If recoveries don’t die of old-age, then they either have “accidents” or they’re murdered. I’m not sure what a business-cycle accident is, but we can check what might have killed the recovery, should we enter a recession in 2020, as suggested by some forward looking financial indicators. I’ll look at investment spending, a forward looking variable, highly sensitive to interest rates, and the outlook for economic activity and uncertainty.
Category Archives: Trade Policy
Equipment Investment, Capital Goods Imports, and the Impending Slowdown…Again
Equipment investment is flat; capital goods imports (aside from aircraft and computers) declining 4% per annum.
“Across-the-Board Tariffs on China with Retaliation and Federal Spending Create Over 1 Million Jobs in Five Years”
The Coalition for a Prosperous America publishes another study imbued with “secret sauce” structure…From the “working paper” (more akin to a press release):
Specifically, we introduce the effects of Chinese retaliation with tariffs on US exports to China; we add the effects of the US Department of Agriculture’s (USDA) programs to support farmers and food processors negatively affected by Chinese retaliation; and, we add the impact of the US government spending the revenue generated by the China tariffs. We find that Chinese retaliation reduces the benefit to the US economy by 14 percent, but the net benefit remains large. The USDA programs provide relief to the agricultural industry and restore the net benefit to almost the same level as before the retaliation. Finally, we look at the impact of the government reinvesting the tariff revenue in the US economy by boosting government spending…
A Year-Long Blip
Figure 1: Soybean spot prices. Source: Macrotrends.com, accessed 7/23/2019.
Back on July 9th of last year, an Econbrowser reader wrote:
Those of us arguing against the constant anti-tariff, anti-Trump dialogs have noted this will probably be a price blip lasting until US/Chinese negotiations end. We are on record saying the prices will be back approaching last year’s harvest season prices.
Needless to say, prices are not back to where they were in Sept-Nov 2017. Instead, Brazil has siezed market share and US soybean shipments to China have plummeted. From USDA FAS “Oilseeds”, on July 11th:
The Course of the US-China Trade War, Viewed through the Lens of Soybeans
Or, hope died in August 2018…
Figure 1: (Log) July 2019 soybean futures contract price minus spot price (blue). Source: ino.com and macrotrends.com, and author’s calculations. Red dashed line at 7/12/2018, one year before expiration of July 2019 futures contract. Dates from Dezan Shira and Assoc.
Typically, the futures and spot should differ by cost of carry, but for soybean futures, but at the 3, 6 and 12 months horizons, the futures are an unbiased predictor of future spot rates (see Chinn and Coibion, 2014). Hence, the spread can (roughly) be interpreted as an estimate spot rate rising in the future, which is inversely proportional to the probability of a resolution of the US-China trade war (cost of carry is going to vary over the year, so the spread is only partly indicative).
For the course of the spot and July 2019 futures, see this post.
“Trump revs up his Wayback Machine”
From Ben White in Politico today:
President Donald Trump is firing up his economic Wayback Machine in an effort to boost markets, the economy and his own political fortunes heading into his reelection campaign.
Economists warn that Trump’s approach, with its roots in 19th century mercantilism and 1980s Reaganism, risks back-firing on him in potentially significant ways.
Winning ™ – Soybeans Front
Keep on saying that we’re winning, and maybe it’ll come true. For the rest of us grounded in reality, soybean prices are falling again, and soybean stocks are rising (and estimates of end FYMY2018/2019 stocks have just been revised upward).
Soybeans: Efficient Markets Hypothesis and All That Jazz
Reader CoRev continues to voice skepticism about the predictive ability of soybean futures. He asks for
proof, with successful predictions, of the validity of…your soybean price model….BTW, we are getting closer to the model’s magic validation date.
How Trade Uncertainty Is Crushing Economic Optimism
Seven (Business) Days in May
[updated 6/3] Undervalued currencies as countervailable subsidies, tariffs on Mexico, flash mfg PMI drops, Drumpf again insists China pays US tariffs…so the yield curve inverts!
Figure 1: [Updated 6/3) Treasury 10yr-3mo spread (blue, left scale), 10yr-2yr (red, left scale), 5yr-3mo (teal, left scale), in %; 6/3 interest rates on-the-run at 1:30PM EST, and Economic Policy Uncertainty index (black, right scale). Source: Fed via FRED, US Treasury, and policyuncertainty.com, accessed 6/3/2019.