A Primer on Misalignment (You’ll Need It If Peter Navarro Has His Way)

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Today’s Bloomberg article notes that my one-time coauthor Peter Navarro has pushed to have countervailing duty (CVD) investigations augmented with assessments of currency unvervaluation. A prominent target of CVD investigations has been China.

Figure 1: USD/CNY bilateral nominal exchange rate (blue, left inverted scale), and real trade weighted (broad) value of the CNY (red, right scale). May 2019 observation is for first 20 days. Light orange denotes Trump administration. Source: Federal Reserve via FRED, BIS.

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Inversion (Again)!

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Figure 1: Treasury 10yr-3mo spread (blue), 10yr-2yr (red), 5yr-3mo (teal), in %. Source: Fed via FRED, US Treasury.

Figure 2: Treasury 10yr-3mo spread (blue), 10yr-2yr (red), 5yr-3mo (teal), in %, in 2019. Source: Fed via FRED, US Treasury.

Over the last month, the 10yr-3mo spread has averaged 4 bps — so not quite inversion on a monthly basis.

Some Scary Graphs: Manufacturing

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Some NBER BCDC key indicators have peaked, as noted in this post. The more volatile manufacturing sector is showing stress as well.

Figure 1: Employment in manufacturing (blue), aggregate hours of nonsupervisory and production workers in manufacturing (teal), and manufacturing production (red), all in logs, 2019M01=0. Source: BLS, Federal Reserve via FRED, and author’s calculations.

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Assessing the Business Cycle, Mid-May 2019

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Several key series look like they have peaked; nowcasts indicate slowing growth. Forward looking indicators look “iffy”.

Figure 1: Nonfarm payroll employment (blue), industrial production (red), personal income excluding transfers in Ch.2012$ (green), manufacturing and trade sales in Ch.2012$ (black), and monthly GDP in Ch.2012$ (pink), all log normalized to 2019M01=0.  Source: BLS, Federal Reserve, BEA, via FRED, Macroeconomic Advisers (5/3 release), and author’s calculations.

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Driving to War in a Ford Fiesta!

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That’s the rationale, according to the Association of Global Automakers, as quoted in Car and Driver! Mr. Trump declares Section 232 tariffs for automobiles.

Thus, the Secretary found that American-owned automotive R&D and manufacturing are vital to national security.  Yet, increases in imports of automobiles and automobile parts, combined with other circumstances, have over the past three decades given foreign-owned producers a competitive advantage over American-owned producers.

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Phill Swagel to Head CBO

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That’s the news, according to Roll Call:

Senate and House budget leaders have chosen Phillip L. Swagel, a University of Maryland economist and former Treasury official in the George W. Bush administration, as the next director of the Congressional Budget Office, according to several sources with knowledge of the discussions.

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