Relevant and even prescient commentary on news, politics and the economy.

Is Inflation a Global Phenomenon?

by Joseph Joyce

Is Inflation a Global Phenomenon?

The persistence of inflation at relatively low rates despite years of monetary stimulus has led to wide-ranging investigations into its determinants. Traditionally the rate of inflation has been linked via a Phillips curve relationship to domestic factors, such as slack in the labor market. But is there also a global element?

Maurice Obstfeld, who has returned to UC-Berkeley from his post as chief economist at the International Monetary Field, examines some of the mechanisms by which global factors could affect U.S. inflation in a new National Bureau of Economic Research working paper, “Global Dimensions of U.S. Monetary Policy.” He reviews the evidence on the Phillips curve, and reports that there is little evidence that globalization has had a direct impact on the response of wages to unemployment. An indirect linkage, however, may exist through labor’s lower share of GDP, which could respond to foreign factors such as global supply chains. There may also be a relationship through the correlation of import prices and Consumer Price Index (CPI) inflation.

Another mechanism is based in the linkages of U.S. financial markets with those abroad. If these markets are integrated, then the natural rate of interest (r*) depends on foreign savings and investment as well as the domestic counterparts. An increase in foreign savings will lower the global r* which will stimulate domestic spending. Former Federal Reserve Board Chair Ben Bernanke claimed that this effect the cause of the housing boom in the U.S. that led to the global financial crisis.

 

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A note on Arctic sea ice

Figure 1

Via mashable:

Alaska’s exceptional summer continues.

The most rapidly changing state in the U.S. has no sea ice within some 150 miles of its shores, according to high-resolution sea ice analysis from the National Weather Service. The big picture is clear: After an Arctic summer with well above-average temperatureswarmer seas, and a historic July heat wave, sea ice has vanished in Alaskan waters.

“Alaska waters are ice free,” said Rick Thoman, a climate specialist at the Alaska Center for Climate Assessment and Policy.

“This is definitely an extreme year — even by more recent standards in a changed Arctic,” noted Walt Walt Meier, a senior research scientist at the National Snow and Ice Data Center.

In the continually warming Arctic, sea ice has completely melted around the Alaskan coast before, notably during 2017’s melt season, but never this early. “It’s cleared earlier than it has in any other year,” said Thoman. (Sea ice starts regrowing again in the fall, when temperatures drop.)

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Weekly indicators for August 26 – 30 at Seeking Alpha

by New Deal democrat

Weekly indicators for August 26 – 30 at Seeking Alpha

My Weekly Indicators post is up at Seeking Alpha.One of the benefits(?) of the discipline of a mechanical forecasting system is that it can be completely dissonant with what your emotions are telling you.  Right now the discipline of my long/short leading/coincident indicator system is completely at odds with the dominant DOOOM based on the yield curve inversion.

Because, while the yield curve is an important and completely valid long leading indicator, right now it is the *only one* that is negative. All the others are either positive or neutral.

As usual, clicking over and reading should not only be educational for you, but rewards me with a $ or two for my efforts.

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An extended look at jobless claims, and a note about payrolls

(Dan here…better late than not)

by New Deal democrat

An extended look at jobless claims, and a note about payrolls

Let’s take an extended look at jobless claims, with a side note about payrolls.

First, I have started to monitor initial jobless claims to see if there are any signs of stress.

My two thresholds are:1. If the four week average on claims is more than 10% above its expansion low.
2. If the YoY% change in the monthly average turns higher.Here’s this week’s update.

Initial jobless claims last week were 215,000. This is in the lower part of its range for the past 18 months. As of this week, the four week average is 6.5% above its recent low:

Additionally, the YoY change remains -1,500 below where it was last year:

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Why the revised Q2 GDP report next week may be the most important release in 10 years

by New Deal democrat

Why the revised Q2 GDP report next week may be the most important release in 10 years

Last Thursday there were major backward revisions to unit labor costs. Since corporate profits deflated by unit labor costs are a long leading indicator, this had a big negative effect on the forecast for the next six months or so. Corporate profits for Q2 of this year will be released next week as part of the first revision of the GDP report, and because of the effect on the forecast, might be the most portentous report in 10 years.

This post is up at Seeking Alpha.

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