Five Themes for the Week

Economic Struggles in China and Greece

  • Chinese authorities sprang into action just a few days after announcing a disappointing first quarter GDP growth rate. The People’s Bank of China (PBOC) last night reduced the banks’ reserve requirement by 1% to 18.5% with the intended goal of free, loanable funds in the banking system in order to stimulate the economy. It was not the first move by the Chinese central bank to support the economy: Just a few weeks ago, the PBOC slashed the required down-payment for purchasing a home; we expect more action to come. The benchmark one-year lending rate currently stands at 5.35% after two cuts in November and February; we anticipate an additional cut soon. The speed and size of the Chinese authorities’ response betrays serious concerns about the state of the economy.
  • Growth at 7%, as recorded in the first quarter, just sits at target level for the year, leaving no margin of error for the rest of the year if growth fails to reaccelerate Read More »

Bending the health care cost curve over 15 years


My favorite chart from this morning’s CPI release


Consumer Prices in Line with Expectations

The headline numbers in the Consumer Price Index (CPI) rose 0.2% in March, buoyed by higher energy prices, mainly motor fuel, which rose 3.9% in March. Read More »


Housing Starts Disappoint Again

Housing starts for March came in below expectations, adding only 926,000. Even though the data improved from last month, it did not rebound as strongly as many hoped. February data were revised up but only by 11,000 to 908,000. Single-family starts were much the same, adding only 618,000, which is only 26,000 higher than February.

In single-family starts, it was not the weakness in the Northeast, Midwest or West, but the South where starts decreased 8,000; that puts this March in line with last year’s numbers in the South, at 0% year-on-year growth. Read More »


China Barely Meets Diminished Expectations

The latest report on Chinese GDP raises new concerns about the economic health of the country. The economy grew 7% in the first quarter; conveniently, that is the growth target set by the Chinese authorities for 2015. Unfortunately, it is also the slowest pace since 2009 Read More »


Energy Cuts Weigh on Industrial Production

Recent weeks have not been kind to economic readings, with a mix of negative reports or failures to meet expectations. Today’s report on industrial production in March is in line with the overall soft trend for the first quarter. Read More »


Consumers Emerge from Hibernation

Retail sales jumped 0.9% in March, coming in only slightly below the consensus. Gains were driven by big-ticket spending on vehicles and furniture. Pent-up demand and damages created by unusually harsh winter storms helped to spur the rebound in spending. Building materials and garden stores reported higher sales as the temperatures rose and people emerged from their homes; planting, repairs and remodeling were all factors there. Read More »


Consumers Paid Off Holiday Debt Early in 2015

Consumers took advantage of lower gas prices, paying off their holiday debt a month sooner. In the previous two years, consumers had taken until March to pay off holiday purchases on their credit cards. Earlier in the cycle, when the economy was weaker, it was not until April that consumers paid off their balances from holiday spending. The chart below shows consumer debt on revolving credit, typically credit cards, going back to 2005.
                                                                (Click on image to enlarge graph.)

Credit Card Balances

Arrows indicate when holiday purchases were paid off.



Disappointing March Employment Data

Payroll employment rose a disappointing 126,000 in March and was revised down fairly significantly for the previous two months. That suggests that the economy was actually weaker and less resilient at the start of the year than the data initially indicated. Read More »