Long-term, structural forces remain in play. Weaker rate of trend growth, more disinflation, and a fall in productivity will come as a result of an unproductive debt overhang
In the short-term, however, we have a pent-up demand rebound
1/n
We can see the rebound clearly in the growth rate of commodities, particularly metals used for industrial processes.
The growth rate in the CRB Metals index has risen to the highest level since 2018 and this is the biggest rebound in growth since the 2016 upturn.
Inflation expectations have risen accordingly to the increase in broad baskets of commodities.
Does this growth upturn have legs, or is it more related to a weaker dollar and lower real rates?
3/n
Industrial commodities are rallying strongly, but not relative to the price of gold.
The growth rate in the CRB METL index vs. gold did bottom in April but hasn't shown a meaningful rise as it did before the 2016 upturn.
4/n
Both are graphed below.
5/n
A falling dollar and falling real interest rates will generally boost all commodities. (all else equal).
A strong industrial upturn would generally see metals such as copper perform better than gold which is influenced mainly by the $ and real rates.
6/n
There is definitely a pent-up demand rebound underway. Consumption shifted from services to durable goods during the lockdown which depleted inventories and sparked a restocking rebound in industrials. Commodity supply chains were strained and prices jumped, but so did gold.
7/n
A confirming factor to see is metals starting to rise faster vs gold. That means the rise in commodities is more about growth vs real rates
A directional upturn in growth? Yes. How long and how strong remains to be seen. Pent-up demand rebound from lockdown is to be expected
8/8
Initial jobless claims remain extremely tame on a non-seasonally adjusted basis.
The 2024 path is tracking almost exactly along the average of 2023, 2019, 2018, and 2017.
1/4
The 52-week average of jobless claims edged higher this week and is higher than the cycle low-point in February 2023 but has trended down most of 2024.
The insured unemployment rate, however, while low, continues to edge higher slowly.
2/4
Layoffs remain low, but hiring is very weak, which is consistent with the initial increase in unemployment.
The 52wk average of initial claims is 3.9% off the cycle low.
Plotting the change in Federal Reserve interest rate policy before and after a trigger of the Sahm Rule.
Thread.
1/9
The Sahm rule was triggered in the July Employment Situation Report.
Historically, the Sahm rule has been a slightly lagging indicator, meaning the trigger dates occur after a recession has already started.
2/9
In this thread, we won’t address whether a recession has started or not but rather look at historical changes in the Federal Reserve's interest rate policy around historical Sahm rule trigger dates.
3/9
Q2 GDP was boosted by equipment investment, specifically transportation equipment.
We've previously discussed how important these cyclical sectors are in driving the ebbs and flows of the overall Business Cycle.
Auto equipment investment has fallen out of sync with the other cyclical sectors, a unique feature of this cycle as the auto sector was the most badly impacted by supply chain issues in 2021 and 2022.
The "Duncan Leading Index" was created from the idea that changes in the economy stem from a few sectors.
The pandemic roiled many of these sectors, and we can still see the impact.
Let's check on the momentum of these sectors and what it says about the economy today.
1/17
Generally speaking, the economy has four primary categories: private consumption, private investment, net exports, and government spending.
2/17
The Duncan Leading Index involves tracking three narrow segments of the economy: durable goods consumption, residential investment, and non-residential investment.