Industrial production is down relative to previous month, and relative to recent peak. GDP, sales, personal income are all below recent peak as well. Nonfarm payroll employment continues to plug along — although at a decelerating pace (1.53% y/y).
Is California in Recession (Part XVII)
June employment figures are out. Time to re-evaluate this assessment from one and a half years ago in Political Calculations that California was in recession.
Going by these [household survey based labor market] measures, it would appear that recession has arrived in California, which is partially borne out by state level GDP data from the U.S. Bureau of Economic Analysis. [text as accessed on 12/27/2017]
What Does Judy Shelton Believe GDP Growth and Inflation Are in 2019?
In a 2015 Cato Institute session, Fed Board Nominee Judy Shelton discusses whether to trust or not official GDP and inflation statistics (she says no — see 1:07:07) (h/t Sam Bell).
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.
Predictions of Soybean Prices from One Year Ago
On July 9, 2018, reader CoRev disparages futures prices as accurate predictors of future spot prices for soybeans, writing:
no one has denied the impact of tariffs on FUTURES prices. 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.
Of Big Macs, PPP, the Penn Effect, and Currency Misalignment
From Anneken Tappe in CNNBusiness:
The Economist’s Big Mac Index — a lighthearted way to make the value of currencies more tangible — showed that nearly all currencies in the index are undervalued against the dollar.
The Big Mac Index, released Wednesday, is rooted in the theory of purchasing power parity: Exchange rates reflect the value of goods a currency can buy. If currency X can buy an item at a lower price than currency Y, then currency X may be comparatively undervalued and currency Y could be overvalued.
To Worry or Not To Worry: Adjusted and Unadjusted Spreads
Torsten Sløk at Deutsche Bank had an interesting commentary [not online] this morning, noting the disjuncture between the different estimates of estimated term premia from affine (no arbitrage) models of the term structure emanating from the NY and SF Feds. I adjust the term spread by the term premium from SF and show the implied probability of recession, alongside that from the conventional 10yr-3mo.
Guest Contribution: “A Blockchain solution for the technology war between China and the US “
Today we are pleased to present a guest contribution by Alessandro Rebucci, of the Johns Hopkins Carey Business School. This post is based on “Blockchain Technology and Government Applications: A Proposal for a Global Patent Office” (with E. Di Nicola Carena and P. La Mura), in A. Fatás (editor), The Economics of Fintech and Digital Currencies, CEPR ebook, Fintech and Digital Currencies Policy and Research Network, CEPR March 2019.
Born in the U.S.A.
Today, Mr. Trump tweeted about four congresspersons of color:
….viciously telling the people of the United States, the greatest and most powerful Nation on earth, how our government is to be run. Why don’t they go back…
Why Drop Rates?
My answer on Marketplace yesterday was essentially “why not”. On macro grounds, with prospects for economic activity softening, a bit of insurance isn’t too crazy.