Average hourly earnings are up 2.69% year over year, inflation 1.66% suggesting Fed tightening may be coming

Earnings are actually getting ahead of the curve in the latest data, suggesting the Fed may move to raise interest rates as "planned".

Not-seasonally-adjusted, average hourly earnings are up $0.65 from $24.11 to $24.76 for all private employees in November. For October the all items consumer price index is up only 1.66% year over year.

In July the picture wasn't as clear, before the dollar took off and gasoline prices began to fall off the cliff. Average hourly earnings at the time were up just 2.01% year over year while CPI (again with a one month lag) was up a nearly identical 2.07%.

I'll go out on a limb and say the Fed continues with "the plan" in order to cool the heat evident in rising earnings.

Not that they should.

I think everyone is forgetting that the employment numbers have recently surged as they always do at the end of the year because part-timers have swelled the ranks at the end of the year. Full-time surges to its cyclical peaks in the summers and early autumn. This is always made more clear by the not-seasonally-adjusted data, which is why it is often missed.

Remember, full-time failed to rise above the 2007 peak again this summer, the seventh year in a row and another dubious post-war distinction for the Obama regime, and part-time just made an all-time high.

An accommodative Fed is still probably necessary, unfortunately, at least the way they think.

3Q2014 GDP revised up to 3.9% on surge in net exports (refined petroleum) and government spending (war on ISIS)

Today's second estimate of 3Q2014 real GDP surprised to the upside, rising to 3.9% from 3.5%. Consensus estimates had GDP declining to 3.3%.

Personal Consumption Expenditures contributed 1.51 points, hardly much above the average contribution for the three years 2011-2013 at 1.48. The people are spending about the same.

Likewise the contribution from Gross Private Domestic Investment was only slightly below average at .85 points. During the prior three years this had contributed to GDP annually on average just .94 points. So you could say investment activity is steady to declining.

No, the major contributions to GDP came from the huge reversals in net exports and government consumption expenditures. The former has contributed on average just .08 points annually 2011-2013, the latter -.45 annually. That's right, the net export category has been entirely inconsequential to GDP for the last three years, and that in a heretofore moribund dollar environment, while government spending has actually been a subtraction from annual GDP because the GOP takeover of the US House in 2010 arrested spending in its tracks.

But in today's report net exports contributed .78 points and government spending .76 points as  1) refined petroleum exports from the US shale boom help to pressure oil prices lower, making imported oil cheaper (imports thus are less of a subtraction from GDP at the same time), and as 2) the war on ISIS in Iraq and Syria ramps up military spending. Without those contributions to GDP and the other things being equal, growth was more like 2.36%.

Same old same old, except the dollar hit a 52 week high yesterday at 88.44. How long exports can help us in this rising dollar environment is anyone's guess, as is the tolerance of the American people for more spending on yet another foreign war.

Jonathan Gruber exposed in a sixth video, touting how he deliberately designed ObamaCare to mislead

Jake Tapper for CNN here:

In previously posted but only recently noticed speeches, Gruber discusses how those pushing the bill took part in an "exploitation of the lack of economic understanding of the American voter," taking advantage of voters' "stupidity" to create a law that would ultimately be good for them.

The issue at hand in this sixth video is known as the "Cadillac tax," which was represented as a tax on employers' expensive health insurance plans. While employers do not currently have to pay taxes on health insurance plans they provide employees, starting in 2018, companies that provide health insurance that costs more than $10,200 for an individual or $27,500 for a family will have to pay a 40 percent tax. ...

"It turns out politically it's really hard to get rid of," Gruber said. "And the only way we could get rid of it was first by mislabeling it, calling it a tax on insurance plans rather than a tax on people when we all know it's a tax on people who hold those insurance plans." ...

The second way was have the tax kick in "late, starting in 2018. But by starting it late, we were able to tie the cap for Cadillac Tax to CPI, not medical inflation," Gruber said. CPI is the consumer price index, which is lower than medical inflation.

Gruber explains that by drafting the bill this way, they were able to pass something that would initially only impact some employer plans though it would eventually hit almost every employer plan. And by that time, those who object to the tax will be obligated to figure out how to come up with the money that repealing the tax will take from the treasury, or risk significantly adding to the national debt.

US Federal Reserve continues to fail against deflationary headwinds

Bloomberg reports here:

The Fed needs a clear strategy for getting the inflation rate higher after falling short of its 2 percent target for 28 consecutive months. ...

Prices fell 1.2 percent for the 12 months ending in July 2009, when the economy had just exited the recession, according to the inflation measure the Fed uses, the personal consumption expenditures price index. Unemployment that month was 9.5 percent. Since Fed officials first published their inflation target in January 2012, the index has averaged 1.5 percent. ...

The 2 percent inflation objective first appeared in a January 2012 statement on longer-run policy goals, and has been restated each January since. The statements say nothing about tactics for returning inflation to 2 percent over the medium term.


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The all-items consumer price index shows the same thing, with the average of the annual average change at just +1.59% for each of the five years 2009-2013. In the most recently completed year, 2013, the change from 2012 was just +1.46%. And year over year on August 1, 2014, the change has been just +1.69%.

Despite a balance sheet for all Federal Reserve banks which appears to have peaked at $4.459 trillion on September 24th as QE prepares to end and excess reserves only slightly off peak at $2.677 trillion, inflation is slim to none in this economy, and slim just left the building.

In point of fact, these numbers are nearly meaningless in the face of the real deflation in the economy, which has nothing to do with prices but with credit. Total credit market debt is hardly expanding at all. Compared to the post-war record, where credit creation has doubled on average about every eight years, we have hit a brick wall since 2007.

At that time total credit market debt outstanding stood at $50 trillion. Seven years later it is barely $57.5 trillion, and there isn't a snowball's chance in hell that next year it will be at $100 trillion or anywhere close to that.

What we are witnessing is the unraveling of the post-war credit based economy, and no one seems to have a clue how to fix that, least of all the US Federal Reserve.

Tyler Durden of Zero Hedge is crazy, but you knew that

The website that specializes in the economic wacky, lately popular on the right as a rhetorical club against Obama which Tyler Durden exploits to gain eyeballs, says today here that ObamaCare spending is the cause of the total collapse in 1Q2014 GDP. You know, like ObamaCare is responsible for all you full-timers getting part-timed.

ObamaCare, the heart of all darkness.

That's funny, because in April Zero Hedge maintained ObamaCare spending was the sole cause of the rise in 1Q2014 GDP.

Well which is it?

In other words, in April ObamaCare was the only thing responsible for positive GDP ihao, but in June it is the only thing responsible for negative GDP. This is because we're supposed to believe that healthcare services spending evaporated in the final estimate of GDP (a swing from +$39.9 billion in the 2nd estimate to -$6.4 billion in the 3rd), evidently accounting for $46 billion of lost spending in the Zero Hedge world of weird math between Q4 and Q1. The swing negative caused the personal consumption expenditures collapse, he says, which fell almost $60 billion inflation-adjusted Q4 to Q1.

Of course, that's comparing apples to oranges. Healthcare services spending in Q4 was positive $24.4 billion. That makes the swing barely $31 billion from positive into negative territory, not $46 billion.

From that you wouldn't know that PCE was still positive in the 3rd estimate: $27.7 billion. Nor that goods consumption collapsed $24.5 billion from Q4. Nor that spending on utilities was up a whopping $23 billion because of the cold weather. Nor that the output of nonprofits swang nearly $28 billion into negative territory from positive, while receipts for goods and services of nonprofits suffered a similar swing, $29 billion from positive to negative. Schwing!

Does he read the report?

The inflation-adjusted decline in GDP totaled just over $118 billion, $81 billion of which was from a decline in private domestic investment from positive $16 billion in Q4, mostly inventories, and $58 billion of which was from a decline in net exports of goods and services, from a positive $37 billion in Q4. That's where the real decline was, a total swing of over $190 billion from just those two categories.

Maybe the silliest thing Durden predicts is that all that "lost" ObamaCare spending will magically reappear in Q2.

Which leads us to ask: What if ObamaCare actually did reduce healthcare services spending in Q1? Isn't it conceivable that a bunch of people, now qualifying for subsidies under the program, had significantly reduced costs? Who knows, the $6.4 billion drop might actually be the first and only drop we're ever going to see in healthcare services spending under ObamaCare.

I'll bet on that before I'll bet on a 5% GDP print from Obama.

Warped New York Times views inflation as sign of increased demand

Nelson D. Schwartz, here:

Besides the increase in consumer prices reported on Thursday, data Wednesday on producer prices showed a rise of 0.6 percent last month, the largest increase since September 2012 and an indication that demand for a number of basic goods is growing faster than economists expected.

Never mind industrial production fell 0.6% (expectation was 0.0%) along with capacity utilization, which dropped to 78.6% (expectation was 79.2%). Import prices were down 0.4% (expectation was for an increase of 0.3%). Retail sales also disappointed up just 0.1% vs. expectation of 0.4%. The expectation ex-autos was even higher up 0.6%, and the disappointment even lower with a flat 0.0%. Crude oil supplies were up .947M when they were expected to be down .400M. The housing index came in lower at 45 vs. expectation of 49.

Against this backdrop of soft demand, higher producer and consumer prices along with back to back months of flat wages are indicative of nothing so much as . . .

PAIN.

Which is what, evidently, The New York Times enjoys inflicting the most. 

Food prices are up 9.52% in the last four years, average hourly earnings just 8.28%

And it's gotten worse in March as reported here:

U.S. producer prices recorded their largest increase in nine months in March as the cost of food and services rose, pointing to some pockets of inflation at the factory gate. ... Food prices jumped 1.1 percent, the largest increase since May, after rising 0.6 percent in February. ... Food prices have now risen for a third straight month, in part reflecting a drought in the West.

On top of that, average hourly earnings dropped a penny.

The Federal Reserve Couldn't Hit A Bull In The Ass With A Sack Of Peaches, Let Alone Target The Inflation Rate

The all items CPI had climbed to 219.016 on July 1, 2008 and didn't surpass that level again until October 1, 2010 at 219.024. The deflationary gale of the Great Recession blew for 27 months.

The collapse in prices in the five months from July 2008 through November 2008 was 3.48%, after rising in 2007 by 4.29%, a spread of 7.77 points.

So much for inflation targeting by the Federal Reserve, which couldn't hit a bull in the ass with a sack of peaches.

In 2012 and 2013, despite explicitly targeting the rate at 2%, the Fed could only come up with 1.6% and 1.56% respectively, suggesting that deflationary winds remain a problem.

Huge Revision DOWN To Q4 2013 GDP, 25%, From 3.2% To 2.4% In Second Estimate

From bea.gov here:

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 2.4 percent in the fourth quarter of 2013 (that is, from the third quarter to the fourth quarter), according to the "second" estimate released by the Bureau of Economic Analysis.  In the third quarter, real GDP increased 4.1 percent. The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month.  In the advance estimate, the increase in real GDP was 3.2 percent. With this second estimate for the fourth quarter, an increase in personal consumption expenditures (PCE) was smaller than previously estimated . . ..