Tag Archives: Consumer Spending

Bank of Japan Keeps Record Stimulus, Trims Inflation Outlook

Bloomberg, Jul 15, 2015

Bank Of JapanThe Bank of Japan headquarters in Tokyo, Japan.

The Bank of Japan refrained from increasing its monetary stimulus even as it trimmed its inflation outlook, as officials count on the economy pulling out a soft patch and consumer price gains accelerating toward its target.

The central bank will continue to expand the monetary base at an annual pace of 80 trillion yen ($648 billion), it said in a statement on Wednesday in Tokyo. It cut its inflation outlook for the fiscal year through March 2016 to 0.7 percent from 0.8 percent and forecast 1.9 percent for the next fiscal year.

While the BOJ’s 2 percent goal remains distant, officials are looking beyond disappointing output and export data and see a tight labor market and wage gains as signs of improvement, people familiar with the discussions said earlier this month. A majority of economists surveyed by Bloomberg doubt that inflation will pick up as the BOJ forecasts and predict another boost in stimulus.

“The BOJ will shrug off the downward revisions in prices and growth by emphasizing improvement in wages and labor market,” said Daiju Aoki, an economist at UBS Group AG. “But it’s just so noticeable from their forecasts that things aren’t going as the BOJ hopes. These revisions are a sign the economic situation is getting tougher.”

Weak Production

The yen was trading at 123.43 per dollar at 12:52 p.m. on Wednesday in Tokyo.

Weakness in Japan’s exports and production and continued sluggishness in consumer spending after last year’s sales-tax hike are increasing the challenges in reflating the world’s third-biggest economy.

Inflation is likely to be broadly in line with the central bank’s April outlook, the BOJ said in its statement. The bank added the phrase “with some fluctuations” to its assessment of exports and industrial production, which it said are picking up.

The BOJ’s preferred gauge of inflation was at 0.1 percent in May, down from 1.5 percent in April last year, as a decline in oil depressed consumer prices. The BOJ forecast the gauge will pick up to 1.8 percent in the fiscal year starting in April 2017, excluding the effects of a planned sales-tax hike.

The BOJ lowered its growth outlook for this fiscal year to 1.7 percent from 2 percent and forecast the expansion will slow to 1.5 percent next year and 0.2 percent the year after.

Twelve of 35 economists in a Bloomberg survey this month forecast the BOJ will boost stimulus on Oct. 30, a year after Kuroda announced a surprise increase in the pace of the bank’s asset purchases. Nineteen said the downside risks to the BOJ’s outlook had risen compared with three months earlier when the bank released its previous outlook for inflation.

External Risks

Barclays Plc. estimates the economy shrank in the three months through June after rebounding for two quarters from a recession last year. The International Monetary Fund cut its 2015 growth forecast for Japan to 0.8 percent from 1 percent in a report last week.

“With weaker underlying momentum in real wages and consumption, the pickup in growth in 2015 is now projected to be more modest,” the IMF said.

Japan’s economy is also exposed to risks from aboard, said Itochu Corp. economist Atsushi Takeda, citing recent turbulence in stocks in China, Japan’s largest trading partner.

Yukitoshi Funo, a former executive at Toyota Motor Corp. who joined the policy board this month, voted in line with the majority. Funo succeeded Yoshihisa Morimoto, who dissented in last October’s split 5-4 vote to expand the asset-purchase program.


Gain in U.S. Core Consumer Prices Shows Inflation Picking Up

Bloomberg, Apr 17, 2015

The cost of living in the U.S. excluding food and fuel rose 0.2 percent in March for a third month, signaling inflation is starting to firm.

The increase in the core consumer-price index reflected broad-based gains in rents, medical care, clothing and used vehicles, a Labor Department report showed Friday in Washington. The advance matched the median forecast of economists surveyed by Bloomberg. Including the volatile costs of food and energy, the index also rose 0.2 percent.

A strengthening labor market may be giving workers the confidence to seek bigger wage concessions, which would prompt companies to raise prices for goods and services. Federal Reserve policy makers want to see inflation on a trajectory toward their 2 percent goal as they weigh the timing of their first interest rate increase since 2006.

“The inflation picture is improving, and is at least stable going forward,” said Omair Sharif, a rate sales strategist at Societe Generale in New York. For policy makers, “they’ve got to be feeling better about at least one half of their mandate at this point. We’ve got a firming up in the core rate of inflation.”

Stock-index futures held earlier losses after the report and Treasuries erased previous gains. The contract on the Standard & Poor’s 500 Index maturing in June fell 0.7 percent to 2,086.5 at 9:02 a.m. in New York. The yield on the benchmark 10-year was 1.90 percent, after being as low as 1.84 percent earlier.

Survey Results

Estimates for core consumer prices in the Bloomberg survey of 83 economists ranged from gains of 0.1 percent to 0.3 percent. On a year-over-year basis, core prices climbed 1.8 percent in March, the biggest 12-month advance since October, after rising 1.7 percent in February.

The forecast for CPI including all costs ranged from no change to a 0.5 percent increase, with the median at 0.3 percent. Consumer prices dropped 0.1 percent in the 12 months ended March after being little changed in the year through February.

Fed officials are monitoring inflation as they seek reasonable confidence in the trajectory of price growth toward their 2 percent target. The policy-setting Federal Open Market Committee was split at its meeting last month on the timing of lift off. Several participants wanted to normalize policy starting in June, while others favored later in the year, according to minutes of the March 17-18 meeting.

Payroll Report

Disappointing payrolls data were among weaker-than-forecast economic reports since then that have cast doubt on expectations that the central bank will increase borrowing costs in June, making September more likely, according to economists surveyed by Bloomberg.

The Fed’s preferred measure of price pressures, linked to consumer spending, climbed by 0.3 percent in February from a year before, the Commerce Department reported last month. It hasn’t been at the central bank’s 2 percent goal since April 2012.

The Labor Department’s report showed costs for medical-care services climbed 0.4 percent, the biggest increase since August 2013. The category designed to track the rental value of owner occupied housing increased 0.3 percent, the most since December 2013. The cost of clothing also advanced by the most in over a year, while the gain for used vehicles was the biggest since June 2011.

Energy Prices

The increase in the headline price index was spurred by energy costs, which climbed 1.1 percent in March after increasing 1 percent the month before. Food costs dropped 0.2 percent.

Low inflation has been helping boost consumer buying power. Average hourly earnings climbed 2.2 percent in the 12 months ended in March, a separate Labor Department report showed Friday.

The CPI is the broadest of three price gauges from the Labor Department because it includes all goods and services. About 60 percent of the index covers prices consumers pay for services from medical visits to airline fares, movie tickets and rents.

The Labor Department’s gauge of wholesale prices, which includes 75 percent of all U.S. goods and services, climbed in March for the first time in five months, reflecting higher costs for fuels and motor vehicles, according to data issued Wednesday.


John Rubino: Why We Feel So Poor, In Two Charts

By John Rubino, Mar 30, 2015

Among the many things that mystify economists these days, the biggest might be the lingering perception, despite six years of ostensible recovery, that the average person is getting poorer rather than richer. Lots of culprits come in for blame, including the growing gap between the 1% and everyone else, negative interest rates (which starve savers and retirees of income) and the crappy nature of the new jobs being created in this recovery.

But one that doesn’t get much mention is the changing nature of the bills we’re paying. It seems that Americans are spending a lot more on health care, which leaves less for everything else. Here’s an excerpt from a MarketWatch report of a couple of weeks back, with two charts that tell the tale:

Share of consumer spending on health hits another record

The percentage of money U.S. consumers spend on health care rose in 2014 for the third straight year to another record high, according to one government measure.

Some 20.6% of total consumer spending in 2014 was devoted to health care, including prescription and over-the-counter drugs, annual figures from the Commerce Department report on personal expenditures show. That’s up from 20.4% in 2013.

Health-care expenses has been rising for decades regardless of government efforts to control costs. The percentage of consumer spending on health care rose from 15% in 1990, topping 20% for the first time in 2009.

Consumer spending healthcare

With the health-care pie continuing to expand, consumers are paying the same or less as percentage of their spending on most other goods and services compared to 10 years ago.

Americans spend a smaller share of their money on cars and clothing, among other things. The percentage of money they spend on housing and going out to eat is basically unchanged over the longer run.

Not surprisingly, the only other major category to show a sustained increase in spending over the past 25 years is education. The share of money Americans spend on college has climbed to 1.59% from 0.9% in 1990.

Consumer spending habits

————– End of Excerpt ————-

What this means is that we’re spending more on two big categories — health care and education — that don’t make us feel richer. Health care, of course, is just maintenance. It’s like changing a car’s oil or fixing a broken transmission, which only restores the status quo rather than enhancing it. Education, meanwhile, is just school. When we’re in college, we don’t feel richer if tuition goes up. So to the extent that those things are getting more expensive, and fun things like eating in restaurants and buying new shoes become less frequent as a result, we feel poorer — or at least less free to indulge ourselves.

This is the opposite of what technology in particular and progress in general were supposed to bring about. As a society advances, it should get better at producing life’s necessities, freeing up capital for life’s joys and making most people feel both richer and more free. As John Maynard Keynes famously predicted in his 1930 essay “Economic Possibilities for our Grandchildren”, another century of capital accumulation and advancing science would make it possible for most people to satisfy their basic needs with minimal effort and then go off and have fun. Wrote the economist/poet:

For at least another hundred years we must pretend to ourselves and to everyone that fair is foul and foul is fair; for foul is useful and fair is not. Avarice and usury and precaution must be our gods for a little longer still. For only they can lead us out of the tunnel of economic necessity into daylight.

We’re fifteen years short of the century that Keynes predicted it would take, but the goal seems to be receding rather than approaching. That’s frustrating for all the people who have to work harder than ever just to feed their families. And if it goes on much longer the result will be a very vigorous search for culprits — which will be entertaining, even if it doesn’t pay the doctor’s bills.

This article is written by John Rubino of Dollarcollapse.com and with his kind permission, Gecko Research has been privileged to publish his work on our website. To find out more about Dollarcollapse.com, please visit:


Yellen Sees Gradual Pace of Rate Rises Starting This Year

Bloomberg, Mar 27, 2015


Chair Janet Yellen said she expects the Federal Reserve to raise interest rates this year, and that subsequent increases will be gradual without following a predictable path.

“I expect that conditions may warrant an increase in the federal funds rate target sometime this year,” Yellen said Friday at a conference hosted by the San Francisco Fed. She and fellow policy makers “generally anticipate that a rather gradual rise in the federal funds rate will be appropriate over the next few years.”

After the initial increase, officials won’t follow “any predetermined course of tightening” that involves similar-sized increases at regular intervals, Yellen said.

“The actual path of policy will evolve as economic conditions evolve, and policy tightening could speed up, slow down, pause, or even reverse course depending on actual and expected developments in real activity and inflation,” she said.

Policy makers last week opened the door to an interest-rate increase as soon as June, while also signaling they’ll go slow once they get started. The benchmark federal funds rate has been kept near zero since December 2008.

“They are focused on keeping markets calm as they start the process,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York. “They can adjust as needed later.”

Treasury notes were little changed after Yellen’s comments. The yield on the 10-year note was 1.96 percent at 4:46 p.m. in New York, down from 1.99 percent late Thursday.

Labor Slack

Rates near zero helped cause a “sizable reduction” in labor market slack, and a modest rate increase is “highly unlikely” to halt that progress, Yellen said.

She said the gradual path of tightening is reflected in a new set of projections by Fed officials released on March 18. Officials cut their median estimate for the main rate at the end of 2015 to 0.625 percent, down from 1.125 percent projected in December.

Officials have ruled out a move at the next meeting in April. The next scheduled session after that will be in June.

The labor market is “likely to improve further in coming months,” Yellen said. At the same time, progress on meeting the Fed’s inflation goal has been “notably absent.” Some of the weakness in inflation “likely reflects continuing slack” in labor markets.

Despite disappointing retail-sales data, she said consumer spending probably will “expand at a good clip this year given such robust fundamentals as strong employment gains, boosts to real incomes from lower energy prices, continued increases in household wealth, and a relatively high level of consumer confidence.”

Dollar Gains

She was less encouraged by other parts of the economy. “Dollar appreciation appears to be restraining net exports, low oil prices are prompting a cutback in drilling activity, and the recovery in residential construction remains subdued,” the Fed chief said.

The policy-setting FOMC dropped a pledge last week to remain “patient” in raising rates, instead saying it would wait until being “reasonably confident” inflation will move back to its 2 percent target.

Elaborating on that language today, Yellen said that “an important factor working to increase my confidence in the inflation outlook will be continued improvement in the labor market.”

As a result, “a significant pickup in incoming readings on core inflation will not be a precondition for me to judge that an initial increase in the federal funds rate would be warranted.”

Timing Versus Pace

Yellen played down the timing of the first rate increase, saying the pace of tightening was more important.

“What matters for financial conditions and the broader economy is the entire expected path of short-term interest rates and not the precise timing of the first rate increase,” she said.

Low inflation, stuck below the Fed’s goal for almost three years, is one of the main reasons to wait before raising the policy rate. The Fed’s preferred gauge of price pressures increased 0.2 percent in January from a year earlier.

Little price pressure is coming from wage gains, which remain slow despite the stronger labor market. Average hourly earnings rose 2 percent in February from a year ago, matching the average since the end of the recession in June 2009.

Cheaper oil also has cut inflation. Crude futures plunged from $107 in June to a six-year low of $42.03 last week.

Fed officials are seeing more signs the world’s largest economy is strong enough to handle higher borrowing costs.

Surging Payrolls

Payrolls have been surging, pushing the unemployment rate to 5.5 percent in February, the lowest in almost seven years. U.S. firmed added 295,000 jobs last month, the 12th straight month payrolls have increased by at least 200,000, the best run since a 19-month stretch that ended in March 1995.

The March employment report, due on April 3, is forecast to show 250,000 new jobs were created, according to the median estimate in a Bloomberg survey of economists.

Fed Vice Chairman Stanley Fischer said on Monday the U.S. had received “two very positive numbers for the first quarter of 2015 and we’re waiting for another one.” He also said in remarks in New York that raising rates from near zero “likely will be warranted before the end of the year” and subsequent increases probably won’t be uniform or predictable.

San Francisco’s John Williams, who also votes this year, said in a speech this week mid-year will be time to “have a discussion” about raising rates, altering the phrase from “serious discussion” that he used in a March 5 address.

Yellen, 68, spoke at a San Francisco Fed conference on “The New Normal for Monetary Policy,” returning to the reserve bank she led from 2004 to 2010. She became Fed vice chair in 2010 and was sworn in as chair in February 2014.


Economy in U.S. Expanded at 2.2% Pace in Fourth Quarter

Bloomberg, Mar 27, 2015

The U.S. economy expanded at 2.2 percent annualized pace in the fourth quarter, led by the biggest gain in consumer spending in eight years.

The revised increase in gross domestic product, the value of all goods and services produced, matched the Commerce Department’s previous estimate, according to figures issued Friday in Washington. The report also showed corporate profits dropped in the last three months of the year, capping the worst annual performance since the recession.

The rate of economic growth will prove hard to replicate this quarter as harsh winter weather, a stronger dollar, a port slowdown and a global oil glut translate into disappointing spending on the part of consumers and businesses. Job growth — one of the few economic indicators that charged ahead unabated in the first quarter — will probably help support demand in the world’s biggest economy for much of the year.

“The consumer is still going to hold up,” said Jacob Oubina, a senior U.S. economist at RBC Capital Markets LLC in New York, which correctly forecast GDP. “As we look toward the middle of the year, you have a consumer that continues to see aggregate income growth.”

Stock-index futures were little changed, after equities’ longest losing streak in 10 weeks. The contract on the Standard& Poor’s 500 Index maturing in June fell 0.1 percent to 2,046.9 at 8:51 a.m. in New York.

Survey Results

The median forecast of 83 economists surveyed by Bloomberg called for growth of 2.4 percent. Projections ranged from 1.8 percent to 2.7 percent. This is the final of three estimates for the quarter.

An upward revision to consumer spending and exports was mostly offset by smaller gains in inventories, the report showed.

For all of 2014, the U.S. economy grew 2.4 percent from the year before, the most since 2010 and following a 2.2 percent advance in 2013.

Household consumption, which accounts for almost 70 percent of the economy, was revised up to show a 4.4 percent gain at an annualized rate in the fourth quarter, the most since the first three months of 2006. It was previously estimated at 4.2 percent. The update reflected bigger outlays on health care.

For all of 2014, Consumer spending rose 2.5 percent, the most since 2006.

Corporate Profits

The Commerce Department’s report also included data on fourth-quarter corporate profits. Before-tax earnings fell 1.4 percent after rising 3.1 percent in the previous three months, depressed by declines among financial institutions and foreign affiliates.

“We continue to see this divergence between a real healthy U.S. domestic backdrop despite a global economy that as we know in the second half of last year was weakening significantly,” said Oubina, referring to the drop in profits from overseas.

A 4 percent gain at an annualized rate in personal income made up for the drop in corporate earnings and helped propel gross domestic income up by 3.1 percent.

For all of 2014, corporate profits were down 0.8 percent, the first decrease since 2008. The outlook for 2015 has dimmed with the jump in the dollar.

A stronger currency is more likely to “impact profits this quarter and through this year rather than happening almost in real time,” Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York, said before the report.

Bad Weather

Bad weather and the stronger dollar are having an impact this quarter. Francesca’s Holdings Corp., which operates a women’s boutique, is among companies saying the harsh winter has depressed revenue.

While the Houston-based company posted sales and adjusted earnings that surpassed analysts’ estimates in the quarter ended in January, demand since was hit by “a weather impact during really February or late February and early March,” Chief Executive Officer Michael Barnes said on a March 25 conference call. “It was very bad last year in 2014, but this year actually proved slightly worse.”

Retail sales unexpectedly dropped 0.6 percent in February, a third consecutive decline, according to figures issued by the Commerce Department this month. Auto dealers, building-material outlets and department stores were among the merchants that suffered through record cold and snow in parts of the Northeast and Midwest.

Construction, Manufacturing

Construction also has been hurt by the weather, while manufacturing has struggled as the rising dollar restrains exports and the plunge in oil prices limits investment in energy-related industries.

Builders began work in February on the fewest houses in a year, and orders for durable goods such as machinery and electronics sank.

Economists at JPMorgan Chase & Co. and Macroeconomic Advisers were among those who lowered their tracking estimates for first quarter GDP after Wednesday’s durable goods report. Michael Feroli, JPMorgan’s New York-based chief U.S. economist lowered his growth forecast to a 1.5 percent pace from 2 percent, while Macroeconomics downgraded its projection to 1.4 percent from 1.5 percent.

The Federal Reserve Bank of Atlanta’s GDP forecasting model is so far projecting a 0.2 percent growth rate, which would be the weakest since cold winter weather sent the economy to contract a year ago. The median of 76 economists projected first-quarter growth of 2.2 percent as of a survey by Bloomberg News published March 12.

Fed Projections

Fed policy makers are keeping an eye on employment and inflation as they consider raising interest rates this year. Officials cut their economic growth estimates for this year and the next two, according to the FOMC’s quarterly Summary of Economic Projections.

They also slashed their median estimate for the federal funds rate at the end of 2015 to 0.625 percent, compared with 1.125 percent in December forecasts. Atlanta Fed President Dennis Lockhart and Chicago Fed chief Charles Evans, both of whom vote on policy this year, acknowledged last week that a stronger dollar was a headwind for growth.

The biggest impact from the swing in the currency will probably be on trade as an appreciating dollar makes it difficult for some American producers to sell their goods to foreign buyers, who may consider buying cheaper products elsewhere. At the same time, it also makes it less expensive for U.S. consumers to buy imported goods, giving U.S. companies even more competition.

A smaller gain in inventories last quarter mostly offset the revision to consumer spending, leaving GDP the same as in the prior estimate. Stockpiles rose at an $80 billion annual rate, compared with a prior estimate of $88.4 billion.