From the IMF:
…Although downside risks have diminished overall, lower-than-expected inflation poses risks for advanced economies, there is increased financial volatility in emerging market economies, and increases in the cost of capital will likely dampen investment and weigh on growth. Advanced economy policymakers need to avoid a premature withdrawal of monetary accommodation. Emerging market economy policymakers must adopt measures to changing fundamentals, facilitate external adjustment, further monetary policy tightening, and carry out structural reforms.
See the Chris Giles/FT assessment of the forecast.
The analytical chapters (released last week) address low interest ratesand emerging market challenges.
The entire report is here.
And so the IMF joins Janet Yellen. “The flogging will continue until morale improves.”
Or in other words, what we are doing isn’t working so we must continue doing what we are doing.
The oil price controversy.
“Citi versus Chevron”
My recent response to the “Barron’s article”
http://blogs.platts.com/2014/04/09/citi-chevron-oil-price/#more-16169
I added my 2¢ worth, in the comments section, following your excellent article:
Comment #1:
If we take the EIA’s global Crude + Condensate (C+C) data at face value (74 mbpd in 2005 increasing to 76 mbpd in 2012), actual crude production, i.e., 45 or lower API gravity oil, could not have increased by more than 2 mbpd from 2005 to 2012, which would mean no increase in condensate production, as global dry gas production reportedly went up by 21% according to the EIA (2005 to 2012), which needless to say, doesn’t seem like a likely scenario.
I think that a more likely scenario is that actual crude oil production virtually stopped increasing in 2005, as natural gas production–and the associated liquids, condensates and NGL’s–continued to increase, even as the annual price of Brent crude doubled from $55 in 2005 to $112 in 2012.
Following are estimated* values for global crude oil production (excluding lease condensate), 2002 to 2012, mbpd
2002: 60
2003: 62
2004: 65
2005: 67
2006: 65
2007: 65
2008: 66
2009: 64
2010: 66
2011: 65
2012: 67
Global Crude + Condensate (C+C) production increased at about the same rate as global dry processed gas production from 2002 to 2005, but then we saw a significant divergence between the rates of increase in global gas production and global C+C production from 2005 to 2012, 2.8%/year versus 0.4%/year respectively.
My premise is that condensate, a byproduct of natural gas production, continued to increase at about the same rate as the rate of increase in global gas production.
*Assumptions: Global Condensate to Crude + Condensate Ratio was about 10% for 2002 to 2005 (versus 11% for Texas in 2005), and condensate production increased at the same rate as the rate of increase in global dry processed gas production from 2005 t0 2012 (2.8%/year, EIA). Crude oil is defined as oil with an API gravity of 45 or less (per RBN Energy). Data rounded off to two significant figures.
Comment #2:
The US has–so far at least–shown an “Undulating Decline” pattern in Crude + Condensate (C+C) production since 1970, with 2013 annual US production about 23% below our 1970 peak rate, and we remain dependent on imports for close to half of the crude oil processed daily in US refineries.
If we subtract out the estimated increase in global condensate production (a byproduct of rising natural gas production), it seems very likely that we have not seen a material increase in actual global crude oil production (45 or lower API gravity oil) since 2005, despite trillions of dollars having been spent on global upstream activity for 2006 to 2012 inclusive, as the annual price of Brent crude doubled from $55 in 2005 to $112 in 2012.
However, the real problem is the global supply of net oil exports.
Global Net Exports of oil (GNE* calculated in terms of total petroleum liquids + other liquids, EIA) have been below the 2005 annual rate for seven straight years, with the developing countries, led by China, so far at least consuming an increasing share of a post-2005 declining volume of GNE. Available Net Exports, the volume of GNE available to importers other than China & India, fell from 41 mbpd in 2005 to 35 mbpd in 2012.
That’s just factual data, but recent (and previous) research suggests that people frequently refuse to process quantitative data that contradict their beliefs.
So, while the data show that developed net oil importing countries like the US were, after 2005, gradually being shut out of the global market for exported oil, via price rationing, the conventional wisdom is that we can look forward to an indefinite rate of increase in our consumption of oil.
I have frequently used the “Midnight on the Titanic” metaphor. Around midnight, after hitting the iceberg, perhaps three people on the ship (about 0.1% of the people on board) knew that the ship would sink, but the fact that perhaps 99.9% of the people on board did not know that the ship would sink did not mean that the ship was not sinking. Later, as the first lifeboat pulled away, the passengers in the boat were reportedly ridiculed by some passengers remaining on board. As a character in a movie from a few years ago said, “Never underestimate the power of denial.”
*GNE defined as combined net exports from the top 33 net oil exporters in 2005. For more information, you can search for: Export Capacity Index.
while the data show that developed net oil importing countries like the US were, after 2005, gradually being shut out of the global market for exported oil, via price rationing,
That suggests that declining imports is a bad sign. On the contrary, it’s a very good thing. The US has reduced it’s imports by 55% over the last 6 years or so, which greatly improved it’s balance of trade and helped it’s economy overall.
the conventional wisdom is that we can look forward to an indefinite rate of increase in our consumption of oil.
That’s only the conventional wisdom if you’re invested in the oil & gas industry, like Charles Koch, or you work for it. Many of the rest of us realize that oil is expensive, dirty and dangerous, and that declining oil consumption will make us more prosperous, cleaner and safer.
As a reminder, here is a showing of their recent forecasts. Basically there is no reason to pay attention to them.
http://www.zerohedge.com/news/2014-04-08/comedy-forecast-errors-here-are-imfs-latest-projections-economic-growth
https://app.box.com/s/uip9exe60ulq31kvn7wu
Weather or not, the US economy is at stall speed, with private investment and employment having reached cyclical constraints.
Excepting the “mid-cycle pauses”, i.e., Kitchin cycles, in 1967 and 1986, during positively trending Juglar cycles when real final sales and real wages were growing faster than today, when real investment and wages were at the current level yoy and real private wages yoy were below 2%, the US economy was entering recession.
Recessions historically have begun with yoy real GDP at an average of ~2.5%.
Wall St. and most economists did not recognize the recessions that started in Q4 2007 nor in Q4 2000; neither do they perceive the current recession having begun.
BC,
You are one of the most perceptive commenters on this site. Indeed, your perception about the overall economy is a level beyond anyone else’s though that is no fault of theirs. As best I can tell from your comments, you’ve comprehended the enormous decay underway and the reasons why. People like you are rare indeed, and if light is to come to this age which is darkening by the day the broad public must hear what you say. So the following is not criticism. It is a word of advice.
You and I and some others know the reigning paradigm in economics is wrong. When you are battling the reigning paradigm, it’s doubly imperative you be on sound footing. Sure of your facts. The US is not in recession, nor is it going into recession in let’s say the next six months. Certainly neither I nor anyone else can be so unequivocal beyond that. Is a recession coming? Yes. Might it come later this year or in 2015? Yes. But it is not on the drawing boards at the present moment. None – not one – of the truly key leading indicators is pointing down. As they by definition lead, the economy is not going down. If as a constellation they do turn down – and only then – there will still be some months before the business cycle peak arrives.
What are those key indicators? You have an excellent research mind. Here is what I suggest to you. Gather a number of prospective leading indicators, say 50. You cull these from all over, from every corner including obvious and ready-made sources such as the literature. Do a Granger-causality on each with real GDP growth the dependent variable and three lags, t-1, t-2, and t-3 on the rhs along with the chosen indicator. If the indicator still adds explanatory power beyond what the lagged dependent variables will manifestly, then you have a candidate. There will be very few of these. Two handfuls at most. You can take it from there. As you are interested only in calling the peak of the cycle, throw out all quarterly data during which the economy was in recession as you do your statistical analysis. You will use piecewise segments of expansionary data only. No matter that econometricians would look at you cockeyed for this. It is they, the mainstream who more often than not cannot forecast their way out of a wet paper bag, who are cockeyed.
I know whereof I speak. For 35 years I’ve called each (but one) peak and trough in advance, and have had zero false calls over all these years. Unfortunately, the 2008 recession was tough to call very far in advance with this methodology. That’s how the cards fall sometimes. But it was callable. To be completely forthright, there was one miss. The 1982 recession was an impossibility to call this way. Nor did I. My only failure. That’s because the short expansion beginning in the second half of 1980 extending through the first half 1981 was squashed between two recessions which bizarrely affected all time series including leading indicators. Such is not the case today as this expansion is already long in the tooth.
Always with the future there are caveats. Something could come out of left field and take the economy down. Everything I’ve just said is with this proviso. Perhaps you are seeing something which I am not. In which case, good for you!
JBH, thanks for the kind words and sage advice.
During debt-deflationary regimes of Long Waves historically, rising short-term rates and an inverted yield curve are not precursor indicators of a cyclical business cycle contraction as is the case during inflationary and reflationary regimes. Rather, peak demographic drag effects and the lower trend rate of real GDP/final sales per capita of the late Long Wave results in the economy experiencing lower capacity constraints for private investment and labor utilization, as well as being more vulnerable to insufficient household and business income with bank lending and money supply (after bank cash) weak. This in turn makes debt service costs to wages, profits, and gov’t receipts more of a constraint than when wages, investment, production, and GDP are growing faster.
In fact, US bank deposits and M2+ less bank cash assets have been contracting yoy since summer 2013 for the first time since 2009-10, 1937-42, and Japan three times since 1998, including recently. Summer-fall 2013 will likely be perceived in hindsight as the point at which the US began to decelerate from the cyclical stall speed into a recessionary trajectory to date.
Thus, the next recession (and coincident stock market crash) will likely not be the result of central bank tightening of, and increasing the cost of, bank reserves, nor the associated inversion of the yield curve. Rather, the recession will occur as a result of weak and contracting business and consumer demand occurring with structural Boomer demographic drag effects and fiscal constraints.
https://app.box.com/s/261n9g9l872pyxr9yoq6
https://app.box.com/s/5kwdsvg2n8mi6h6p3nfr
Above is strictly a novelty at this point but perhaps worthy of following, if nothing else but for geeky amusement. The U rate has accelerated to the level of spring-summer 2008 after the recession had been underway from late 2007.
Morever, US real wages less debt service and spending for “health care” were contracting significantly as of Q4 2013 to date, consistent with past recessions.
Why subtract health care? Why put it in quotes? That suggests that you don’t think that medical spending is legitimate – why not? Heck, why shouldn’t healthcare be the area of the economy we’d like to grow? We’ve got enough goods, why not more services?
I’ve got enough cars and televisions. Heck, I even have enough smartphones and cable channels. Why not more medical research, and better drugs and tests?
Nick G, the US spends 18-19% of GDP on “health care”, a.k.a. “disease care”, which is an equivalent of $25,000 per household, whereas the US median household income is barely twice that amount. How many people do you know who are aware that the US spends on “health care” and equivalent of half of US median household income? Were you aware? I’d wager not.
At the differential rate of spending on “health care” to GDP since the 1980s, “health care” will make up 30-35% of GDP by the the 2030s and half of GDP by sometime after mid-century.
Total public and private “health care” spending is an equivalent of 43% of total wages and salaries and HALF of private wages and salaries.
50-65% of “health care” spending is on the sickest 5-10%. 20% is spent on costly procedures and life extension for elders in late life, costing the US a small fortune for most of us to die, effectively. 60-65% of “health care” spending is by females.
Apart from the costs associated with advancing age, most costly procedures and treatments are the result of the effects of smoking, alcohol abuse, an unhealthy processed grain-based, high-glycemic, high-fat diet, and little or no physical exercise.
If the US spent half of what we do today per GDP and per household on “health care”, it would be scandalous.
Astoundingly, private “health care”, total local, state, and gov’t spending, and debt service combine for an equivalent of slightly more than half of US nominal GDP and 75% of private GDP. At the differential rate of growth of this aggregate spending to overall GDP, by the 2040s, this spending will become 100% of GDP.
Thus, growth of US GDP is largely dependent upon gov’t spending for war, household indebtedness, and increasingly unhealthy, sick, and dying Americans, especially elders. Appalling.
The very nature of existing in the US has become a “medical condition” requiring doctor visits, medications, costly and unnecessary procedures, treatments, insurers’ profits, and an army of staff to administer it all. Scandalous.
Like “higher education”, “health care” has become hyper-financialized via the for-profit insurance industry. “Health care” costs will literally bankrupt small businesses, self-employment, households, and gov’ts in the decades hence.
Apparently, you, like most economists, think spending more hereafter on “health care” is an economic and social good. It is my experience that fewer than 10% of the population are aware of the facts above. When they learn the facts, the typical response is to reject the data while experiencing cognitive dissonance and well-conditioned denial.
VERY FEW AMERICANS can ACTUALLY afford US “health care” services, and we’re going to discover this increasingly in the years ahead.
But the mathematical reality is that “health care” spending cannot continue growing at the differential faster rate to GDP and wages hereafter, which implies that the growth of the “health care” sector in real terms per capita, as in the case for gov’t, will soon cease with the growth of real GDP per capita since 2007-08. This implies that the bottom 90%+ of Americans will not be able to afford the kind of “health care” we have come to expect and that someone else or their employer pays for.
Thus, whenever you see a new medical facility or medical office complex being constructed in your locale, you should cringe, realizing the debilitating costs associated with the continuing growth of the “health care” sector we can’t afford.
an equivalent of $25,000 per household, whereas the US median household income is barely twice that amount.
That compares average expense to median income. That’s a bit misleading. Average household GDP in 2013 was $146,000.
At the differential rate of spending on “health care” to GDP since the 1980s, “health care” will make up 30-35% of GDP by the the 2030s and half of GDP by sometime after mid-century.
First, that growth rate is misleading – the growth rate has dropped sharply recently.
2nd, again I ask, so what? Why isn’t higher health care spending? Do we really need more cars and TVs?
50-65% of “health care” spending is on the sickest 5-10%…most costly procedures and treatments are the result of the effects of smoking…
That’s an argument for smarter spending, not necessarily less. I agree that more prevention would be good.
If the US spent half of what we do today per GDP and per household on “health care”, it would be scandalous.
You need evidence for that argument, beyond a simple prima facie argument.
Keep in mind that the US heavily subsidizes the rest of the world. Drug development, for instance, is paid for US consumers, while the rest of the world negotiates much lower prices.
Also, healthcare is heavily rationed in most countries: there are very long waiting times for many things: primary care visits, surgery, etc., and modestly new treatments are often unavailable. And, the US’s costs are higher and general health are lower because of lack of coverage and much greater poverty. Much greater levels of obesity, diabetes, etc are due to a combination of low food prices and greater poverty. That makes US healthcare costs not very comparable to Sweden’s.
Finally, if the economy is to grow, where is best? Do we need more gambling? More cars and TVs? Probably not. How about more services, like healthcare, education, and child and elder care?
ricardo,
withdrawing an accommodating monetary policy will possibly result in increased interest rates. and rising interest rates will help the economy how? talk about a beating and improving morale!