Joseph Brusuelas
@joebrusuelas
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RSM US LLP Principal & Chief Economist. Named 2023 best rate forecaster by Bloomberg. Board advisor UCLA Anderson School forecast. Member @WSJ forecast panel.
Joined January 2010
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Thanks to the good folks
@CBSNews
@CBSMoneyWatch
&
@johndickerson
for the opportunity to discuss the condition of the US economy, inflation and the appreciation of the dollar.
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There is a growing disconnect between the real economy and equity valuations that, if sustained, will result in slower growth and increased regulation of the investment industry. And that, in turn, will further undermine the legitimate underpinnings of capitalism.
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I am in Paris on holiday. Within thirty seconds of this breaking there was a gasp and then cheer. This electricity in the air is something I shall never forget. If some of you do not think the US matters abroad please think again. And this is coming from France a place facing
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Not only is there a significant risk of another market crash, but if equity markets continue to defy gravity without a meaningful recovery on Main Street, the legitimacy of the market and capitalism itself will come under further scrutiny.
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US GDP: 4.1% expansion with real final sales blowout of 5.1%. Robust rebound in household spending of 4%. Final sales to domestic purchasers 3.9%, Final sales to private domestic purchasers was up 4.3% Major drag was residential investment which dropped 1.1%.
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While there is nothing wrong with traders and investors profiting from timely and smart speculative activity, the growing disconnect between the economy and equity markets is going to cause increased social tensions.
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So I think a lot is riding on how the Asian markets open tonight. Amazing how many people in finance & economics are on their
@TheTerminal
today. Lots of bankers in the office. This feels like one of those Sundays during the financial crisis.
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The link between the two is broken because of a changing market structure, a concentration of wealth and powerful network effects that feed into the winner-take-all economy.
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Good morning. While a spirited debate on sanctions takes place here is a look at Russian 5yr CDS. Collapse in the RUB/USD, 1-mo FX forwards & decline in the MOEX all point to a possible Russian currency & banking crisis. Let’s see how quick Moscow blows through its FX reserves.
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The Sahm Rule: to be triggered it needed to reach 4.260% and the unemployment rate out to three digits is 4.253% so its a narrow miss. I will leave it to you guys to argue over the merit of rounding up.
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UMICH Consumer Sentiment: the January survey increased to 78.8. The improvement over the past two months is largest since 1991 as the economy emerged from an inventory led recession. 1 yr & 5yr inflation expectations at 2.9% & 2.8% respectively. As inflation growth slows real
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A quick look at the upcoming expiration of pandemic emergency actions.
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The U.S. is energy independent. US oil production jumped to a record high of 13.2 million barrels per day in Q3'23 & will move towards 13.6 MPD in Q4'23 . The US exports 4 million barrels per day implying modest spare capacity to address volatility in markets due to geopolitical
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@BeschlossDC
The expression on Ike’s face tells a unique American story of the middle twentieth century.
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First time jobless claims explode to 965K and continuing claims rise by 271K to 5.271 million. There are still 18.4 million individuals receiving some form of UI benefits. Still saying this is all ok? Still think we do not need to provide more aid to the unemployed?
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US PCE Inflation: 2.5% year over year increase is well within what a forward looking central banker would consider tolerable and on way to the 2% target. In my estimation this is consistent with a June rate cut and three overall reductions in the federal funds policy rate this
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Massive increase in first time jobless claims to 853K, the highest since the week of Sept 18.0 Continuing claims to 5.7 million. Likely overstates underlying trend following holiday induced 716K previously. Policymakers....are you paying attention? You need a fiscal aid deal now!
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My New Years Resolution: no more solving for second order differential equations on board in 2024.
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A good trillion dollar margin call Friday to everyone. This is an excellent explanation on the state of play inside EU power markets: Europe’s power producers ‘face €1tn’ in margin calls via
@FT
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Talked to a business owner yesterday who told me his workers are quitting to take new jobs at higher pay. Even those just hired. It’s not UI Workers are deciding to take on new jobs & careers as the economy rebounds, spurning a return to business as usual
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To put today's jobless claims into perspective the previous high was 695K for the week ending October 1, 1982. The increase to 3.283 million is roughly 4.7 times the previous time series peak. This is really different this time. Those telling you its not are not being truthful.
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Introducing the
@RSMUSLLP
US Supply Chain Index which which provides a near real-time and forward look at the elements of transportation, manufacturing, sales and labor that underscore the manufacturing and service sectors. It stands at 5 standard deviations below neutral.
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Sanctions on Russia: The extent to which they are effective will be found here as Moscow is forced to draw down its $643 billion in reserves to defend the ruble, prop up its fading equity market and bailout VIP & state connected private firms. (1/3)
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A good post election morning to all. The yield on the 10-yr US Treasury broke through 1% , which implies investors are pricing in another round of fiscal aid & a more aggressive budget outlook from what appears to be unified control of the US government by the Democrats.
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Want to know how important fiscal transfers/government aid is right now? Personal income excluding government transfers declined by 6.3%. And some of you worry about that $600 per month serving as a roadblock to recovery. That is not tethered to the reality of the crisis.
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Gasoline prices peaked in mid-June (down 30 cents per gallon since then) and wholesale gasoline futures point to a much larger drop in coming weeks. This implies that headline inflation will begin to moderate in the July reporting period.
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The primary cause of the increase in the super core was the 1.4% rise in transportation prices driven by the 0.5% increase in used cars & trucks prices and a 3.6% increase in airfare costs on the month.
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@CNBC
This data visualization is a completely misleading and should have never been published. One understands the need to feed the need of advertisers but this is simply beyond the pale.
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@secupp
Cost of the ag bailout now larger than the auto bailout during the "Great Recession."
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Lots of questions on what $600 can do on social media & financial television this morning. The answer? It can feed your family for a month. Some of you live in bubbles & are not tethered to reality.
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Remember the near panic over rising lumber prices last spring? They are now down 70% from the peak.
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Bill Murray crying at Wrigley, To Hanks hosting SNL & Alec Baldwin just nailing he who shall not be named again a great way to end Saturday
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Good morning & happy Labor Day to everyone. An American economy at full employment is a beautiful thing to behold.
Productivity is robust and the economy is growing at or above trend near 2.5% currently which means expanding margins and improved wages.
To the extent
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Terrific data viz illustrating that, despite the recent increase in gasoline prices, Americans aren’t spending more of their disposable income on fuel than they were prior to the pandemic. Via
@TheTerminal
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US Consumer Outlook: can't stress this enough the economy and consumer spending outlook is being supported by real increases in income above inflation. I know this kills talking points & cocktail conversation in some information bubbles but this is what is driven the economy
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A not so good idea morning to all. This is not going to bolster activity coming out of a recession. Again it’s almost as if they want to make the same mistakes that were made in the Depression. U.S. Eyes $3.1 Billion of EU, U.K. Imports for New Tariffs
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Unemployment rate of 2.4% for college graduates. Some college it's 3.7%. This is about as good as it gets. Pay the tuition & go to school.
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Good morning. A look at the BLS estimate of the US Harmonized Index of Consumer Prices vs. the CPI and PCE implies that if inflation were measured the way its done by our major trade partners the Fed would be talking about a rate cut. Taken out to 3 decimals the US HICP is 1.95%.
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As the average price of gasoline hits $5 per gallon we deconstruct the price of gasoline. Hint…it’s not price gouging.
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Fed holds policy rate between 5.25%-5.5%. Dot plot implies median policy rate of 4.6% which indicates 75bps of rate cuts. Fed signals its done raising rates. Core PCE forecast of 2.4% in 2024. We think that is correct with 100bps of cuts.
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Through June 6 there were 30.5 million individuals on various forms of unemployment insurance Since then an additional 3 million people have filed for aid. Some very important policymakers are waiting for confirmation on whether to extend fiscal aid. It's sitting in plain sight.
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Data feed finally update and here is the 33% increase in the personal savings rate which is almost certainly a function of the upper 40% of households pulling back on spending. Yes, that is the paradox of thrift at work.
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@carlquintanilla
@WSJ
For your viewing pleasure a little data viz on the falling price of lumber.
@morningmoneyben
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A robust 6.4% growth rate in economic activity in Q1'21 narrowed but did not close the output gap in GDP. We 100% confident that the US economy will move above the pre-pandemic level of economic activity in Q2'21 & that is an extraordinary achievement by any metric.
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Big disappointment on the jobs report as only 266K added and the March survey was revised down to 770K. The unemployment rate increased to 6.1% and average hourly earnings on a year ago basis advanced 0.3%. This should allay concerns on the economy overheating and inflation.
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May CPI: core prices down for the third consecutive month, which if I’m not mistaken is the first time in the history of the series. Disinflation in plain sight.
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USD/Rub: Ruble down roughly 29% in early trading. This is where the nexus of international economics, finance and politics gets interesting. Russian central bank is clearly tapping its reserves to defend its beleaguered currency.
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Little known fact. The integrated North American auto production system saves roughly $4,300 per auto purchase for Americans. (1/2)
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US 10-Year at 2.18% following Mexican tariff announcement. Global growth & recession concerns to drive yields. This isn’t negotiating. It’s hostage taking of the American economy.
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Worthy of your time. This article makes a similar case to our research. The US is 3.5 million houses short of what it needs and will need to build 1.7 million homes per year through 2030 to catch up. via
@NYTimes
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While the pace of first time jobless claims has declined over the past few weeks that is a little like saying they turned down the heat in hell. It is clear that the U.S. labor market remains impaired as first time jobless claims increased by 1.5 million.
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Fantastic discussion around US GDP over the past day. However it’s important to be clear that even a 10% growth rate on Q3 will not erase the large difference between actual & potential growth. It will be years before that spread is erased
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Americans’ real personal income (ex-government transfers) began its decline in March at the start of the staggering loss of employment, and then fell by 7% in April and 6% in May as shown in the first figure below. Serious cuts to income supports would be a policy error IMHO.
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@ellabagh
@TheRickWilson
Tell Bill & your son that we are thinking of all of you. Just horrible.
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Interesting question on financial television this morning about how one gets strong hiring without inflation? Rising productivity is how that happens. It is how an economy grows faster, supports greater profits, strong hiring, price stability & lifts living standards.
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A quick look at inflation expectations. The Fed's 5yr, 5yr forward at 2.18%. For those of you that keep talking about 1970's style inflation, take a look here. This is not screaming hyper inflation, inflation or stagflation. It implies price stability.
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Good morning. US Q3’21 GDP revised up to 2.3%. I’m forecasting a 7.2% in the Q4’21. That implies the US economy would expand a greater than 5% pace in 2021 which would be the strongest growth rate since the mid 1980’s despite risks to the outlook from omicron & inflation.
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Good & fair review of temp quarters. Building house in Austin with specialized studio to support media. Will debut this fall. And that cord has got to go. Well Done!
Good depth. Pillows. High earnings potential. Add art. Turn on lamp. Deal with cord violations. 7/10
@joebrusuelas
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US January CPI: Disinflation did not broaden out in January as the super core-services ex-housing increased 4.3% Y/Y, services were up 4.9% and services ex-energy is up 5.4%. Housing prices continue to be sticky & stubborn in the official data in contrast with real time data.
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One of the more encouraging aspects of the May US jobs report was the 90K increase in higher paying goods producing, manufacturing and construction jobs. They accounted for 40.3% of all job creation in the report
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Good morning. The economy grew 2.9% over the past year, the economy generated 272K jobs in May, the unemployment rate is 4% & wages are up 4.1%. Inflation-the PCE is 2.7%-growth is slowly easing back towards 2%. This is what an economy at full employment looks like. Looking
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The November US PPI report saw no increase on the month & the three month run rate also implies no increase in wholesale inflation. This strongly suggests that the upcoming PCE inflation report will be soft at best reflecting further abatement in inflation.
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US jobs report: impressive recovery in participation rate as individuals stream back into the labor force prime aged participation rate increase rate to 79.5%. 75.8% for women & 88.8% for men. This is unambiguously good news.
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Given the intensification of the pandemic and the rapidly approaching election I thought some of you may enjoy a look at COVID-19 in red & blue. Draw your own conclusions.....its not that hard.
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Topline retail sales fall by -1.1%, ex auto -0.9% and ex auto and gas -0.8%. The control group that feeds into the estimate of GDP declines -0.5%. Not the start to the holiday shopping season that one wants to observe. This is a function of the pandemic and lack of fiscal aid.
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Core Inflation: the three month annualized pace of core PCE slowed to 2.4% y/y. Food inflation at 2% using that same metric. Core PCE is the best predictor of long run inflation and the direction in this metric is quite encouraging.
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Further evidence of disinflation via the import channel in May. Big decline in May import prices with the topline down 0.3% & the ex petroleum metric falling 0.4%. On a year ago basis import prices up 1.1%. The data this week- for a data dependent Fed-tends to suggest that the
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Fedwent big. Policy rate to zero. $700 billion in QE-$500bln in Treasuries $200bln in MBS discount window open. Primary credit rate cut by 150bps to 0.25%. Reduced reserve ratio to zero. Urges banks to use capital & liquidity buffers. Coordinated move to USD liquidity swap lines.
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US Q3’23 Productivity Report: up 4.7% while unit labor costs declined 0.8%. All this occurred while inflation continues to ease. We have productivity boom that is resulting in more efficient growth. It’s time to stop talking about soft landing & time to start talking about
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Good morning. We expect the May CPI to advance 0.1% m/m & 3.1% y/y. It's a close call between flat & 0.1% and our forecast implies a 0.060% increase, so risk is to the downside on the forecast. The core should advance 0.2% (0.160%) and 3.4% y/y. If our forecast is prescient, it
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A good
@Marketplace
morning to all. It’s in the best interest of the country that further fiscal aid be put in place. At this point we are going to stumble & stagger toward the worst holiday spending season since 2008.
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US May Retail Sales: a look at the data. Large declines in gas station sales which is part of a decline in prices. Large declines in housing related data in terms of falling furniture sales outlays and building materials spending. Proxy for ecommerce increased 0.8% and outlays at
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@JonahDispatch
I’m old enough to remember when those calling for such caps thought to be socialists or even dare I say it commies? Jeez whatever happened to price discovery and efficient credit allocation. My best to Zoe y Pippa.
#Heroes
.
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For you that were not in the business circa 2007-2010 this is what Sundays were like. You can sleep when your dead.
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Florida announced roughly 9K fresh cases. Total hospitalizations increased 1.5% to 13,987. Median age of new cases is people in their mid-30's. Can't update the data viz quick enough. And yet, no national testing, tracing & treatment program in place. Whiskey, Tango, Foxtrot!
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The carnage in financial markets today is the product of poor policy. It illustrates a total lack of understanding of international economics, trade and a substantial failure of both process & in fundamentally thinking through the range of outcomes of such a radical departure.
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Jobless claims continue to move in the wrong direction: topline to 778K & continuing claims to 6.07 million.
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US June PCE forecast: following the June CPI/PPI we estimate no increase (0.01) in the topline PCE m/m & 2.4% y/y. Core up 0.1% (0.06) & 2.5% (2.46%). Risk is a softer print on both m/m estimates. If close to our forecast this bolsters probability for a September rate cut &
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I know many of you out there see this and have a terrible forbidding about the next few months. Yes, this could all go tragically wrong. But the great moments in history are always hard. Nothing truly important comes easy. It is our time to earn it. It is time to show everyone
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US Jobs Report: Big upside surprise as change in total employment increases 467K as unemployment rate settles in at 4% as more individuals re-entered the labor force. Just as important, the December 2021 estimate was revised up to 510K
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Nov Retail Sales: Control group slowed to 0.1 M/M & 1.3% on a 3-mo avg annualized basis which will bring down the consensus GDP forecast for Q4'19. This is not a good look for holiday sales nor overall economic momentum. Noticeable downward revisions inside data back to September
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Why am I expecting the Fed to be in the market this afternoon? This is the 3mo spread on commercial paper less the overnight index swap. As one can see this implies stress across the CP market. Fed needs to intervene to create conditions to stabilize that market. via
@business
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PCE Inflation: the big takeaway here is that service sector inflation is easing back in line with trend following turn of the year seasonal issues.
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US Sept Retail Sales: Big upside surprise on topline. 0.7% increase, ex-autos 0.8%. Control group up 0.8% and ex autos and gasoline up 0.7%. Modest upward revisions to August data. U.S. household remains rock solid and is the foundation of American economic expansion.
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Tariffs=taxes. Chasing a few domestic manufacturing jobs that the highly educated will get is fine but one should be honest about it. (2/2).
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The Russian Central Bank is tapping the country’s sovereign wealth fund to prop up its collapsing financial system as USD/RUB is at 117. I once watched the Chinese blow through prodigious amounts of reserves attempting to prop up its equity market. Watch this space.
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A good “I don’t like Thursday” morning to all, with apologies to Bob Geldof & The Boomtown Rats. This morning we will get data showing 40 million Americans have lost their jobs in less than 90 days
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Wholesale gasoline futures imply greater than 10% decline from the current national average price of $3.39 per gallon. This will be part of the inflation narrative in the Nov & Dec CPI reports. This is why that one year ahead UMICH inflation expectations was so off.
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Wow, Dick Cheney is going to vote for Kamala Harris. It's like Darth Vader just defected from the Dark Side.
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US Treasury Refunding: in my estimation yields have been pushed higher due to stronger growth and not debt/deficit dynamics. The table below outlines the increase in supply over the next three months which the market can & will digest without causing a surge in long term rates.
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US Economy: The labor force participation rate increased to 83.4% which is now back above pre–Great Financial Crisis levels in 2007. Not just pre-pandemic but pre GFC levels is simply extraordinary. There is a trope that people don't work which is simply untrue. One's info bubble
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As I look at this data it is clear that the US will likely shed roughly 7 million jobs in the April 2020 headcount. That would imply an unemployment rate by late spring of 8.25%. And yes, that means a likely move above 10% by late summer.
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The spread on 90 day commercial paper less overnight index swaps widened by 41 basis points. This will need to be targeted by the Fed and Treasury via the construction of a Commercial Paper Funding Facility. Its a 13(3) so the Secretary of the Treasury needs to approve.
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Global dollar denominated debt, which increased to $11 trillion from $3.4 trillion a decade ago. Given the policy direction at the Fed one should be acquainted with exposure to these risks in emerging markets. Turkey has net foreign liabilities equal to 53.4% of GDP
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US CPI: falls -0.1%, and is up 6.5% Y/Y. Core up 0.3% and up 5.7%. Third straight monthly improvement in inflation data as expected easing in energy prices-declined by 4.5%, used cars fell by 2.5% & airline fares fell 3.1% in December.
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US Economy: fifteen straight months of income gains above inflation, the return of price stability, tailwinds from rising asset prices and fiscal policy designed to make the economy less fragile are why the mid-cycle growth scare is fading.
As the Fed cuts rates pent up demand
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