US consumption: more or less where it "should" be

Another day, another disappointing retail figure.  OK, it wasn't actually as bad as the March headlines would suggest; in fact, with revisions the number was more or less bang on expectations.  Still, on a more general basis it feels as if consumption has broadly undershot where we would expect it to be, particularly given the putative shot in the arm from lower oil prices.  Disposable income growth is running at a faster pace than retail sales, which generally speaking is something of an anomaly.

To some extent, there may be a wealth effect going on here.  After peaking at 14% y/y at the end of 2013, the annual growth in household wealth tumbled to just 3% y/y by the end of last year.  Given that much of last quarter was dominated by headlines of tumbling equities and negative interest rates, it is difficult to credit that consumers felt much wealthier, which could perhaps explain the sluggish spending growth.  For what it's worth, Macro Man estimates that his model will deliver the same estimate for growth in household net worth in Q1 as it did in Q4.

Combine disposable income growth that's decent but nothing special with below-average growth in household net worth, and what do you get?   Pretty much exactly what we've seen in terms of personal consumption expenditure.  (Note that the spikes in the model are are a result of special dividends and bonuses paid before the expiry of the Bush tax cuts at the end of 2012.)


So where does this leave us?  As we were, basically, plugging away at tepid growth levels that are probably not too far off of trend.  As for markets, it's true that stocks have generally done well this week; even Eurozone banks did a ripper yesterday.   Of course, a 5 billion euro fund is diddly squat to the mountain of dud loans sitting on the balance sheets of Italian banks, but if underweights got over their skis then a bit of short covering is not altogether surprising.  And sure, JPM earnings didn't totally suck, which is a positive.

But in the grand scheme of things, there's been relatively little "signal" thus far this week, and a lot of noise, likely dominated by options expiry and of course the oil summit this weekend.  There are plenty of people who trade the noise, which is fine.  But Macro Man has always been a "signal" trader who is generally content to look through the noise.  Needless to say, that's the approach that he is taking this week with respect to stocks.

Finally, as a public service announcement, the RMB did not "sharply decline" at last night's fix.  In fact, it appreciated ever so slightly against the basket.  The sharp decline has basically been the rest of this year, including the last month when no one seemed to give a hoot.   Perhaps it's a coincidence that exports put in what was basically their best month of the last year and a half...but perhaps not...



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Skr
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April 14, 2016 at 7:46 AM ×

Luxury goods are telling us all we need to know about retail, people are not rewarding themselves. Even wealthy middle aged man is risking his bi-weekly treat from trophy 25 year old wife, by holding on to his credit card.
In the words of Simply Red "Money's to tight to mention"

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Troll
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April 14, 2016 at 10:47 AM ×

V quiet in here. Has MM deleted everyone's posts again?

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Macro Man
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April 14, 2016 at 11:08 AM ×

More likely that people don't want to read moronic witterings from juvenile trolls.

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washedup
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April 14, 2016 at 11:30 AM ×

MM - all about the wealth effect innit? I saw an interesting study recently (will try to relocate and post) that concluded that the difference between a weak set of macro data that presages a recession, vs one that does not, is decided by where equity indexes are.

Quite the rock and hard place in currency-land. BoJ wants dollar stronger PBoC weaker - latter matters a touch more for risk on,empirically, so that explains the goings in last couple months. I really do think the dollar is at the very least stabilizing here, if not quietly preparing to run to 97-98. That means heavy lifting on US equities will have to be done by tech stocks.

Forgot to mention, but what a great thing the nice stanford dropout lady was trying to be a billionaire by doctoring tests only got two years of a ban and a slap on the wrist. Wonder what her treatment would have been if she was an FX trader.

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Error404
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April 14, 2016 at 11:42 AM ×

"Disposable income growth is running at a faster pace than retail sales, which generally speaking is something of an anomaly."

I'm probably being far too 'Economics 101' for present company, but doesn't extreme income growth concentration towards the top end of life's greasy totem pole + declining marginal propensity to consume as that pole is climbed kinda explain the 'anomaly'? Or perhaps not enough people see their income gains as permanent?

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Troll
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April 14, 2016 at 11:44 AM × This comment has been removed by a blog administrator.
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Comment deleted
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April 14, 2016 at 12:15 PM × This comment has been removed by a blog administrator.
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Macro Man
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April 14, 2016 at 12:19 PM ×

When, despite requested requests, you disrespect the wishes of the proprietor in terms of tone and content, you have no right to either post or complain. Go shit on someone else's doorstep.

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Troll
admin
April 14, 2016 at 12:38 PM ×

I will ofc happily depart back under my bridge. But let's be clear, blog posts are a two-way thing. Mature blog moderation almost always results in mature comments.

When the proprietor thinks the quote: "Big rise in Nikkei these past 3 days, I wish I'd got long with Polemic" is disrespectful and complaining, it probably says more about you than it does me.


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Bruce in Tennessee
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April 14, 2016 at 12:45 PM ×

Well, Lefty, you old fart....I notice UUP is up .8% yesterday, and what are the Bloomies of the world writing about today? "Maybe dollar weakness is over"....thanks for the suggestion...

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Macro Man
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April 14, 2016 at 12:46 PM ×

I don't have much interest in sifting through a turd the size of an elephant to look for diamonds. Much easier to sweep it clean.

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Polemic
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April 14, 2016 at 1:26 PM ×

From JPM -

sums it up very well in

"...some possible headwinds in the form of upside wage pressures). Desk activity was on the slow side
as investors remain reluctant about chasing a tape so far off its lows (the inexorable nature of the
rally has provided few entry points and it still feels like people are being grudgingly forced in from
the sidelines to participate in a rally that remains decidedly unloved)
. The bigger picture remains
unchanged w/the multi-week advance a function of misplaced sentiment and positioning matching
up w/a set of global fundamentals that proved much more stable than investors feared at the Feb
nadir. The Fed-induced USD sell-off, oil rally (helped by the USD, anticipation of a production freeze,
and a sig. cutback in US output), and (mild) economic green shoots (esp. China’s Mar data) all helped
but the velocity of the move (15% in two months) wouldn’t have occurred absent the abject
despondency and deafening recession calls from Jan and Feb. Investors continue to try to
numericallyjustify the price action. In Jan and Feb the consensus thinking was assuming a shallow..."

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Bruce in Tennessee
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April 14, 2016 at 1:31 PM ×

http://www.harperpetersen.com/harpex/harpexRH.do?timePeriod=Years10&&dataType=Harpex&floatLeft=None&floatRight=None

..Damn close to the lows of the GR....and yet our I/S is still near the high....

...still waiting on my inflection point..Luck be a lady tonight!

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Eddie
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April 14, 2016 at 2:23 PM ×

I don't have much interest in sifting through a turd the size of an elephant to look for diamonds. Much easier to sweep it clean.

George Carlin: “Never argue with an idiot. They will only bring you down to their level and beat you with experience.”

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washedup
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April 14, 2016 at 2:31 PM ×

Pol - I like the comment you highlighted - it will be an interesting few months - equities seem hell bent on punishing the trend chasers in both directions - bottomline, its a no pain, no gain market, in the sense that the best time to initiate trades is likely when they feel the most uncomfortable.
Lots of talk about how outflows from japanese and european equities are beneficial to US equities because TINA - didn't really see that effect work the other way, so color me sceptic.I really think the EM currency rally is over for now, even if temporarily - the FANGS (haven't really heard them mentioned much lately) better be ready to put up an encore performance for a new leg up in broader equities.

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Anonymous
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April 14, 2016 at 3:10 PM ×

9 trillion of global Govt bonds now trading at negative prices on the markets

https://twitter.com/William_Bain/status/720563227147530241

Quote of the Year:
MM: "Macro Man cannot help but think that economic historians will shake their heads in future centuries when they read about this whole sordid situation....While the end needn't come imminently, by the same token it isn't necessarily far away, either."

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Anonymous
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April 14, 2016 at 4:45 PM ×

@Eddie: Trolling a troll, also makes one a troll no? As you were.

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Skr
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April 14, 2016 at 8:40 PM ×

Wealth effect, yes. As Christine Lagarde referred to earlier today...the more people earn, the more people want to save. Fear is also a factor, when you take out the needed new car, and overdue vacation, people are not prepared to splash out on much more. Large also stated 50 million living in poverty.

Apols,if earlier post offended.

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Anonymous
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April 14, 2016 at 10:13 PM ×

- Deutsche Bank Confirms Silver Market Manipulation In Legal Settlement, Agrees To Expose Other Banks
- Deutsche Bank Admits It Rigged Gold Prices

(In earlier legal proceedings, silver traders brought claims against Deutsche Bank, HSBC Holdings Plc, Bank of Nova Scotia and UBS AG. Gold traders additionally sued Barclays Plc and Societe Generale SA).

http://www.bloomberg.com/news/articles/2016-04-13/deutsche-bank-settles-silver-price-fixing-claims-lawyers-say
http://www.zerohedge.com/news/2016-04-14/first-silver-now-gold-deutsche-bank-admits-it-also-rigged-gold-prices-legal-settleme

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abee crombie
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April 15, 2016 at 3:47 AM ×

i know this is still very much a Dollar driven rally, but man the internals starting to look pretty decent.... financials picking up some steam, energy breaking out.

there are some out there who think $50 oil is a lot closer than we think and even at that price there will not be an immediate response from US Shale bc of all the damage done. Interesting..I'm not sure if I am there yet but I do like oil from the long side here, at least into the summer.

Seasonally we are getting towards the Sell in May but i need to go back and do a study to see how often that is the case worthwhile when the index hasnt gained much in Q1. The sell in May is particularly good for MSCI Asia ex JPN. Perhaps not this year. I like Indonesia purely from a tech / macro stat set up.

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Anonymous
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April 15, 2016 at 11:06 PM ×

Not smart enough to comment here on most things, but on oil I will. Oil production is a bit like an ocean liner, once it gets going in one direction it is hard to stop and get moving in other direction. Note, North Sea, despite being very high cost had a record year in 2016. Once oil goes into supply deficit, likely to happen in 2H 2016, going to take much higher price to move production up than most think. Shale oil can move up and down faster than most, but shall oil only 5% or so of total production. I doubt it will be the clamp on prices most assume.

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