Category Archives: Economy

International Cargo On US Great Lakes Plunge 7% YoY

World trade in 2019 expanded at its weakest year since 2009. Significant macroeconomic headwinds started to slow the global economy in late 2017, several quarters before the trade war began. We’ve covered the main shipping lanes from the U.S. to China and China to the U.S., along with other routes from Europe to China and China to other Asian countries, but new trade data has shown international cargo on the U.S. Great Lakes also plunged last year. 

Cargo hauled across the Atlantic Ocean through the St. Lawrence Seaway to Great Lakes ports plunged 7% Y/Y last year, reported The Times of Northwest Indiana

Trade officials attributed the steep decline in cargo volumes on the trade war, high waters that made some regions impassible, and adverse weather conditions that weighed on grain exports. 

“The challenges of the 2019 shipping season underline the critical importance of protecting the future integrity of the Great Lakes-St. Lawrence waterway as a reliable and efficient trade and transportation corridor for the United States and Canada,” said Bruce Burrows, president of the Chamber of Marine Commerce.

“High water levels are negatively impacting residents and businesses, including the marine shipping sector that transports cargo through the St. Lawrence Seaway, and we need to work together with the International Joint Commission and governments to conduct a proper study into water levels and their causes, and to develop a resiliency plan that can address stakeholder needs into the future.”

Burrows said the Great Lakes-Seaway transportation system supports more than 238,000 jobs and $35 billion in economic activity for North American economies. 

Canada and U.S.’ annual growth rate has rapidly slowed since 1H18 — as a manufacturing recession continues to deepen. With no signs of abating in early 2020 – international cargo volumes across the Great Lakes could see persistent weakness in the coming quarters. 

As for world trade, the expectation of a V-shape recovery in 2020 could be more of fantasy as global equities have already priced-in a massive rebound. The world has likely entered a U-shape recovery as low-growth becomes the new normal.

Source: ZeroHedge

The Zombification Of America – Over 40% Of Listed Companies Don’t Make Money

It’s absolutely stunning how the Fed/ECB/BoJ injected upwards of $1.1 trillion into global markets in the last quarter and cut rates 80 times in the past 12 months, which allowed money-losing companies to survive another day. 

The leader of all this insanity is Telsa, the biggest money-losing company on Wall Street, has soared 120% since the Fed launched ‘Not QE.’

Tesla investors are convinced that fundamentals are driving the stock higher, but that might not be the case, as central bank liquidity has been pouring into anything with a CUSIP

The company has lost money over the last 12 months, and to be fair, Elon Musk reported one quarter that turned a profit, but overall – Tesla is a black hole. Its market capitalization is larger than Ford and General Motors put together. When you listen to Tesla investors, near-term profitability isn’t important because if it were, the stock would be much lower. 

The Wall Street Journal notes that in the past 12 months, 40% of all US-listed companies were losing money, the highest level since the late 1990s – or a period also referred to as the Dot Com bubble.

Jay Ritter, a finance professor at the University of Florida, provided The Journal with a chart that shows the percentage of money-losing IPOs hit 81% in 2018, the same level that was also seen in 2000. 

The Journal notes that 42% of health-care companies lost money, mostly because of speculative biotech. About 17% of technology companies also fail to turn a profit. 

A more traditional company that has been losing money is GE. Its shares have plunged 60% in the last 42 months as a slowing economy, and insurmountable debts have forced a balance sheet recession that has doomed the company. 

Data from S&P Global Market Intelligence shows for small companies, losing money is part of the job. About 33% of the 100 biggest companies reported losses over the last 12 months. 

Among the smallest 80% of companies, there has been a notable rise in money-losing operations in the last three years.

“The proportion of these loss-making companies rose after each of the last two recessions and didn’t come down again afterward. The story should be familiar by now: Many small companies are being dominated by the biggest corporates, squeezing them out of markets and crushing their ability to invest for growth,” The Journal noted.

And while central bank liquidity has zombified companies, investors are already starting to make a mad dash out of trash into companies that turn a profit ahead of the next recession.

Source: ZeroHedge

The Top 1% Are Much Happier & Content With Their Lives, Study Finds

Well, what do you know: It looks like money really can buy happiness. 

For years, the conventional wisdom in American culture has been that the rich have their own set of issues that are under appreciated by the rest of the population. This was perhaps best summed up by rapper Biggie Smalls in his hit song “Mo’ Money, Mo’ Problems.” 

But despite cultural taboos about high-paying, high-pressure jobs leading to substance abuse, divorce and familial ruin, one recent study found that the highest-earning Americans actually reported feeling both happier and more fulfilled on a day-to-day basis.

Here’s more on the study from The Washington Post: Adults in the top 1% of U.S. household income (i.e. those who earn at least $500,000 a year) have “dramatically different life experiences” than everyone else, according to a survey sponsored by NPR, the Robert Wood Johnson Foundation, and the Harvard T.H. Chan School of Public Health. 

A full 90% of the 1% say they are “completely” or “very” satisfied with their lives in general. That compares with two-thirds of middle-income households – those earning $35,000 to $99,000 a year – and 44% of low-income households – ie those in the $35,000 a year or less bracket. 

Even more impressive: The share of 1%-ers expressing “dissatisfaction” with their lives is statistically zero. 

As WaPo explains, because the top 1% of US earners represents such a small subset of people, it’s typically difficult to gain insight into their thoughts and feelings via polling. 

Previous studies showed that money makes a big difference in an individual’s level of happiness, but that the effect starts to weaken once an individual starts earning a little bit more than $75,000. 

But apparently, as this latest study shows, although the rich might not be much happier on a day-to-day basis, individuals earning more than $500,000 a year are typically much more content with their lives.

Inside the top 1%, for example, some 97% say that they’ve already obtained the “American Dream”, as the respondent defines it, or are actively working toward it. Among low-income adults, by comparison, some 4 in 10 believe the American Dream is completely out of their reach.

Source: ZeroHedge

IRS Audits Plummet To Lowest Level In Four Decades

Individual US taxpayers are half as likely to get audited than they were in 2010, according to the Wall Street Journal, which notes that IRS tax enforcement has fallen to the lowest level in at least four decades.

In FY 2019, the agency audited just 0.45% of all personal income-tax returns, down from 0.59% in 2018 – marking eight straight years of declining reviews. In a Monday report, the IRS said that in 2010, 1.1% of tax returns were audited. The report did not provide details on audits by income category, or how much revenue has been recovered from the enforcement (or lack thereof).

According to the Journal, years of budget cuts and a heavier workload are to blame for the steady erosion of audit – which, experts say, is depriving the Treasury of billions of dollars while budget deficits rise.

The IRS budget is about 20% below the 2010 peak in inflation-adjusted dollars, according to the Congressional Budget Office. During that time, Congress has given the agency more responsibility, including the implementation of the 2010 health care law and the 2017 tax law.

In Monday’s report, the IRS said the agency had lost almost 30,000 full-time positions since fiscal 2010, in areas including enforcement and criminal investigation. It now has about 78,000 workers and has been hiring over the past year. But the agency also projects that up to 31% of remaining workers will retire within the next five years. –Wall Street Journal

“The audit rate reported for 2019 was less than half of what it was in 2010, underscoring the depleted state of the IRS enforcement function, which urgently needs to be rebuilt,” said Chuck Marr, director of federal tax policy at the Center on Budget and Policy Priorities, a progressive group in Washington.

Investing in enforcement and tightening rules could generate about $1 trillion over a decade, according to Harvard University economist Lawrence Summers, who served as Treasury secretary in the Clinton administration, and University of Pennsylvania professor Natasha Sarin. The government estimates that each additional dollar spent on tax enforcement could yield more than $4 in revenue, and Democratic presidential candidates have made increasing IRS funding part of their agenda. –Wall Street Journal

Cuts to the IRS budget began after Republicans won a majority in the House of Representatives in 2010, and was further reduced after the Obama administration’s IRS targeting scandal in which the agency admitted in 2013 that it had given improper scrutiny to conservative nonprofit groups.

According to Trump-appointed IRS commissioner Charles Rettig, the administration has been trying to find new ways of remaining aggressive for tax-dodgers by using data analytics.

“Our compliance employees have a commitment to fraud awareness as we continue our enforcement efforts in the offshore and other more traditional compliance-challenged arenas,” writes Rettig in Monday’s report. “We want to maintain a visible, robust enforcement presence as we continue to explore innovative strategies and techniques in support of our mission.”

Source: ZeroHedge

American Consumers, Not China, Have Been Eating Trump’s Trade Tariffs All Along

New York Fed and academic researchers found that U.S. consumers and companies have borne the brunt of the president’s trade war.

WASHINGTON — American businesses and consumers, not China, are bearing the financial brunt of President Trump’s trade war, new data shows, undermining the president’s assertion that the United States is “taxing the hell out of China.”

“U.S. tariffs continue to be almost entirely borne by U.S. firms and consumers,” Mary Amiti, an economist at the Federal Reserve Bank of New York, wrote in a National Bureau of Economic Research working paper. The other authors of the paper were David E. Weinstein of Columbia University and Stephen J. Redding of Princeton.

Examining the fallout of tariffs in data through October, the authors found that Americans had continued paying for the levies — which increased substantially over the course of the year. Their paper, which is an update on previous research, found that “approximately 100 percent” of import taxes fell on American buyers.

The findings are the latest evidence that voters and American businesses are paying the cost of Mr. Trump’s penchant for using tariffs to try to rewrite the terms of trade in favor of the United States.

Manufacturing is slumping, a fact economists attribute at least partly to uncertainty stemming from the trade spats, and business investment has suffered as corporate executives wait to see how — or if — the tensions will end.

The United States and China have reached a trade truce and are expected to sign an initial deal this month, but tariffs on $360 billion worth of Chinese goods will remain in place. The levies, which are as high as 25 percent, have forced some multinational businesses to move their operations out of China, sending operations to countries like Vietnam and Mexico.

Mr. Trump and his supporters say that the United States had no choice but to resort to tough tactics to try to force China to abandon unfair economic behaviors, like infringing on American intellectual property and providing state subsidies to Chinese firms. And Mr. Trump has continued to incorrectly assert that China — not American companies and consumers — is paying the cost of the tariffs.

Tariffs may have worked as a negotiating chip to get China to the table, but recent academic research shows that leverage has come at a steep price for some American businesses and consumers.

The authors of the latest study used customs data to trace the fallout, examining import values before and after the tariffs. The research showed that the tariffs had little impact on China.

“We’re just not seeing foreigners bearing the cost, which to me is very surprising,” Professor Weinstein said in an interview.

They also found a delayed impact from the tariffs, with the decline in some imports roughly doubling on average in the second year of the levies.

That is because “it takes some time for firms to reorganize their supply chains so that they can avoid the tariffs,” the authors write.

Reaction to the tariffs has varied across business sectors, however. In the steel industry, for example, companies that export to the United States have dropped their prices — suggesting that other countries are in fact paying “close to half” of the cost of tariffs, according to the paper.

Because China is only the 10th-largest steel supplier to the United States, though, exporters in the European Union, Japan and South Korea are most likely bearing much of that cost. And as foreign prices drop, domestic steel production has barely budged, which bodes poorly for hiring in the United States steel industry, the authors note.

“The steel industry isn’t getting that much protection, as a result,” Professor Weinstein said.

In previous research, the authors found that by December 2018, import tariffs were costing United States consumers and importing businesses $3.2 billion per month in added taxes and another $1.4 billion per month in efficiency losses. They did not update those numbers in the latest study.

Their analysis joins a growing body of research examining the effects of the escalating tariffs Mr. Trump has imposed since the beginning of 2018.

A study released in late December by two economists at the Fed, Aaron Flaaen and Justin Pierce, found that any positive effects that tariffs offered American companies in terms of protection from Chinese imports were outweighed by their costs. Those costs include the higher prices companies must pay to import components from China, and the retaliatory tariffs China placed on the United States in response, the economists said.

Another study, published in October by researchers at Harvard University, the University of Chicago and the Federal Reserve Bank of Boston, also found that almost all of the cost of the tariffs was being passed on from businesses in China to American importers.

The October study found that the situation was not the same for the tariffs that China has placed on American goods in retaliation. The researchers found that American businesses had less success passing on the costs of those tariffs to Chinese importers, most likely because of the types of goods being sold.

Many of the products that the United States sells to China are undifferentiated commodities, like agricultural goods, but China sends many specialized consumer goods like silk embroidery, laptops and smartphones to the United States. China can easily swap Brazilian soybeans for American ones, but the types of goods that China sends to the United States are harder for American businesses to substitute, the researchers said.

Ms. Amiti’s colleagues at the New York Fed have traced the costs of tariffs in other research. Their study similarly found that import prices on goods coming from China had remained largely unchanged as tariffs rolled out, and argued that already-narrow profit margins — ones that leave no room for cutting — and a dearth of competitors could be among the factors insulating Chinese exporters.

Source: by Jeanna Smialek | The New York Times

Consumer Confidence Disappoints As Hope Fades

Following the headline decline for Conference Board Consumer Confidence in November, analysts are expecting an exuberant bounce in December as every asset class rose majestically (despite retail sales slowing).

But, despite record high stocks, the headline consumer confidence data disappointed, printing 126.5 (down from the upwardly revised 126.8) and well below the hopeful 128.5 expected.

While the Present Situation picked up modestly, the Future Outlook weakened:

  • Present situation confidence rose to 170.0 vs 166.6 last month
  • Consumer confidence expectations fell to 97.4 vs 100.3 last month

Combining for the 4th monthly headline drop in the last 5…

Source: Bloomberg

Interestingly, this is the 4th straight month of YoY declines in confidence…

Source: Bloomberg

And expectations for stock market gains also faded…

Source: Bloomberg

Isn’t the whole point of The Fed to pump enthusiasm up “by whatever means”?

Source: Bloomberg

It’s not working!

Source: ZeroHedge

Dallas Fed Contracts For 3rd Straight Month, Confirming Regional Survey Slump

The Dallas Fed conducts recurring surveys of over 900 business executives in manufacturing, services, energy, and AG lending across Texas and the broader Eleventh Federal Reserve District. The information collected is a valuable component of regional economic analysis.

Against expectations of a rebound to 0.0, The Dallas Fed Manufacturing Outlook survey disappointed in December, sliding from -1.3 to -3.2 – in contraction for the 3rd straight month…

The Dallas Fed survey has been in contraction for 7 months this year…

Under the hood was just as unimpressive with New Orders Growth rate contracting and Finished goods contracting along with the six-month outlook dropping further.

Dallas joins, Philadelphia, Kansas, Chicago, and Richmond in their regional weakness in December…

But, but , but, The Fed is on hold!?

Source: ZeroHedge