Fri, 26th May 2017

Anirudh Sethi Report


Archives of “Economy” Category

11 Facts That Prove The 2017 US Economy Is In Far Worse Shape Than It Was In 2016

There is much debate about where the U.S. economy is ultimately heading, but what everybody should be able to agree on is that economic conditions are significantly worse this year than they were last year.  It is being projected that U.S. economic growth for the first quarter will be close to zero, thousands of retail stores are closing, factory output is falling, and restaurants and automakers have both fallen on very hard times.  As economic activity has slowed down, commercial and consumer bankruptcies are both rising at rates that we have not seen since the last financial crisis.  Everywhere you look there are echoes of 2008, and yet most people still seem to be in denial about what is happening. 

The following are 11 facts that prove that the U.S. economy in 2017 is in far worse shape than it was in 2016…

#1 It is being projected that there will be more than 8,000 retail store closings in the United States in 2017, and that will far surpass the former peak of 6,163 store closings that we witnessed in 2008.

#2 The number of retailers that have filed for bankruptcy so far in 2017 has already surpassed the total for the entire year of 2016.

#3 So far in 2017, an astounding 49 million square feet of retail space has closed down in the United States.  At this pace, approximately 147 million square feet will be shut down by the end of the year, and that would absolutely shatter the all-time record of 115 million square feet that was shut down in 2001.

#4 The Atlanta Fed’s GDP Now model is projecting that U.S. economic growth for the first quarter of 2017 will come in at just 0.5 percent.  If that pace continues for the rest of the year, it will be the worst year for U.S. economic growth since the last recession.

#5 Restaurants are experiencing their toughest stretch since the last recession, and in March things continued to get even worse…

 Foot traffic at chain restaurants in March dropped 3.4% from a year ago. Menu prices couldn’t be increased enough to make up for it, and same-store sales fell 1.1%. The least bad region was the Western US, where sales inched up 1.2% year-over-year and traffic fell only 1.7%, according to TDn2K’s Restaurant Industry Snapshot. The worst was the NY-NJ Region, where sales plunged 4.6% and foot traffic 6.3%. 

Eurozone debt to GDP dropped in 2016

Party time in Europe

We’re getting a raft of final budget and debt numbers from Europe.

EZ debt to GDP 89.2% vs 90.3% prior
Budget surplus 1.5% of GDP vs 2.1% prior
Germany budget surplus 0.8% of GDP vs 0.75 prior
Spain BS (no pun intended) 4.5% vs 5.1% prior
France BS 3.4% vs 3.6% prior
Italy BS 2.4% vs 2.7% prior
Greece public debt 179.0% of GDP vs 177.4% prior
At least the Eurozone countries have used low rates and easy monetary conditions to lower government debt…oh wait.

Fitch Downgrades Italy To BBB From BBB+

Having largely disappeared from the market’s scope for the past 6 months, ever since Europe “bent” its rule allowing the bailout of Monte Paschi and several smaller banks despite Italy having the greatest amount of disclosed NPLs of any European nation, moments ago Fitch decided to drag Italy right back in the spotlight when it downgraded Italy to BBB from BBB+, citing “Italy’s persistent track record of fiscal slippage, back-loading of consolidation, weak economic growth, and resulting failure to bring down the very high level of general government debt has left it more exposed to potential adverse shocks. This is compounded by an increase in political risk, and ongoing weakness in the banking sector which has required planned public intervention in three banks since December.

And some more:

 Italy has missed successive targets for general government debt/GDP, which increased by 0.5pp in 2016 to 132.6%. This is 11.2% of GDP higher than the target in the Stability Programme of 2013, the year Fitch downgraded Italy’s Long-Term IDRs to ‘BBB+’, and compares with the current ‘BBB’ range median of 41.5% of GDP. Fitch forecasts general government debt to peak at 132.7% of GDP in 2017, falling only gradually to 129.3% in 2020 in our debt sensitivity projections.

 Fitch’s rating Outlook for the Italian banking sector is Negative, primarily reflecting the challenge of reducing the high level of un-provisioned non-performing loans (NPLs), alongside weak profitability and capital generation. The rate of new NPLs edged down to 2.3% in 4Q16, and there is some greater impetus for disposals and write-downs, which has slightly reduced total NPLs. However, sofferenze, the worst category of loans, increased to EUR203 billion in February, from EUR199 billion in October. Total NPLs amount to close to 17.5% of loans and 20% of GDP, and just over half are provided against.

 In our view, political risks have increased since Fitch’s previous rating review. Current polls point to a further hollowing out of support for more centrist parties and to a fragmented political landscape that could result in minority government. Risks of weak or unstable government have increased, as has the possibility of populist and eurosceptic parties influencing policy. Greater populism may dampen political appetite for reform, increase the pressure for fiscal loosening, and weigh on investor sentiment.

With France – and much of Europe – already on edge due to populist tensions, is Italian sovereign – and bank – risk about to make a grand reapparance? For the answer, check in when Europe opens on Monday.

Meanwhile, Italian CDS trades at 190bps, wider than Russia, Croatia and almost as wide as South Africa.

IMF’s Lagarde is finally seeing the global economy picking up momentum

Isn’t that nice

  • Downside risks still include political uncertainty
  • First priority is to sustain the growth momentum
  • Is pleased trade is picking up and is likely to keep growing
  • China has good numbers coming out
  • Growth potential still needs a lot of work
  • Policy makers need to focus on this area

The way she’s talking you’d think she’d singlehandedly raised growth.

Japan posts first full-year trade surplus in six years

Japan posted a 4 trillion yen ($36.7 billion) trade surplus for the fiscal year ended March, according to data released Thursday by the Ministry of Finance, the country’s first in six years.

The country had posted trade deficits since fiscal 2011 as fuel imports increased; nuclear power plant operations were suspended in the aftermath of the 2011 earthquake and tsunami. Lower oil prices and a stronger currency allowed Japan to climb back into the black in fiscal 2016.

 The value of exports dropped by 3.5% on the year to 71.5 trillion yen, as exports of cars as well as iron and steel products dropped. The value of imports dropped 10.2% to 67.5 trillion, as imports of liquefied natural gas and petroleum decreased.

For the month of March, the surplus totaled 614 billion yen, preliminary data showed. That was the second straight month of surpluses, although the figure was down from the same month in 2016, which came in at 744 billion yen.

The March figure beat the QUICK consensus forecast of private-sector analysts, which predicted a surplus of 575 billion yen.

Total exports rose 12.0% in March from a year earlier to 7.22 trillion yen, as the value of exports to Asia hit a record high of 3.8 trillion yen. Exports to China contributed significantly, rising 16.4% on the year to 1.2 trillion yen, registering a year-on-year increase for five consecutive months. This was the second highest on record.

Exports to the U.S. increased 3.5% to 1.3 trillion yen.


Imports, on the other hand, climbed 15.8% to 6.61 trillion yen. But this was mainly due to the increase in import value of petroleum and coal from the rise in commodity prices.

The trade surplus in fiscal 2016 was “down to strong external demand and weak internal demand. It was also boosted by low oil prices,” wrote economists at SMBC Nikko Securities in a report. “The story of strong exports and weak imports will likely carry on in fiscal 2017. Exports are expected to remain on an expansionary path as foreign economies pick up. On the other hand … private consumption [in Japan] is sluggish and fixed investment from companies is likely to remain muted.”

“We cannot expect much from domestic demand, and therefore an acceleration in imports is unlikely,” read the report.

Raghuram Rajan Warns “The Fundamental Problems Of The Financial Crisis Are Still With Us”

Raghuram Rajan, Professor of Finance at the University of Chicago and former governor of the Reserve Bank of India, warns of more turmoil ahead if the developed world fails to adapt to the fundamental forces of global change.


It is a pivotal moment on the eve of the financial crisis. In the late summer of 2005, the world’s most influential central bankers and economists gather in Jackson Hole at the foot of the Rocky Mountains. The atmosphere is carefree. Financial markets have nicely recovered from the bust of the dotcom bubble and the global economy is humming. Under the topic »Lessons for the Future» the presentations celebrate the era of Federal Reserve chairman Alan Greenspan, who has announced to resign in a few months. Since 1987 at the helm of the world’s most powerful central bank, he presided over a period of continuous growth and was one of the leading forces of deregulation in the financial sector.

 But when Raghuram Rajan steps to the podium the mood suddenly turns icy. At that time the chief economist at the International Monetary Fund, the native Indian warns that unpredictable risks are building up in the financial system and that the banks are not prepared for an emergency. His dry analysis draws spiteful remarks. »I exaggerate only a bit when I say I felt like an early Christian who had wandered into a convention of half-starved lions», he recollects.

 Soon, however, his prediction turns out to be correct. Less than one year later, the US housing boom runs out of steam which triggers the worst recession since the Great Depression. Today, Mr. Rajan who governed the Reserve Bank of India until last fall and now teaches finance at the University of Chicago, is reputed as one of the most distinguished economic thinkers on the planet. So what prompted him to voice his concerns at that time in Jackson Hole? Where does he think the world stands in the spring of 2017? And what is his outlook for the coming years?

UK inflation sticks at more than three-year high of 2.3%

UK inflation data now published 11 April

  • +0.7% prev
  • yy 2.3% vs +2.3% exp/prev
  • CPIH yy  2.3% vs +2.3% exp/prev
  • core CPI yy 1.8% vs +1.9% exp vs 2.0% prev
  • RPI mm 0.3% vs +0.4% exp vs +1.1% prev
  • yy 3.4% vs +3.2% exp/prev
  • Retail Price Index 269.3 vs 269.50 exp vs 268.4 prev
  • PPI output mm NSA +0.4% vs +0.1% exp vs +0.2% prev
  • yy NSA 3.6% vs +3.4% exp vs +3.7% prev
  • PPI input mm NSA +0.4% vs -0.1% exp vs -0.1% prev revised up from -0.4%
  • yy NSA 17.9% vs +17.0% exp vs +19.4% prev revised up from 19.1%
  • House Price Index  Feb yy  5.8% vs +6.1% exp vs +5.3% prev revised down from +6.2%

Fed’s Yellen: US economy is ‘pretty healthy’

Yellen comments:

  • A better look at inflation is around 1.75%
  • Housing is ‘a little bit healthier than it’s been’
  • Consumer is helping economy
  • Looking forward, I think economy is going to continue to grow at a moderate pace
  • Financial system is essential for the economy
  • Distorted rewards in financial system contributed to crisis
  • “Appropriate stance of policy now is something close to neutral”
  • We think it’s appropriate to raise rates to a more-neutral level if economy continues to perform
  • Our assessment of neutral is “really not that high”
  • Although we’re close, we’re still below 2% in inflation in my assessment
  • Since the 1980s, the general expectation is the public sees it at 2% despite temporary deviations from that
  • We ‘equally’ don’t want inflation to linger below 2%

Words and actions about the equality of that inflation target don’t match.


  • The fact you could create so many jobs in 2%-growth economy suggests low productivity
  • Economic potential without absorbing labor market slack is probably less than 2%
  • Output per worker has been very slow in recent years, my guess is it will pickup