US industrial production in August is projected to increase 0.3% vs. the previous month in tomorrow’s report from the Federal Reserve, according to The Capital Spectator’s median econometric point forecast. The expected gain represents a marginal deceleration in growth relative to July’s 0.4% advance.
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● The Shifts and the Shocks: What We’ve Learned–and Have Still to Learn–from the Financial Crisis
By Martin Wolf
Review (FiveThirtyEight.com)
For Freud, everything was about sex. For Marx, it was the struggle between capital and labor. These thinkers took their big idea and applied it relentlessly. Or, as the saying goes (sort of): They had a favorite hammer, so every problem looked like a nail.
For Martin Wolf, the chief economics commentator for the Financial Times and one of the world’s foremost writers on macroeconomics and international finance, his hammer is “global imbalances.” And many of the economic and financial problems of today are the nails.
His latest book, “The Shifts and the Shocks: What We’ve Learned — and Have Still to Learn — from the Financial Crisis,” was released Thursday in the United States. It’s a great read. The book will be unsettling to anyone who thinks the financial system is any more stable now. The financial sector in many high-income countries is still vulnerable to crises, and reforms put in place have not gone far enough, he argues.
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Spending on retail goods and services increased 0.6% in August, matching several consensus forecasts and strengthening the case for thinking that the US economy remains on a path for moderate growth. With the exception of gasoline sales and general merchandise stores, all the major categories posted higher sales last month. Overall, the August profile is a solid report that reflects a healthy pace of consumption. As an added boost for confidence: July’s initially reported flat performance was revised up to a 0.3% gain for the headline data.
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I’ll be a panelist at next week’s 360 Exchange conference (Thurs, Sep 18) at the Bloomberg headquarters in New York City for the 10:20am session on volatility in macro and markets. My co-panelist is Dan Farley, chief investment officer for the investment solutions group at State Street Global Advisors. In fact, there’s a great lineup of speakers and discussions about economics and finance throughout this day-long event. For details, take a look at the agenda below or visit the conference’s web site.
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US retail sales are expected to rise 0.3% in tomorrow’s August report vs. the previous month, according to The Capital Spectator’s median econometric forecast. The prediction reflects an improvement over the flat performance for retail sales in July.
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It’s hard to overestimate the power of volatility for monitoring, modeling and forecasting risk in the art/science of portfolio management. The challenge is deciding what to focus on. Even the seemingly simple task of defining volatility is complicated since the signals can vary rather substantially at times when analyzing markets through, say, a prism of standard deviation of return vs. a trading range of an asset’s price. As a general description, I’m fond of Professor Ser-Huang Poon’s reference in his book A Practical Guide to Forecasting Financial Market Volatility: “the spread of all likely outcomes of an uncertain variable.” In any case, bringing order to what can be a black hole of possibilities is essential in this corner of risk management. The potential for genuine insight is considerable, but we almost never reach the promised land without a fair amount of analysis. Perhaps the first rule of extracting the maximum amount of information from the ebb and flow of market volatility is choosing objectives and then figuring out the best path for success.
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The economic trend for the US remained positive in early September, sticking to readings that are near the highest levels reached so far this year, according to a markets-based estimate of macro conditions. The Macro-Markets Risk Index (MMRI) closed at +13.2% yesterday (September 8), or moderately below 2014’s peak value of 16.0% on August 26. The consistent run of positive numbers in recent history suggests that business cycle risk remains low. A decline below 0% in MMRI would indicate that recession risk is elevated. By comparison, readings above 0% imply that the economy will expand in the near-term future.
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Scotland is set to vote next week on independence from the United Kingdom and a new poll gives the pro-independence supporters a small edge for the first time. What’s interesting, and perhaps tragic, about the growing preference for breaking free of Britain is the apparent dismissal of the economic consequences that may arise from independence. The macro risks are quite stark. In fact, we’ve had a real-world test that’s ongoing of just how bad things can get when a small economy is on its own with fiscal matters but remains tethered to a currency that’s controlled by another government. This could work out, but just ask officials in Spain or Greece–or the (unemployed) man on the street, for that matter–about the downside to a shared currency while shouldering any fiscal fallout and you’ll get an earful.
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● Economics: The User’s Guide
By Ha-Joon Chang
Review via The Guardian
It is a mark of where we are in our political discourse that even to say “neoclassical economics is not the only school” seems radical. This is where Ha-Joon Chang starts, in a book that is more sober and less effervescent than his bestselling 23 Things They Don’t Tell You About Capitalism, but is just as page-turning.
Since no single economic theory has beaten the others, it follows, Chang writes, that there is no objective truth on which every economist is agreed. Economics can never be a science in the way that physics is; it cannot reach a consensus on its fundamental questions, let alone what the answers are. This isn’t some extended handwringing, a trashing of his discipline dressed up as a mea culpa. Chang isn’t looking for a formula: fundamentally, he argues, economics is politics. As such, we shouldn’t be thinking in terms of an ideal answer – the discussion should never close.
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Ouch! That stings. The private sector created substantially fewer jobs in August than expected, according to this morning’s monthly update from the US Labor Department. Private payrolls increased 134,000 last month, far below the consensus forecast that anticipated a gain of 220,000, according to Econoday.com’s estimate. Even worse, the August rise is the weakest so far this year. Compared with July’s 213,000 gain, the tepid advance in August looks troubling. But there are several reasons for reserving judgment on whether today’s release warrants a radical downsizing of expectations.
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