Business Cycle Team update (English)

Mariana Bulos and Patrick Signoret

PMIs: China’s falls, India’s rises
China’s PMI for July fell below 50, reporting a final 49.4. Employment was the only index that improved. But the non-manufacturing PMI stays at 57.8 for July. In India, manufacturing PMI for July rose 0.6% to 57.6. PMI and exports data reinforce the JPMorgan view that there will be a new 25bp raise in the policy rates on September 16.
(Credit Suisse, JPMorgan)

Mexico’s Banxico survey
Inflation expectations for the end of 2010 (4.59%), end 2011 (3.90%), average for 2011-2014 (3.69%) and average for 2015-2018 (3.53%) were all slightly lower than in the June survey.
The survey’s median expectation for GDP growth was 4.5% in 2010 and 3.6% in 2011.
(Banxico, Credit Suisse)

Euro Area producer price index
Producer prices grew a 12m 3.0% in June, after a rate of 3.1% in May. Barclays notes that this increase in producer prices has still not been passed on to core consumer prices.
(Barclays)

Income and spending in United States
June personal income and consumer spending had zero growth in June, while the consensus forecast was 0.2% and 0.1%). This was in line with the softer than expected GDP growth rate published last Friday.
(Barclays)

Power and Policy Team update (Español)

Isabel Gil y Patrick Signoret

Frontera México-EUA
El dispositivo de 1,200 soldados que el presidente Obama envió a reforzar la seguridad en la frontera estará funcionando plenamente a finales de septiembre.
(El País)

Estados donde estaba “Nacho” habían sido más violentos
En los meses previos a la muerte de “Nacho” Coronel (líder de cártel de drogas muerto la semana pasada en operativo militar), los tres estados que controlaba habían tenido un alza enorme en la violencia según Reforma. Estos estados son Jalisco, Nayarit y Colima. Seguir el número de muertes por estado podría ser una forma interesante de ver los efectos de los cambios de líderes y conflictos entre los cárteles de drogas.
(Reforma)

Patrimonio gigantesco del SME
El líder de los disidentes del SME, Alejandro Muñoz, pide repartir los bienes del sindicato equitativamente entre los trabajadores. Estima que cada trabajador podría recibir 300 mil pesos. Él y sus seguidores se oponen al liderazgo de Martín Esparza.
(Reforma)

Amenazas a sheriff de Arizona
Fox News difundió imágenes y sonido de mensajes de texto y voz ofreciendo dinero a quien asesine al sheriff Joe Arpaio, quien es conocido por ser duro contra los imigrantes ilegales. Los mensajes ofrecen 1 millón de dólares y proveen un número de teléfono para conseguir instrucciones. Sin embargo, esta noticia no parece haber sido importante en los grandes diarios de EUA.
(Reforma)

Power and Policy Team update (English)

Isabel Gil y Patrick Signoret

War in Iraq
By August 31st America´s mission in Iraq will end, said president Obama. According to the promises made during his campaign, by the end of this month there will only be 50,000 troops in Iraq, which will be in charge of supporting and training Iraqi security forces. These troops will leave Iraq at the end of 2011. Meanwhile, Iraq is in political deadlock, five months after the parliamentary elections. Here’s a link to Obama's full speech: http://tinyurl.com/24w3j95 (NYT, FT, White House)

Israel
Ban Ki-moon formally announced the creation of a commission to investigate the incident of the Gaza flotilla. Israel, who had previously been reluctant, announced its cooperation on Monday.
(NYT)

Bernanke speech
One week before the next interest rate setting meeting, Bernanke gave a speech in South California where he argued that even though the financial crisis seems to have passed, the U.S. has still a long way to go in order to achieve full economic recovery. “A long way to go” and “caution” were the main words that stuck in markets and newspapers.
(FT)

Financial Market Team update

Georgina Lara y Patrick Signoret

13:07 ET

DJIA: +1.75% to 10649.1
S&P 500: +1.93% to 1122.88
Mexico IPC: +1.14% to 32676.39
Brazil Bovespa: +1.59% to 68587.32

FTSE 100: +2.65% to 5397.11 c
DAX: +2.34% to 6292.13 c

Nikkei 225: +0.35% to 9570.31 c
Hang Seng: +1.82% to 21412.79 c

USD-EUR: 0.759
EUR-USD: +0.9539% to 1.3176
USD-JPY: +0.0174% to 86.485
USD-MXN: -0.5749% to 12.573

Corn 1m: 0% to 406.75
WTI future 1m: +3.14% to 81.43
Gold spot 1m: +0.08% to 1184.8

Stocks
********
U.S. stocks are climbing after last week's fall after today’s release of positive construction spending and manufacturing reports. Both surpassed market expectations. Better-than-estimated earnings at companies may also have increased confidence in the economic recovery.

European stocks advanced in general after HSBC and BNP Paribas rallied. Production indices in the Euro Area showed mainly increases. Germany's situation as the biggest economy in Europe and the one leading the pace to economic recovery in the zone may have boosted investors’ optimism. UK stocks reached the highest level in two and a half months.

Asian stocks advanced following PMI reports that made investors confident that the region is growing.

(FT, Bloomberg)

Commodities
***********
U.S. crude oil continues last week’s trend and has risen more than 3%. The rise in oil prices may be due to the controlled supply by OPEC countries and the growing demand by some emerging markets like China.

Gold also continues to rise after several days of falling.

Soybean and corn prices rose again reaching the highest level since January after the drought in Russia, and other parts of Europe, harmed crops. The demand is now being satisfied by U.S. production.

Auroba y Diebold describen y explican la recesión

English

En su nuevo borrador de trabajo para NBER, titulado "Real-time monitoring: real time macroeconomic activity, inflation, and interactions" ("Monitoreo en tiempo real: actividad macroeconómica, inflación e interacciones en tiempo real"), S. Boragan Aruoba y Francis X. Diebold resumen su método para medir la actividad económica en tiempo real y, con base en dos índices resultantes, describen y explican la recesión reciente.

Los autores (desarrollan un marco de trabajo con múltiples indicadores y un único factor latente que extraen vía un filtro de Kalman, y) construyen índices para actividad e inflación reales.

Para construir su índice de actividad, se apoyan en cinco indicadores: nóminas, producción industrial, ingreso personal real descontando transferencias, ventas reales en manufactura y comercio, y PIB real.

Para su índice de inflación, incorporan seis indicadores: el índice de precios al consumidor, el índice de precios al productor de bienes terminados, un índice de precios de materias primas no energéticas, el precio spot de petróleo, el deflactor del PIB y remuneraciones por hora de los trabajadores.

Con respecto a la reciente recesión en EUA, concluyen lo siguiente:

1. La Gran Moderación no fue una ilusión –la volatilidad en la actividad económica real se moderó notablemente entre 1985 y 2007.
2. La actividad real alcanzó su mínimo en enero 2009.
3. La recesión terminó en julio 2009. (Los autores definen el final de una recesión como el regreso en su índice de actividad a su nivel promedio de cero).
4. Comparada con recesiones pasadas, ésta fue bastante profunda. Pero un hecho más notorio es que fue larga (19 meses).
5. La deflación comenzó más tarde (en el verano de 2008) y duró menos que la recesión (seis meses). Pero, de acuerdo con los autores, dado que tanto la actividad como la inflación se desplomaron, la causa de la recesión parece haber sido un shock de demanda y no uno de oferta.
   

Yo tengo cinco comentarios:

1. El shock de demanda al que se refieren los autores es claramente la crisis financiera.
2. Los autores están desarrollando una versión global de su índice. Espero que su definición de “global” incluya a economías emergentes como la de México.
3. ¿Qué se supone que un analista de México use en lugar del ingreso personal descontando transferencias? ¡Anhelo un indicador como ese para México! (¿Me estás oyendo, INEGI?)
4. Los precios de materias primas siguieron subiendo hasta el verano de 2008, incluso cuando la actividad comenzó a disminuir. Quizás durante los primeros siete meses de la recesión la economía de EUA pasó por shocks de oferta y demanda al mismo tiempo.
5. Para un macroeconomista, el término "inflación" se refiere a un aumento generalizado en los precios, no a un cambio en precios relativos. Ambos fenómenos mueven los precios promedio. ¿Por qué todas nuestras medidas de inflación consideran promedios e ignoran cuán amplio fue el cambio en los precios? Esto confunde al público sobre la inflación y la política monetaria, y la confusión erosiona la credibilidad del banco central. Bancos centrales como Banxico pueden contrarrestar ese efecto educando al público sobre la diferencia entre los dos fenómenos.

En mi siguiente nota voy a ampliar el comentario 5.

Aruoba and Diebold describe and explain recession

Español

In their new NBER working paper "Real-time monitoring: real time macroeconomic activity, inflation, and interactions," S. Boragan Aruoba and Francis X. Diebold summarize their methodology and use two resulting indices to describe and explain the recent recession.

The authors (develop a state space framework with multiple indicators and a single latent factor extracted via a Kalman filter to) construct a real activity index and an inflation index.

For activity, they use five indicators: payroll employment, industrial production, real personal income less transfers, real manufacturing and trade sales, and real GDP.

For inflation, six: CPI, finished-goods PPI, a non-energy commodity prices index, spot oil prices, the GDP deflator, and hourly compensation.

With regard to the recent U.S. recession, they conclude the following:

1. The Great moderation was no illusion—volatility in real economic activity moderated notably from 1985 to 2007.
2. Real activity troughed in January 2009.
3. The recession ended in July 2009. (The authors define the end of a recession as a return in their activity index to its historic average of zero.)
4. Compared with past recessions, the recession was quite deep. But, more notably, it was long (19 months).
5. Disinflation started later (in the summer of 2008) and was shorter than the recession (six months). But, according to the authors, because inflation and activity both dropped, the cause of the recession seems to have been a demand shock, not a supply shock.

I have five comments:

1. The demand shock to which the authors allude is clearly the financial crisis.
   
2. The authors are working on a global version of their index. I do hope that their definition of "global" includes emerging economies such as Mexico.
   
3. What is a Mexico analyst supposed to use in lieu of a real personal income less transfers? I yearn for such an indicator in Mexico! (INEGI, are you listening?)
   
4. Commodity prices blew up until the summer of 2008, even as activity began to slow down. Perhaps because for the first seven months of the recession the U.S. economy was experiencing a supply and a demand shock both.
   
5. Macroeconomists speak of inflation as a general rise in prices, not a change in relative prices. Both phenomena move average prices. So why do all our inflation measures consider averages and ignore how broadly prices are changing? This confuses the public both about inflation and monetary policy, and the confusion unjustly erodes central bank credibility. Central banks such as Banxico can counteract by better educating the public about the difference between the two phenomena.
   

In my next blog entry, I'll expand on comment 5.

Stiglitz en dos idiomas. Stiglitz in two languages.

¡Me encanta el Project Syndicate! Permite leer a Stiglitz sobre regulación financiera en inglés o en español.

Su tesis:

Lo que se necesita es una estrategia de múltiples puntas, que incluya impuestos especiales, mayores requisitos de capital, una supervisión más estrecha y limitaciones al tamaño y las actividades de toma de riesgo.

Al leer las dos versiones, no sólo puedes absorber los comentarios provocativos de Stiglitz sino también adquerir un glosario genial sobre megabancos y riesgo sistémico:

Too-big-to-fail = Demasiado grande para quebrar
Too-complex-to-fail = Demasiado complejo como para quebrar
Too interconnected to fail = Demasiado entrelazadas como para quebrar
Excessive risk taking = Una toma de riesgos excesiva.

***********

I love Project Syndicate! It gives you Stiglitz on financial regulation in English and Spanish both.

His thesis:

What is required is a multi-prong approach, including special taxes, increased capital requirements, tighter supervision, and limits on size and risk-taking activities.

By reading both versions, you come away with not only Stiglitz's provocative sommentary but also a nifty glossary on megabanks and systemic risk:

Too-big-to-fail = Demasiado grande para quebrar

Too-interconnected to fail = Demasiado entrelazadas como para quebrar
Excessive risk taking = Una toma de riesgos excesiva