How to Ruin a Country in 15 Years
January 29, 2017The FEDs Trillion Dollar Balance Sheet
February 4, 2017
That didn’t take long.
On Monday, President Trump fired US Attorney General Sally Yates. She instructed lawyers working for the Justice Department to ignore the executive order suspending immigration. She didn’t last long.
Apparently our President was fired up by Ms. Yates decision and decided to charbroil her over an open flame, like a ‘New York Prime’ at Mastros. “You’re FIRED!”
Even more concerning (at least for everyone other than Ms. Yates) is today’s bacon update: “America’s bacon reserve is at it’s lowest level in more than 50 years – and prices could skyrocket“. http://www.businessinsider.com/bacon-is-going-to-get-more-expensive-2017-2
According to the Ohio Pork Council (yes, there really is such a thing) a shortage is imminent. They reported the US supply of “frozen pork belly” — the meat used to make bacon — fell from 53.4 million pounds in December 2015 to 17.8 million pounds in December 2016. That’s the lowest level in the nation’s pork reserve since 1957, according to USDA data. Hmmm…if this is accurate, it could put a serious dent in baked potato sales at Mastros! We take our meats seriously at Mastros! 🙂
Fortunately, a bit later, the NY Times took a closer look at the issue and set the record straight. There is no bacon shortage. Per Steve Meyer, who holds the title of “vice president of pork analysis for EMI Analytics” there is plenty of bacon. (How does one get such a job and title?)
Mr. Meyer’s titles don’t end there: He is also a consulting economist to the ‘National Pork Producers Council.’ This is one impressive guy! “…it’s not as if we’re going to run out of bacon,” said Mr. Meyer. He assures us that “frozen reserves” are precisely that – reserves. We’re fine. “To imply that there’s going to be some shortage of bacon is wrong.”
Welcome to this week’s Steak House Index Update.
Remember: The Steak House Index BLOG has its own URL – https://www.steakhouseindex.com/ The reading experience on the site is much better than in the email form. I suggest you click the link and give it a try!
As always, if you need a refresher on the SHI, or its objective and methodology, I suggest you open and read the original BLOG: https://terryliebman.wordpress.com/2016/03/02/move-over-big-mac-index-here-comes-the-steak-house-index/)
Why You Should Care: The US economy and US dollar are the foundation of global economics: our nominal GDP is over $18.8 trillion a year. Is it growing or shrinking? Is it possible to know – before the quarterly GDP releases from the BEA?
The objective of the SHI is simple: To predict the direction of this behemoth ahead of official economic releases. But while the objective is simple, the task is not.
BEA publishes GDP figures the instant they’re available. Unfortunately, it is a trailing index. The data is old news; it’s a lagging indicator.
‘Personal consumption expenditures,’ or PCE, is the single largest component of the GDP. In fact, the majority of all GDP increases (or declines) usually result from (increases or decreases in) consumer spending. Thus, this is clearly an important metric to track.
I intend the SHI is to be predictive, anticipating where the economy is going – not where it’s been. Thereby giving us the ability to take action early. Not when it’s too late.
Taking action: Keep up with this weekly BLOG update. If the SHI index moves appreciably – either showing massive improvement or significant declines – indicating expanding economic strength or a potential recession, we’ll discuss possible actions at that time.
The BLOG: The ‘advance’ – or 1st – reading for Q4 2016 GDP was released on Friday. Most economists expected growth of more than 2.4% during the quarter. Even the NY FED in their ‘Nowcasting’ report expected a reading of more than 2.1%
I did not. I continue to believe there is a de facto GDP ceiling in place. One that will not be easily surpassed, as it’s held in place by structural demographic conditions. And in fact, the Q4 reading was 1.9%. Very much in line with my expectation. Remember: this is the first reading. It will change as new and more accurate data is released.
For 2016 the four quarterly releases, then, were 0.8%, 1.4%, 3.5%, and 1.9%, respectively; combined, 2016 ‘real’ GDP growth was 1.6%. Again, right in line with what I expected. It’s worth commenting that (preliminarily) US GDP finished 2016 at $18.860 trillion. With global GDP running near $80 trillion, the US continues to generate almost 1/4 of all global GDP.
Trump’s protestations notwithstanding, I continue to believe 2017 GDP will finish very close to this number. You’ll recall I’ve projected 1.90% growth. Our US economy must still contend with foundational structural limitations. Our demographic factors have imposed a de facto speed limit on GDP growth. But, again, in my opinion 1.9% would be a robust outcome for 2017.
And our SHI agrees. Once again, this week the SHI reading is strong: Up to a positive 14!
Mastro’s remains fully booked, and – alas – our poor, poor Capital Grille once again has full availability. Ruth’s Chris takes second place this week with first availability at 7:15 … and then again at 7:45. While we’re still far below December’s lofty readings, January’s SHI readings have been both consistent and strong. Here is our long-term trend since inception:
Earlier today, the FED concluded its first of eight 2017 meetings. As I expected, they left short term interest rates unchanged. Here is a portion of today’s press release:
“The Committee expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, labor market conditions will strengthen somewhat further, and inflation will rise to 2 percent over the medium term. In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 1/2 to 3/4 percent. The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a return to 2 percent inflation.”
What does the FED mean by “medium term”? According to their numerical forecasts, 2018. Thus, the FED is forecasting PCE inflation below 2.0% for 2017.
On Friday, the BLS will release January payroll increases. Be sure to check this number as it usually moves both markets and interest rates.
In closing, I can say with a high degree of certainty the US economic expansion continues. Absent a ‘black swan’ exogenous event, there is no near-term recession concern.
– Terry Liebman
