We see plenty of rhetoric about challenges and changes but the two biggest players in the world economy are the United States and the US Dollar. So it is time for us to peer under the bonnet again and let me open with the result from the third quarter.
Real gross domestic product (GDP) increased at an annual rate of 1.9 percent in the third quarter of 2019 , according to the “advance” estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 2.0 percent. ( BEA )
There are several implications here of which the first is simply that this is better than we are seeing in most places with Germany and Japan reporting growth rates much lower in the last 24 hours. In general this is , however, weaker than last year although the last quarter of 2018 was particularly weak.
A supporting element for the US has been a strong labour market.
Real disposable personal income increased 2.9 percent, compared with an increase of 2.4 percent.
Has the easier fiscal policy of President Trump been a factor? Yes but we simply get told this.
federal government spending,
If we shift to a potential consequence which is rising debt well actually the ability of the US to repay it looks strong too.
Current dollar GDP increased 3.5 percent, or $185.6 billion, in the third quarter to a level of $21.53 trillion. In the second quarter, GDP increased 4.7 percent, or $241.4 billion.
As you can see there has been an element of inflating away the debt in there.
What happens next?
The now cast system uses the latest official data to look ahead and just like last year it looks like being a weak end to the year.
The New York Fed Staff Nowcast stands at 0.7% for 2019:Q4.
News from this week’s data releases decreased the nowcast for 2019:Q4 by 0.1 percentage point.
Negative surprises from lower than expected exports and imports data accounted for most of the decrease.
Another factor in play is that the labour market is not providing the push it was.
Earnings growth is still below late 2018 levels……Payroll growth was moderate in October, but remained solid year-to-date.
Money Supply
Back on the 22nd February I posted my concerns about the prospects for 2019.
So we can expect a slowing economic effect from it as we note that some of the decline will be due to the QT programme…….So we move on with noting that a monetary brake for say the first half of 2019 has been applied to the economy.
Of course that was then and this is now as the reference to the now ended QT programme. For example this happened at the end of last month.
the Committee decided to lower the target range for the federal funds rate to 1-1/2 to 1-3/4 percent.
Yesterday saw Repo operations from the New York Fed which provided some US $73.6 billion of overnight liquidity and US $30.7 billion of 13 day liquidity. Thus the cash is flowing rather than being reduced and like so many things what was presented as temporary seems to keep going.
In accordance with the most recent FOMC directive, the Desk will continue to offer at least $35 billion in two-week term repo operations twice per week and at least $120 billion in daily overnight repo operations.
The Desk will also offer three additional term repo operations during this calendar period with longer maturities that extend past the end of 2019. ( NY Fed )
That is for the next month and there will be more to come as they catch up with something we have been looking at for a couple of years now which is the year end demand for US Dollars.
These additional operations are intended to help offset the reserve effects of sharp increases in non-reserve liabilities later this year and ensure that the supply of reserves remains ample during the period through year end.
Returning to the money supply data you will not be surprised to read that the numbers have improved considerably. The outright fall of US $42 billion in the narrow money measure in March has been replaced by growth and indeed strong growth as both the last 3 months and 6 months have seen growth at an annual rate of the order of 8%. Back in February I noted that cash growth was strong and it was demand deposits which were weak and it is really the latter which have turned around. Demand deposits totalled US $1.45 trillion in March but had risen to US $1.57 trillion at the end of October.
Talk of the demise of what Stevie V called
Dirty cash I want you, dirty cash I need you, woh-oh
Money talks, money talks
Dirty cash I want you, dirty cash I need you, woh-oh
continues which is rather the opposite of official rhetoric.
Thus a monetary stimulus has been applied and for those of you who like to look at this in real terms might now that the inflation measures in GDP have faded making the impetus stronger for say the opening and spring of 2020.
Have the Repo operations influenced this? If you look at the September data I think that they have. But this comes with a cautionary note as QE operations do not flow into the monetary data as obviously as you might think and at times in the Euro area for example have perhaps taken quite a while.
Credit
By contrast a bit of a brake was applied in September.
Consumer credit increased at a seasonally adjusted annual rate of 5 percent during the third quarter. Revolving credit increased at an annual rate of 2-1/4 percent, while nonrevolving credit increased at an annual rate of 6 percent. In September, consumer credit increased at an annual rate of 2-3/4 percent.
Those sort of levels would have the Bank of England at panic stations. It makes me wonder if fears over the financial intermediation of the banks was a factor in the starting of Repo operations?
If you are wondering if car loans are a factor here we only get quarterly data and as of the end of the third quarter the annual rate of growth was 4.3% so definitely, maybe.
The US Dollar
The official view is expressed like this.
NEW YORK (Reuters) – President Donald Trump on Tuesday renewed his criticism of the Federal Reserve’s raising and then cutting of interest rates, saying the central bank had put the United States at a competitive disadvantage with other countries and calling for negative interest rates.
He wants lower interest-rates and a lower US Dollar. What we have seen is a trade-weighted index which has risen from 116 in February of last year to above 129 as I type this. So not much luck for the Donald
Comment
As you can see things are better than some doom mongers would have us believe. The monetary situation has picked up albeit with weaker consumer credit and there is the fiscal stimulus. But that is too late for this quarter and there are ongoing issues highlighted by the weak data we have seen out of China this week which the New York Fed summarises like this.
China’s monthly economic activity data is steady at a lower level.
Then there is the ongoing sequence of interest-rate cuts around the world which rose by 2 yesterday as Mexico and Egypt got on the bandwagon. That makes 770 for the credit crunch era now.
Meanwhile for those who have equities the Donald thinks that life is good.
Hit New Stock Market record again yesterday, the 20th time this year, with GREAT potential for the future. USA is where the action is. Companies and jobs are coming back like never before!
Notayesmanseconomics's Blog 
Whether you agree with it or not the US has a far better chance of self reliance than most countries. Its got a woodyard on its doorstep in Canada for a start and they started fracking before anywhere else.
I think it was about 12 months or so ago I read that due to expansion in fracking the US would be self reliant on its own oil.
What the US does need however is rare earth materials and China has some of the monopoly on that front.
As to the future of the US economy it is doing well at the moment but as the world slows down its wont be immune particularly with a strong dollar.
At some stage all good things come to an end, but I wouldn’t like to make a guess just right now on the US without further research.
Rare earth resources are not particularly rare, despite the name, but they are relatively expensive to extract.
There are a number of ways of looking at that. A painting could be said to be rare but fashions change and what may be considered rare at one period of time may not be rare at another period of time.
Evolution and a change of the need for a particular resource does have an impact on rarity as well.
So in part you do have a point, diamonds are always considered to be rare but in part the prices are artificially held up but even the diamond prices have fallen considerably the last year.
Most thing are valued by supply and demand the more the demand the higher they are priced.
rare because when in discovery they are/were difficult to tell apart chemically . Once we found out how to do that then we found that they are quite common but crucially they are still difficult to extract.
Forbin
further reading – https://en.wikipedia.org/wiki/Rare-earth_element
The US economy is an amazing animal, kept going by Fed stimulus and almost zero rates it is a complete confidence game in that the US consumer is kept spending and borrowing by thinking the economy is OK only by the barometer that they are told means anything – the stockmarket – and those that have stocks either personally or in their 401K and equity in their house think they are wealthy and can realise this wealth at any time. Trump has, prior to the previous election told everyone it was a massive bubble only kept alive by central bank stimulus and could burst at any time, but now he is in office he Tweets daily the new highs and attributes them to his government and administration.
We all know the Globalists want Trump out at any cost and have been trying since the day he was elected, first Russiagate, now Ukrainegate, but If impeachment doesn’t work, I believe they will crash the stockmarket to do it. The only trouble is the timing, will they do it before the election next November to prevent his re-election, or will they wait until he is re-elected and then do it, I think the escalating disputes between him and the Fed rising to an outright fake manufactured crisis will be the catalyst and the story planted by the mainstream media to squarely plant the blame on Trump so that the Fed gets off scott free, once they stop buying every dip and maybe stop cutting rates or implementing NotQE the market will crash and Trump is the perfect fall guy.
Hi Kevin
There are lot’s of things in play including Trump’s U-Turn on interest-rates as he used to say they were too low. I do not know if he should be impeached or not? But I rather suspect that the new push to have Hilary Clinton as his opponent again runs the risk of the same result. Perhaps Newsweek magazine will again assume she has won just like last time……
Industrial production at -0.8% below forecasts suggests the US not as strong as some would think and a 0.2% rise core US retail sales the last month is hardly an indicator of a strong US economy.
The US consumers are not buying large ticket good just like the UK consumer if that is another indicator.
So though I don’t have a crystal ball, I would say on balance the US outlook is getting weaker.
Hi Peter
I had noted the past production numbers earlier and wondered if there was a turn in the offing? That now looks more likely as after a strongish August we have seen it go -0.3% and now -0.8%. However there is a caveat.
“Manufacturing production decreased 0.6 percent in October. Much of this decline was due to a drop of 7.1 percent in the output of motor vehicles and parts that resulted from a strike at a major manufacturer of motor vehicles.”
So we have 2 down months now rather than an acceleration lower.
“Excluding motor vehicles and parts, the index for total industrial production moved down 0.5 percent, and the index for manufacturing edged down 0.1 percent. Mining production decreased 0.7 percent, while utilities output fell 2.6 percent.”
I think there is a turn but further numbers in due course will provide more evidence.
Hello Shaun,
yup 2020 is going to be living in interesting times…..
Forbin
I will be glad to get 2019 out of the way first! I like my politics and economics on the boring side and they are anything but at the moment. I fear that on friday the 13th of December we could wake up to the Peoples Democratic Republic of the (potentially no longer) United Kingdom. if that happens I will be off to the bank that morning with a suitcase ( not a very big one admittedly ) to remove my savings before the loonies make a grab for it.
The very hard left may be in charge of the Labour Party, but they’ll never be in charge of Parliament; too many Labour MPs will revolt.