August 2017 – ffwiley.com

What Financial Conditions Tell Us (Two Charts and a Prediction)

August 24, 2017ffwbusiness cycle, C&I loans, CRE loans, Federal Reserve, financial conditions, GDP, house prices, lending standards, monetary policy, S&P 50011 Comments

It seems every bank, including central banks, publishes a financial conditions index these days. And because financial conditions typically lead the economy, it makes sense to track them. In fact, they might contain even more information than they get credit for. They might offer the elusive “crystal ball” that foretells our economic fortunes.

Sound far-fetched? Spend a few minutes with this week’s pictures and talk, and you’ll be well equipped to judge for yourself. We start with seven of our favorite indicators, shown in the table below:

Mapping the foreign trade debate: Where do you belong?

August 15, 2017ffwcircular flow, comparative advantage, financial economy, foreign direct investment, free trade, import certificates, Middle America, predatory trade, protectionism, real economy, trade balance, trade barriers, trade deficit, Warren Buffet, World Trade Organization8 Comments

Worried that recent U.S.–China trade dialog sounds like a Mayweather–McGregor promotional tour? Concerned that we might be headed for a repeat of the Great Depression era’s race-to-the-bottom tariff wars? Or, maybe you’re relieved that diplomats are no longer being diplomatic? Maybe you think it’s about time Washington stood up for American jobs?

However you feel, we suggest stepping back to review your armchair-policymaker options. In particular, we recommend answering two questions, as in the table below:

Why Slumping Auto Sales May Not Say What You Think They Say

August 1, 2017ffwAffordable Care Act, auto sales, business cycle, medical premiums, Obamacare, recession risks5 Comments

July auto sales (released today and charted below) remained weak and should trigger a few recession forecasts. In fact, over the past few months we’ve read about half a dozen commentaries linking the recent plunge in auto sales to an imminent recession. And we understand the reasoning, but we’ve yet to buy into it.

We agree that car sellers face a degree of demand saturation while potential buyers suffer from credit saturation, or at least that’s what the data seem to show. We also agree that the saturation twins tend to be late-cycle indicators. But we’d like to add another possible explanation for slowing auto sales, one that yields a different conclusion about recession risks.