Are We, Or Aren't We...

... in a recession?

No one truly knows, although many have an opinion, and depending on political stripe... we either are or we aren't. And it is always because something is a clear sign. Never mind, those government stats containing revisions from previous months, it must be deemed as absolute. 

Then there are the BIG money folks, that have gotten rich off QE and want those glory days to return... meaning the FED to reverse policy. BIG money really needs there to be a recession for that to happen and will lobby long and hard, that we are already in a recession and are betting on the FED to ease off rate hikes, etc. 

GDP gets revised a couple of times and then is revised once a year thereafter. 

Yep... revised from a negative in June 2015, to a positive in one month after third release and by 2021, was downright stellar.

Citing GDP as some guarantee, one way or the other... is based on something likely to be revised. Besides, it might just be possible that the 3rd quarter of this year could be positive. Would that mean the recession is over?

Employment situation... the word revised is used 4 times in the latest report. This month...

The change in total nonfarm payroll employment for May was revised up by 2,000, from

+384,000 to +386,000 https://www.bls.gov/news.release/archives/empsit_08052022.htm

The previous month...

The change in total nonfarm payroll employment for April was revised down by 68,000, from +436,000 to +368,000, and the change for May was revised down by 6,000, from +390,000 to +384,000 https://www.bls.gov/news.release/archives/empsit_07082022.htm

Which is it? 

My goal is not to cast doubt on government reports, but putting my heart and soul into a specific set of data as gospel... is just plain foolish, in my opinion. 

Earlier I mentioned the possibility of a 3rd QTR GDP print being positive. I base that on the blowout of trade balance and how it impacted the 1st two Quarters.

The trade deficit started blowing out in 3rd Qtr. 2020 and then accelerated, with another major drop down in the 1st Qtr, and barely easing the 2nd Qtr. That would be the period when our business leaders went nuts with over ordering. That may ease back a bit going forward. 

In an alternate universe, where the trade imbalance did not drop so dramatically, the 1st Qtr. GDP would have been +2.3% and 2nd Qtr. at +1.6%

Of course on the potential negative side is the extreme jump in credit. I have no idea how much longer that can last, but with the Federal Reserve ready to push up rates further... something's got to give, in my opinion. BUT, that set of data might likely also be revised. 

There is an old adage of "When your neighbor is out of a job... it's a recession. When you're out of a job... it's a depression". Probably the most accurate of all metrics!

Now for MY opinion. We are not in a recession yet. We may soon be, but the severity is unknown, until we are actually in the middle of it. I would say that any looming recession in the U.S. will be exacerbated by the current economic morass of Europe. 

I am trying to get a grasp on why Germany's trade balance is narrowing, when the Euro is cheaper now than 1 year ago. Is it difficulty in obtaining necessary materials to manufacture items? Is it the high cost of Natural Gas that is offsetting any gains from the weak Euro? Is it a combination of both, or several other factors. 

I don't know, but do worry about the impacts on Europe as a whole, which would include the U.K. in this instance. The natural gas issue, will not go away anytime soon, in my opinion. The materials issues are likely not to go away anytime soon, as well. 

This appears to be a very challenging time for Western Civilization. 

We seem to have a situation where many folks are being duped by big money into believing we are already in a recession, which could cause a recession via lack of confidence. Be careful what you wish for. 

Of course, we also have folks in the U.S. eagerly anticipating and repeating statements of a C.O.L.A. being above 10.5% or more, without considering how much additional inflation is required to get us to that level. But then, the point might be to inflate expectations and then cry foul, when it doesn't happen. Be careful what you wish for.

Review of EIA Weekly Report for August 3rd 2022

I am still looking for the demand destruction in gasoline... and just not seeing it. There was likely a pull back in June and early July, but demand seems to be on a plateau. Crude Inventory is up +4.4M BBLs, distillates down -2.4M BBLs and gasoline up slightly at 163K barrels.

The U.S. exported 3.8M BBLs more Crude and Petroleum products, than imported, with the tally from March 1st at 151.1M BBLs. Gasoline exports outweighed imports by 1.6M BBLs last week and that tally now stands at 19.9M BBLs since March 1st.

At this point in time, the futures market suggests pump prices will continue to fall and should go below the $4 mark, by mid August and then maybe another 15¢ or so by end of month. A word of caution as we are heading into peak hurricane season. Let's keep our fingers crossed. 

The natural gas futures aren't signaling any big changes...

I have somewhat delved into U.K. futures and the current price is suggestive of a 49% rise in bill to £2,972 annual. I have been reading about another potential rise for 1st of the year and it would tack on another £600 annual, based on the December futures price. I don't think I have any publicly appropriate adjectives for any of those rises. 

Nearer to home, the big question is our natural gas.

A year ago, we were at the top of the 5 year maximum and now we are near the minimum. Not sure how to feel about that. I do not directly use natural gas, but I do use electric generated by natural gas, products that were made in factories that use natural gas, etc. 

I'll just have to monitor my utility bills, my grocery bills, other purchases, etc. I think there is a word for when things go up in price... is it transitory? No wait it is inflation! Crap, I thought I left that in the rear view mirror... some 40 years ago. 

GDP, PCE, Income and Outlays, Inflation Summary and July Wrap-up!

 

The real GDP for the 2nd Quarter was released and it was below forecasts. I think it was generally in the 0.8% annualized. My pathetic attempt was 0.6% annualized. The result was -0.9%. The pundits have fixated on the falling inventories, but I noticed the imports/exports did not match expectations. 

The consumer was steadfast in increasing spending, but slowly. (Did I mention real GDP is after adjusting for inflation?)

Here is a bit of history for consumer spending relative to real GDP.

And this is fun with numbers, which is consumer spending after taking out a major contributor or detriment to GDP. I'll let you guess what that is.

While the consumer edged up, and some gains in net export, Gross Private Domestic Investment was the big drag, it was the inventory numbers that pulled it down by $107B from last quarter. That was the surprise for many people and the difference between the result and what was forecast. 

Then we have Personal Income and Outlays, which...

Personal income increased $133.5 billion (0.6 percent) in June, according to estimates released today by the Bureau of Economic Analysis (tables 3 and 5). Disposable personal income (DPI) increased $120.4 billion (0.7 percent) and personal consumption expenditures (PCE) increased $181.1 billion (1.1 percent).

The PCE price index increased 1.0 percent. Excluding food and energy, the PCE price index increased 0.6 percent (table 9). Real DPI decreased 0.3 percent in June and real PCE increased 0.1 percent; goods increased 0.1 percent and services increased 0.1 percent (tables 5 and 7). (emphasis added)

Even with disposable income sliding after inflation adjustments, the consumption increased after inflation adjustments. Borrowing?

Then the various inflation numbers...

Not much to be enthusiastic about. It would appear that some of the forecasts are starting to downgrade inflation number for July and I would tend to agree. At best it would seem to have peaked. 

As to whether we are in a recession or not... the idea of "technical" recession is an imported idea. The U.S. has never jumped on the 2 quarter as recession bandwagon. Harken back to the Great Recession. It was deemed the U.S. started into recession in December 2007, yet we did not have back to back negative GDP, until 3rd and 4th quarter 2008.

I would think we are likely heading into a recession, but not at the moment. Then the issue is how long and how deep? 

So good luck and on to next month's data. 

Review of EIA Weekly Report for 7-27-2022

Another glorious week has passed and the Energy Information Administration has released their weekly report. Crude inventories are down 4.5M bbls from last week and gasoline is down 3.3M bbls. 

Gasoline consumption continues to fall, although the fall in pump prices may slow to a stop. We exported a walloping 1.183M bbls more than we imported. Crude and petroleum products also rose on the export side, compared to imports... by 18M bbls. Since March we have exported more than imported of gasoline... 18.2M bbls; crude and petroleum products...147M bbls. 

I am still not sure that demand destruction is taking place. The strong dollar did make U.S. gasoline for export a bit more pricey, but apparently the need has overcome the price, as exports reversed course. It may have been simply timing of ships, etc. In any case, the U.S. futures market for gasoline is on the rise and is approaching where the national average currently sits. (That's factoring in the typical margin between futures and pump.) Also, the dollar has weakened a bit the past few days, as well.

On to the natural gas stuff...

In previous posts, I had mentioned U.K. and EU, but today... should focus more on things closer to home. I don't use Natural Gas, although probably some or most of my electricity comes from Natural gas powered power plants. Also, I probably use materials, foods, etc. that may have varying amounts of natural gas power, as part of the production and/or processing.

Which is a round about way of saying... I don't have a clue. I would suggest the price of natural gas may be in the neighborhood of 35% of a natural gas bill. Obviously, large users probably get a bit of discount on the remaining 65%. The average residential customer could expect a $7 rise in their bill for every dollar the overall price rises. 

So there is likely a price hike coming your way... and you might not like it, nor the size of it. If and when that liquefaction facility comes fully back on line... the N/G price might well top $10. I guess I am saying that less than $4@MBTU bills of last winter should not be thrown away. You might need to burn them this winter to stay warm.

Recent Heatwaves and What Are We Doing About Them?

giphy.com

I am sometimes amazed by social media and what can be posted. A large portion of the planet has been experiencing heatwaves of late. Or so says social media sites I frequent. I am of the school of thought, that the frequency of heatwaves are a product of climate change. Let's be very clear about that.

What I found interesting was the heatwave in jolly old England. When the discussion turned to using Air Conditioners, the vast majority of Brits and other folks from the U.K., appeared solidly against such things, as a mere few days... from time to time, can be overcome.

That is fine, as it is their decision. However, they will also blame climate change for these mere few days that come from time to time. There seems to be a disconnect, in my opinion.

I have mentioned this in a previous blog, but we need to get all the governments of the world to get it in gear. However, even if they "get it in gear", we are still left with a changing climate for decades to come. 

Seriously, that crap in the sky will not suddenly disappear with a sudden and real global collective effort to reduce emissions. IF and this is a big if... we were to wake up tomorrow with every country on the planet completely committed to the current accords (getting it in gear), we are still left with the effects of what has happened previously. It will take decades.

I am not saying we should just throw our hands up and give up trying. It will only get worse, if we do that.

I guess what I am trying to say is... even IF all governments suddenly get on board with reducing emissions and actually do start to achieve those stated goals, the atmosphere will take decades to get rid of the emissions that are already there.

So those infrequent heatwaves will become more frequent for some decades into the future. They will become stronger or hotter, etc. In fact the cold snaps will become colder as well. Climate is changing.

It might be time for some Brits to check up on the cost of installing A.C. If the preference remains to not install A.C., that is fine also. 

Just please shut the ^*&* up the next time it gets hot!  Okay? It's almost as if you expect someone to come to the rescue and reverse global warming back to 200 years ago. Maybe in a few hundred years, but not overnight, or next year or the next decade, etc. 

I guess I am done for now. 

Review of EIA Weekly Report for 7-20-2022

Last week I posited the notion of demand destruction. Not quite so sure about it happening after this week's numbers. While down -2.19% from year ago levels, quite a jump (7.1%) from last week's number. Information is from the EIA Weekly Report

I would suggest the jury is still out on demand destruction. The gasoline inventory did jump by 3.5MB, while crude fell -455KB and distillates down -1.3MB. Spot market for gasoline is suggesting another 35¢ per gallon fall... from current average of $4.467. 

Exports of Crude and Petroleum Products outpaced imports to the tune of 4.6MB to reach a disparity since March of 129,266,000 barrels. Gasoline slid to 17,087,000 barrels as it may be that we are finally returning to a more normal seasonal flows. Typically imported gasoline outpaces exported from late December until mid summer, and then reverts to exports being more than imports.

The past few years, with understanding covid messed up 2020...

The stronger dollar is also playing a role in bringing down WTI Crude prices. By way of comparison, if the dollar was at same level as end of July 2021, the price would be $119.14, rather than the current $102.28. 

Another example would the impact on U.K. pricing of Brent...

This helps explain some of the fall in U.S. pump prices, versus U.K., which is not seeing much of a decline. This might seem beneficial to the U.S. consumer, but a word of caution... the dollar has been know to fall quite significantly at times. 

2008 would be a reminder, when we in the U.S. were talking about our high gasoline prices and trying to compare the high prices in the U.K. and the EU, by using the exchange rate at that time. The dollar was at its weakest since the early 70s... by quite a bit.

As an exercise, the U.K is currently at £1.88 per liter, at £88.90 per barrel of crude. We are at $102.28 and pump price average is $4.467. IF the dollar was at April 2008 levels, the numbers for the U.K. would stay the same in THEIR currency. However, the WTI crude would be at $154 and pump prices would be near $5.50 national. We in the U.S. would attempt to make ourselves feel better, by using that weak dollar to convert the £1.88 per liter, the Brits are actually paying and come up with something like $10 per gallon. 

In any case, the dollar rises and then it falls. Don't expect anything permanent and don't strut with glee over a strong dollar. Just understand that rise and fall does impact any global commodity.

On to the Natural Gas futures, and yes in dollars, as it makes it easier for me to understand. 

Even with the conversion, I cannot make sense of what appears to be a train wreck in the works. Granted the UK gets about 40% of its Natural Gas for the North Sea, and that pricing is probably mixed with the spot market, prior to end user... But those future would seem to suggest a much higher price on the "mixed" result to consumer. 

I got enough to worry about here, although our Natural Gas stocks are rebounding, but anything near a midpoint of 5 year average. While crude, gasoline, etc. were distorted by covid, not so much for Natural Gas.

I guess the bottom line is whether we are starting to see demand destruction in the crude/gasoline side of the equation and then if that destruction is due to a slower economic outlook or simply high prices? 

Retail Trade Report for June 2022

Start off with the Census Bureau release...

Advance Estimates of U.S. Retail and Food Services

Advance estimates of U.S. retail and food services sales for June 2022, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $680.6 billion, an increase of 1.0 percent (±0.5 percent) from the previous month, and 8.4 percent (±0.7 percent) above June 2021. Total sales for the April 2022 through June 2022 period were up 8.1 percent (±0.5 percent) from the same period a year ago. The April 2022 to May 2022 percent change was revised from down 0.3 percent (±0.5 percent)* to down 0.1 percent (±0.3 percent)*.

Retail trade sales were up 1.0 percent (±0.4 percent) from May 2022, and up 7.7 percent (±0.7 percent) above last year. Gasoline stations were up 49.1 percent (±1.6 percent) from June 2021, while food services and drinking places were up 13.4 percent (±3.9 percent) from last year. (emphasis added)

Once again, gasoline played a major factor. However, accounting for inflation and backing out gasoline, the sales were flat... over the month. 

My nutty assessment... We are foregoing fixing up the house and ourselves, placing emphasis on getting back and forth to work and using online shopping from our new comfortable recliner!! 

How else can you explain it.

All in all, not a bad report, as holding steady outside of gasoline is quite a feat, in my opinion.

Of course, we're still paying more for less... a trend likely to continue, until we run out of money and/or credit. 

So when the headline says something like "excluding gas stations, consumer spending was up 5.3% the past year". That 5.3% is NOT inflation adjusted. Just remember, excluding energy, inflation was up 6.6% in the past year. So we are back to spending more for less. 

We already knew that!!