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Commentary

Submitted by Richard Davis on 11/29/2016

In their second estimate of the US GDP for the third quarter of 2016, the Bureau of Economic Analysis (BEA) reported that the growth rate was +3.15%, up +0.24% from their previous estimate and up +1.73% from the prior quarter. 

Most of the improvement in the headline number came from a +0.42% upward revision to consumer spending. Spending on consumer goods was revised upward by +0.26%, and spending on consumer services was reported to be +0.16% better than previously thought. However, both of these numbers remain below the growth levels recorded in the prior quarter (and were in aggregate -0.99% lower than 2Q-2016). The generally noisy inventory growth rate was revised downward by -0.12% to +0.49%. None of the revisions to the other line items in the report were material. 

The BEA's treatment of inventories can introduce noise and seriously distort the headline number over short terms -- which the BEA admits by also publishing a secondary headline that excludes the impact of inventories. The BEA's "bottom line" (their "Real Final Sales of Domestic Product") was a +2.66% growth rate, up +0.36% from the previous estimate and now up +0.08% from 2Q-2016. 

Real annualized household disposable income was reported to have grown by $176 quarter-to-quarter, to an annualized $39,234 (in 2009 dollars). Not all of that increase was spent; the household savings rate increased +0.2% to 5.9%. 

For this revision the BEA assumed a slightly lower effective annualized deflator of 1.39%. During the same quarter (July 2016 through September 2016) the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was 1.84%. Under estimating inflation results in correspondingly optimistic growth rates, and if the BEA's "nominal" data was deflated using CPI-U inflation information the headline growth number would have been lower, at a +2.74% annualized growth rate. 

Among the notable items in the report : 

-- The headline contribution from consumer expenditures for goods increased to a +0.74% growth rate (although it is still down a material -0.77% from the prior quarter). 

-- The contribution to the headline from consumer spending on services improved to +1.15% (which also remains down -0.22% from the prior quarter). The combined consumer contribution to the headline number was +1.89%, down a significant -0.99% from 2Q-2016. 

-- The headline contribution from commercial private fixed investments remained negative at -0.15%. Although this is a slightly smaller contraction than during the previous quarter, it still represents the fourth consecutive quarter of contraction in commercial fixed investments. 

-- The contribution from inventories softened somewhat, adding +0.49% to the headline (while still up up a dramatic +1.65% from 2Q-2016 -- after a string of five consecutive quarters of contraction). It is important to remember that the BEA's inventory numbers are exceptionally noisy (and susceptible to significant distortions/anomalies caused by commodity price or currency swings) while ultimately representing a zero reverting (and long term essentially zero sum) series. 

-- The positive headline contribution from governmental spending was essentially halved; it was revised downward by -0.04% to +0.05%. This was still up an historically large +0.35% from the prior quarter. This momentary growth was almost certainly due to increased Federal fiscal year-end ("spend every last budgeted dime -- even if we can't possibly use whatever it is that we are buying") spending -- a recurring annual phenomenon that is accompanied by an offsetting fourth calendar quarter (first fiscal quarter) reversal of that growth. 

-- The contribution to the headline number from exports improved slightly to +1.18% (up +0.01% in this revision and +0.97% from the prior quarter). 

-- Imports subtracted -0.31% from the headline number, up +0.03% in this revision but down -0.28% from the prior quarter. 

-- The "real final sales of domestic product" was revised upward +0.36% to +2.66%, and it is up +0.08% from the prior quarter. This is the BEA's "bottom line" measurement of the economy and it excludes the reported inventory growth. 

-- As mentioned above, real per-capita annual disposable income was reported to have grown $176 quarter-to-quarter in this report. At the same time the household savings rate was revised to 5.9%, the same level recorded in the second quarter of 2016. It is important to keep this line item in perspective: real per-capita annual disposable income is up only +6.97% in aggregate since the second quarter of 2008 -- a meager annualized +0.82% growth rate over the past 33 quarters.



Submitted by Richard Davis on 10/28/2016

In their first ("preliminary") estimate of the US GDP for the third quarter of 2016, theBureau of Economic Analysis (BEA) reported that the growth rate was +2.91%, up +1.49% from the prior quarter. 

Most of the reported improvement in the headline number came from a +1.77% quarter-to-quarter gain in inventories, a +0.96% rise in exports, and a +0.39% uptick in governmental spending. Offsetting those improvements was an aggregate -1.41% reduction in the headline number from softening consumer spending on both goods and services. Fixed investments remained in contraction at a -0.09% annualized rate. 

The BEA's treatment of inventories can introduce noise and seriously distort the headline number over short terms -- which the BEA admits by also publishing a secondary headline that excludes the impact of inventories. The BEA's "bottom line" (their "Real Final Sales of Domestic Product") was a +2.30% growth rate, down -0.28% from 2Q-2016. If we take the BEA's "bottom line" at face value, economic growth actually softened during the third quarter. 

Real annualized household disposable income was reported to have grown by $127 in this report, to an annualized $39,103 (in 2009 dollars). The household savings rate remained unchanged at 5.7%. 

For this revision the BEA assumed an effective annualized deflator of 1.48%. During the same quarter (July 2016 through September 2016) the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was 1.84%. Under estimating inflation results in correspondingly optimistic growth rates, and if the BEA's "nominal" data was deflated using CPI-U inflation information the headline growth number would have been somewhat lower, at a +2.60% annualized growth rate. 

Among the notable items in the report 

-- The headline contribution from consumer expenditures for goods decreased substantially to a +0.48% growth rate (down a material -1.03% from the prior quarter). 

-- The contribution to the headline from consumer spending on services also went down to +0.99% (down -0.38% from the prior quarter). The combined consumer contribution to the headline number was +1.47%, down a significant -1.41% (nearly half) from 2Q-2016. 

-- The headline contribution from commercial private fixed investments remained negative at -0.09%. Although this is up +0.09% from the previous quarter, it represents the fourth consecutive quarter of contraction in commercial fixed investments. 

-- The contribution from inventories flipped to a positive number in this report, adding 0.61% (up a dramatic +1.77% from 2Q-2016 -- after a string of five consecutive quarters of contraction). It is important to remember that the BEA's inventory numbers are exceptionally noisy (and susceptible to significant distortions/anomalies caused by commodity price or currency swings) while ultimately representing a zero reverting (and long term essentially zero sum) series. 

-- In no real surprise, the headline contribution from governmental spending was a positive +0.09% -- up +0.39% from the prior quarter. This momentary growth was entirely due to increased Federal fiscal year-end ("spend every last budgeted dime -- even if we can't possibly use whatever it is that we are buying") spending -- a recurring annual phenomenon that is accompanied by an offsetting fourth calendar quarter (first fiscal quarter) reversal of that growth. 

-- The contribution to the headline number from exports improved significantly to +1.17% (up +0.96% from the prior quarter). 

-- Imports subtracted -0.34% from the headline number, down -0.31% from the prior quarter. 

-- The "real final sales of domestic product" actually decreased to +2.30%, down -0.28% from the prior quarter. This is the BEA's "bottom line" measurement of the economy and it excludes the reported inventory growth. 

-- As mentioned above, real per-capita annual disposable income was reported to have grown $127 in this report. The household savings rate was unchanged, and it remains down from the first quarter of 2016. It is important to keep this line item in perspective real per-capita annual disposable income is up only +6.61% in aggregate since the second quarter of 2008 -- a meager annualized +0.78% growth rate over the past 33 quarters. 


Submitted by James Hyerczyk on 09/16/2016

 

Inside Markets with James Hyerczyk

Uncertainty Hits Markets Ahead Of OPEC Meeting

Crude oil futures were under pressure this week after reports showed large weekly builds in U.S. petroleum products and forecasts by the International Energy Agency and OPEC indicated the global crude glut could continue to build into early 2017. 

December crude oil futures fell on the news and are expected to finish the week lower. Gasoline futures posted an inside range and are in a position to close the week higher. Heating oil futures also survived negative news and are within striking distance of finishing the week unchanged. 

On paper, the Energy Information Administration’s report for the week-ending September 9 looked bullish for crude oil and bearish for the products, but that assessment isn’t showing up on the charts. 

What the charts do show are markets trying to hold on to the bullishness from the first half of the year. I can’t see a bear market developing despite the new forecasts, but I do see evidence that traders are looking forward enough to realize that there is hope for stabilization of production and that eventually this supply glut will go away or at least become contained. 

The price action also seems to suggest that traders have become immune to the government and private sector reports. This may be why the markets have been rangebound. The theme seems to be, “hold the market in a range then react to the reports then hold the market in a range”. 

It could just be the OPEC meeting at the end of the month that is encouraging traders to maintain the two-sided trade. Perhaps the bigger players just don’t want to get in the way of this meeting just in case it contains surprises. 

That’s probably the best excuse for this choppy price action. After all, we’re also seeing the same price action in the equity markets ahead of next week’s Fed meeting. It seems at times that there is so much information coming out to supposedly guide traders in the right direction, but all it’s causing is analysis paralysis. 

TECHNICAL ANALYSIS

Weekly December Crude Oil

 

 

Submitted by Zainab Calcuttawala for Oilprice.com on 09/07/2016


9-8-2016 5-51-15 PMOilfield services, shipbuilders and other industries that rose with the pre-2014 oil price boom have had it hard. Since barrel rates fell, their previous patrons have become uninterested in doling out major purchase orders, leaving oil and gas equipment manufacturers without revenues.

A recent report by Arkansas Online says the energy industry's support sector could feel the effects of low oil prices for up to two years after the current bear market recovers.

"When oil gets good again we will be the last to get back to work" because half the fleet available is not currently in use, Vance Breaux Jr., a boat manufacturer from Louisiana, said.

Louisiana's rig count has shrunk to 35 active sites as of last week – down 40 from the same time last year, according to Baker Hughes latest report on the matter.

Currently, Breaux and his industry compatriots lack diversification in their client profile. Production sites with easy-to-reach oil and gas deposits are running out in Louisiana, but the weak investment climate prevents energy firms from starting new projects, making it difficult for equipment manufacturers to generate revenues.

In other parts of the country, bargain hunters are snagging expensive oil and gas equipment at auctions for a fraction of their original cost.

"Everyone says we're crazy, but we're hoping to capitalize on the downstroke," Shawn Kluver, a buyer in the market for a hydro excavator truck, told USA Today last year.

Kluver flew to Colorado from North Dakota to compete with more than 3,000 bidders for a rock-bottom price on backhoes, bulldozers, trucks and other heavy equipment.



Submitted by Richard Davis on 08/26/2016

In their second estimate of the US GDP for the second quarter of 2016, the Bureau of Economic Analysis (BEA) reported that the growth rate was +1.09%, down -0.12% from their previous estimate but up +0.26% from the prior quarter. None of the revisions was statistically significant, with the largest line item revision (governmental spending) changing by a mere -0.11%. 

The ongoing trend of commercial weakness offset by consumer spending growth was confirmed. This estimate reported continued slow contraction in commercial fixed investment (-0.42%), inventories (-1.26%) and governmental spending (-0.27%). Meanwhile consumer spending on goods (+1.52% growth) and services (+1.42%) remained strong. 

The BEA's treatment of inventories can introduce noise and seriously distort the headline number over short terms -- which the BEA admits by also publishing a secondary headline that excludes the impact of inventories. The BEA's "bottom line" (their "Real Final Sales of Domestic Product") was a +2.35% growth rate, up 1.11% from 1Q-2016. 


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