Macro and Markets Dashboard: United States (March 26, 2016 — PDF)
GDP figures for the fourth quarter of 2015 were revised upward on Friday. Corporate profits in the quarter, however, fell for the first time since 2008, which has traditionally been considered a bad omen. On the bright side, consumer spending, grew at an impressive rate. Commodity and Equity markets were largely flat during the short week (U.S. exchanges were closed on Good Friday). The dollar strengthened against most major currencies.
Real GDP grew at a 1.4 percent annualized and seasonally adjusted rate in 2015 Q4. The previous estimate was one percent. As a percentage of GDP, after tax corporate profits fell to 7.6 percent in Q4, from 8.3 in Q3. Tighter labor markets have increased upward pressure on wages, reducing net income for businesses. As mentioned in previous posts, labor share of output showed signs of improvement during 2015.
Personal consumption expenditures were revised upward from an already encouraging level, as households are bolstered by lower gas and energy prices, low inflation, and the tighter labor market. The current account deficit improved in Q4, shrinking to 2.6 percent of GDP. The federal deficit improved as well, falling to 3.8 percent of GDP, it’s lowest level since the financial crisis.
Oil was basically flat on the week. Equity markets were down, with the S&P 500 down 0.7 percent, and the Nasdaq composite index down half a percentage point. The average sales price for new houses fell in February. The U.S. Dollar strengthened against most major currencies, notably appreciating nearly two and a half percent against the Pound Sterling.
Macro and Markets Dashboard: United States (February 27, 2016 — PDF)
The U.S. economy and financial markets received some much needed relief during the past week. The S&P 500 was up 1.5% on the week, and volatility, as measured by the CBOE VIX, closed below 20. Ten-year treasury bond yields rose, ending the week at 1.76%. Second-estimate GDP data for the fourth quarter of 2015 was revised up from 0.7% to 1.0%, largely due to higher levels of inventories. West Texas Intermediate (WTI) crude oil prices increased roughly 10% during the week. Personal consumption expenditures as a share of GDP increased dramatically, as shown below (through my measure below includes some extrapolation in the denominator).
Much of what has been driving concerns of investors is uncertainty. One fantastic measure of economic policy uncertainty, prepared by Scott Baker, Nick Bloom, and Steven Davis, looks at three factors: specific newspaper keywords, tax provisions set to expire, and disagreement among economic forecasters. Their website contains up-to-date indices for several countries, as well as more information on their methodology. I’ve added their monthly U.S. economic policy uncertainty index to the dashboard.
One interesting development in foreign exchange markets was the depreciation of Pound Sterling against the dollar following an announcement by Boris Johnson that he would be campaigning for the U.K. to leave the European Union (at least to get “a better deal”). The pound fell by more than 2.5% against the dollar during the past week. The Canadian dollar strengthened more than a percentage point against the U.S. dollar.
Lastly, today was the release of the annual letter to Berkshire Hathaway’s shareholders, a consistently excellent read. Mr. Buffett did weigh in on the U.S. presidential race, but I found his insight into inequality to be a particularly accurate summary:
Though the pie to be shared by the next generation will be far larger than today’s, how it will be divided will remain fiercely contentious. Just as is now the case, there will be struggles for the increased output of goods and services between those people in their productive years and retirees, between the healthy and the infirm, between the inheritors and the Horatio Algers, between investors and workers and, in particular, between those with talents that are valued highly by the marketplace and the equally decent hard-working Americans who lack the skills the market prizes. Clashes of that sort have forever been with us – and will forever continue. Congress will be the battlefield; money and votes will be the weapons. Lobbying will remain a growth industry.
A recent assignment involved examining movements in a U.S. macroeconomic variable through the business cycle. I took a simplified look at the current account balance, from the perspective of consumption and demand for imports. I hope it serves as a helpful example of how LaTeX can be used for short reports.
U.S. Current Account Balance – Empirical Exercise