A Statement for Everyone

The Federal Open Market Committee (FOMC) voted unanimously to do nothing and signal nothing at the January meeting. The committee upgraded its assessment of the economy to reflect what was most likely a strong end to 2014. That said, members also acknowledged that wage growth, inflation and the housing market remain cooler than they would like. Read More »


Sale Price Premium for New Homes

  • Premium well above long-term average:
  • Illustrates bifurcation in housing market between high-& low-end buyers.
  • Low-end buyers cannot drive price appreciation as much for new homes.
  • High-end buyers pay top dollar for prime, turnkey, customized properties.
  • Volatility in sales due to data not adjusted for seasonal factors.



Durable Goods Orders Decline

Durable goods orders unexpectedly dropped 3.4% in December following data revised downward for November; that marks the fourth decline in five months. Headline data were weighed down again by transportation equipment, which has been struggling in recent months.  Even the new orders ex-transportation show a decline of 0.8%. Looking at core capital goods (the best indicator for private investment), the data indicate a more modest decline Read More »


Existing Home Sales Top Five Million for 2014

Just over five million existing homes were sold in December, in line with expectations. December sales came in higher than November’s, which were revised down slightly. Comparisons for sales and prices were positive as total and single-family sales increased Read More »


Mr. Draghi Delivers

In the end, Mario Draghi delivered. The much expected move into quantitative easing is now a reality, as announced by the president of the European Central Bank (ECB) today. The ECB will purchase government bonds, debt securities issued by European institutions and private sector bonds at the pace of 60 billion euros per month until September 2016 for a total of close to 1.2 trillion euros. Read More »


Answers to frequently asked questions about inflation

Inflation cycles are just that, cycles. 

The surging stagflation of the late 1980s persisted even after growth slowed; it took back-to-back recessions (which inflicted enormous pain), induced by the Federal Reserve (led by Paul Volcker at that time) to break the back of that vicious cycle. The 1990s gave us a virtuous cycle with globalization and productivity growth (most notably in computers) that allowed inflation to decelerate over the decade even as growth and wages surged. 

In contrast, Japan saw two decades of deflation and stagnation that policy makers could not break because of the self-feeding nature of inflation dynamics. When prices are falling, people hesitate and wait to buy; that pushes prices even lower, which makes it deflation, a self-feeding cycle for a period of time. (When prices are rising, people buy ahead of price increases, which prompts additional price increases, until we stockpile so much that either the Fed tightens or the overhang of inventories triggers a recession.)

In the current environment, low inflation constrains pricing power which, given the ongoing slack in the labor market, allows firms to hold the line on wages, which in turn farther constrains inflation.



Housing Starts Bounced Back in December

Housing starts beat expectations, increasing by 46,000 in December from upwardly revised November data. Better weather last month, following an unseasonably cold November, helped overall starts to rebound. Starts in the South, which were hit hardest in November by cold temperatures, came back in December and posted a 41,000 increase. Read More »


Europe: QE and Greece in the Balance

This is a crucial week. On Thursday, we expect the European Central Bank (ECB) to announce the much anticipated plan for asset purchases, aka quantitative easing. On Sunday, Greece will vote for a new parliament, where anti-European forces may win Read More »


CPI Runs Hotter than PCE Inflation Index

The Federal Reserve prefers to use the Personal Consumption Expenditures (PCE) index of inflation because PCE is more accurate; it better captures the trade-offs that consumers make when prices shift across sectors in the economy. The chart below is proof of the positive effect of plummeting oil prices in surging consumer sentiment. Low prices at at the gas pump have been a lifeline when wages have fallen short for too many households

Why the Federal Reserve uses PCE: It is more accurate


Industrial Production Better than Headline

Industrial production fell 0.1% in December after surging 1.3% the month prior. Moreover, the fall in production was due to a drop in utilities. We also saw some declines in vehicle production, representing a need to liquidate inventories. Manufacturing, however, still managed to increase Read More »