of Los Angeles reached 8,856,782 Twenty-Foot Equivalent Units in 2016, marking the busiest year ever for a Western Hemisphere Port. The previous record was set in 2006, when the Port of Los Angeles handled 8,469,853 TEUs.

Attributed to the success is cited as understanding:

…”the importance of innovating and collaborating to move our economy forward,” said Mayor Eric Garcetti. “We have seen incredible progress over the last two years, and it speaks to the hard work and partnership between the City, business leaders, and the workers who keep our port running smoothly every day.”

The Port finished the year strong, with December volumes of 796,536 TEUs, a 27 percent increase compared to the same period last year. It was the Port’s busiest December and fourth quarter in its 110-year history. Overall in 2016, cargo increased 8.5 percent compared to 2015.

The end of the calendar year 2016 showed the following shipment activity:

Port of Los Angeles Container Trade TEUs 2000-2016

To put this milestone into perspective, look at the same time span filtered to total containers only (this illustrates the long crawl forward since the mid-2000s): Total Containers POLA

The Port of Long Beach had a little different year, but still posted strong results in spite of challenges:

Slowed by industry headwinds and challenges that included a major customer declaring bankruptcy, the Port of Long Beach still moved almost 6.8 million containers in 2016, its fifth best year ever.

Overall cargo declined 5.8 percent in 2016 compared to 2015, as the Port was impacted by new ocean carrier alliances and the August bankruptcy of Hanjin Shipping, a South Korean company and former majority stakeholder at the 381-acre Pier T container terminal — Long Beach’s largest.

By year’s end, the Harbor Commission had approved an agreement for a subsidiary of Mediterranean Shipping Co., one of the world’s largest container ship operators, to take sole control of the long-term lease at Pier T.

…“Last year was turbulent, with numerous ocean carrier mergers and other changes,” said Harbor Commission President Lori Ann Guzmán. “Now we have one of the largest ocean carriers in the world as a major partner and we’re well positioned to rebound in 2017. While the industry strives for equilibrium, Long Beach will continue be a reliable port of entry and continue to provide the fastest, most efficient services for trade from the Far East.”

 

Plot 378

Again, the change in volume since the mid-2000s is even more felt when viewing total containers only:

Total Containers POLB

20th Anniversary of One of the Most Iconic Expressions in Finance: Irrational Exuberance

Irrational exuberance has been one of the most iconic and recognizable phrases in the financial markets for the last twenty years – to the day. I remember this like it was yesterday, being a recent graduate and shortly after, working in the capital market. This really was the advent of an era where there has been no looking back: a tenuous and ambivalent relationship with the Fed and every nuance uttered by the Chair. Here is the full quote in its context:

Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade? And how do we factor that assessment into monetary policy? We as central bankers need not be concerned if a collapsing financial asset bubble does not threaten to impair the real economy, its production, jobs, and price stability. Indeed, the sharp stock market break of 1987 had few negative consequences for the economy. But we should not underestimate or become complacent about the complexity of the interactions of asset markets and the economy. Thus, evaluating shifts in balance sheets generally, and in asset prices particularly, must be an integral part of the development of monetary policy.

Read the full speech from the minutes here.

Interestingly enough, here is some commentary in our present time declaring, “rationally exuberant,” (caveat emptor on long positions if you ask me):

Not everyone is convinced of this view to be sure:

In recent years the Fed has only doubled down on these policies by directly pursuing a “wealth effect.” Rather than give a boost to the broad economy, however, these central bankers have only accomplished an even greater and more pervasive financial asset perversion. Stocks, bonds and real estate have all become as overvalued as we have ever seen any one of them individually in this country. The end result of all of this money printing and interest rate manipulation is the worst economic expansion since the Great Depression and the greatest wealth inequality since that period, as well.

See the full post here.

Apps for Economics

I found this excellent site in the Journal of Economic Education as I was researching another topic. In that article, the following overview describes the useful content cataloged on the site:

As the digitization of teaching resources becomes increasingly available, instructors can adapt by making course pedagogy more mobile through incorporating “bring your own device” into the course design. The number of available apps can be overwhelming. We identify many of the best apps with user rankings on a 5-point qualitative scale from Awful (1) to Excellent (5).

Why should we use apps in economics? Strategic selection of an app engages students. This selection offers understanding throughout a range of cognitive domains while providing connections to learning styles that link to individual strengths. Apps provide a hands-on study of economics that can intrigue and satisfy. When students have fun engaging economic apps, their learning and retention increases. Our Web site arranges the apps into seven categories: Study Aids, Calculators, Data, Events, Feedback, Quizzes, and Simulations. Study Aids provide resources for better understanding principles of economics. Calculators identify spreadsheets as well as financial, mortgage, and currency calculators. Data apps profile domestic and international macroeconomic data sources. Events allow class members to keep abreast of current events. Feedback offers instructors a variety of mechanisms to gather classroom responses. Quizzes afford students tools for selftesting of economic concepts. Simulations generate a virtual world to put economics into practice. (Cochran, Velikova, Childs & Simmons, 2015).

 The site is authored by an excellent team of innovators, researchers and educators who have a “passion for technology.” This site is an excellent resource and I hope it continues to be updated.

 

Reference:

Cochran, H. H., Velikova, M. V., Childs, B. D., & Simmons, L. L. (2015). Apps for Economics. Journal Of Economic Education, 46(2), 231. doi:10.1080/00220485.2015.1006745

WSJ: Is Growth in the Gig Economy Stalling Out? – Flattening Growth Trend in Uber, Etsy and Airbnb

The Wall Street Journal asks, Is Growth in the Gig Economy Stalling Out? Flattening trends are seen using information from Morgan Chase & Co. related to earnings from “Uber, TaskRabbit, eBay, Airbnb and nearly 40 other sites considered part of the “gig economy.””

These new sites and platforms hold the potential to radically reshape the American workforce, leaving a growing number of employees severed from traditional payroll jobs. But just how much is that actually happening? Research has suggested that most of the rise in independent contracting has been happening outside of these high-profile online platforms. And now, the latest data from JPMorgan suggests growth in the number of active users of online platforms is slowing down.

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The report distinguishes between two types of platforms: those where users sell “capital,” whether it’s goods on eBay or Etsy or renting apartments, and those where users sell “labor,” such as Uber, Lyft, TaskRabbit and so on. They find that about 1% of adults are active on such platforms in any given month. That’s up, but only a little bit, from estimates made earlier this year. The period of explosive growth for this type of work may be over. (Only a trivial number of people use both types of platforms.)

This extraordinarily high turnover “implies that growth in online platform participation is highly dependent on attracting new participants or increasing the attachment of existing participants,” the report says. In other words, if companies in the gig economy want to keep growing, they need a strategy to stop people from quitting after a few months.

The post cites a remarkable number of adults who have participated in shared economy jobs but an extraordinarily high rate of churn from these jobs inside of a year. This actually resembles similar trends that occur during normal economic slowdowns where professionals or skilled labor temporarily take on unrelated, sometimes reasonable earning temporary work. But it appears there is a shift back to traditional jobs rather than a new trend that was going to change the world.

Motor Intelligence July Auto Sales

Results from Motor Intelligence returned the following for the nation’s top three automakers:

Autodata 2016 08 02

From the Wall Street Journal:

Sales for the top three auto makers selling in the U.S. slipped in July, reinforcing the view that the light-vehicle market has plateaued after six consecutive annual volume increases.

Declines at General Motors Co., Ford Motor and Toyota Motor Corp. overshadow increases by smaller players; including Nissan Motor Co. and Honda Motor Co. The sustained run of sales gains in the U.S. since the financial crisis has allowed most auto makers to limit reliance on discounts and keep inventories lean, padding profits generated by increased demand for trucks and sport-utility vehicles.

…The auto industry’s recovery has been a bright spot for the U.S. economy, with high factory utilization spurring new jobs, investment in American facilities and wage growth for Detroit’s auto workers. Car buyers spent $49 billion on light vehicles in July, according to TrueCar Inc., up 1% amid longer loan terms and a boom in subsidized auto leases—trends that keep monthly payments on par with a decade ago even as sticker prices go up.

…Overall retail sales are a trouble spot as purchases made by individual customers in showrooms have stalled this year, down slightly for the first seven months, according to JD Power. Auto makers are betting sales to government agencies, rental-car firm and commercial fleets will continue to grow.

…July’s results follow the sober view Ford executives gave last week when reporting second quarter earnings.

BT-AK221_CARSAL_9U_20160802134810

This is certainly a flattening trend from last year’s high, but I would tend to agree with the article’s assessment (quote), “this isn’t doomsday.” In other words, slowing, flattening and even headwinds is not the same thing as a crash, but in our projections for the coming year, we should at least take note and plan accordingly.

 

 

Residential Homeownership at More than a 50-Year Low

The Census Bureau updated its quarterly Housing Vacancies and Homeownership (CPS/HVS) and returned the following results:

Table 4 2016-07-28

As illustrated by the information in the table, homeownership in the U.S. continues to produce negative results as noted by the Wall Street Journal:

The U.S. homeownership rate fell to the lowest level in more than 50 years in the second quarter of 2016, a reflection of the lingering effects of the housing bust, financial hurdles to buying and shifting demographics across the country.

But the bigger picture also suggests more Americans are gaining the confidence to strike out on their own, albeit as renters rather than buyers.

The homeownership rate, the proportion of households that are owner-occupied, fell to 62.9%, half a percentage point lower than the second quarter of 2015 and 0.6 percentage point lower than the first quarter 2016, the Census Bureau said on Thursday. That was the lowest figure since 1965.

These last statistics are reflected in the interactive FRED chart below:


One very interesting element of the homeownership trend is the sociological shakeout among generational groups, with some results as expected, and others left for more in-depth studies:

NA-CJ738_GENX_9U_20160408150908

Source: The Wall Street Journal: http://www.wsj.com/articles/housing-bust-lingers-for-generation-x-1460142759

The full Bureau of Census report can be viewed here and the quarterly updates here.

Three Measures of Unemployment

The FRED Blog has an interesting assessment of unemployment, as measured by the 4-Week Moving Average of Initial Claims, Civilian Unemployment Rate and Average (Mean) Duration of Unemployment:

Take note especially of the Average (Mean) Duration of Unemployment – this corresponds to the “Scariest jobs chart ever” at Calculated Risk. From the FRED Blog using the analogy of the “unemployment bathtub”:

Economists often find a bathtub to be a useful metaphor for the behavior of unemployment. There’s some inflow of newly unemployed workers and some outflow as workers find jobs. A classic way to measure the inflow has been with initial claims of unemployment benefits, the blue line, in which we see spikes at the start of each recession. This inflow of newly unemployed persons initially reduces the mean duration of unemployment, the green line. But the green duration line rises as the blue initial claims line falls—since people who become unemployed early in the recession and remain so are unemployed for a while by the time the recession winds down. Every recession follows this pattern: Claims peak, then unemployment peaks, then duration peaks. The logic is essentially that of the bathtub: First it fills quickly; then, after some time, it begins to drain. But as this is happening, those left in tub have been there longer and longer.

The alarming measurement was just how long it took to reach pre-recession peak levels of jobs lost – a level reached “April 2014 with revisions.” Since we have met and exceeded this level for some time, the concerns now turn to issues such as the levels of employment (part-time temporary vs. full-time) as well as the “quality of jobs.”