25.6.15

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis


Consumers Come to Life in May

Posted: 25 Jun 2015 07:01 AM PDT

Consumer Spending, Income Surge in May

Consumers came to life in May, as expected by the Bloomberg Econoday Consensus Estimate.



Autos, Gasoline Lead the Way

Reports on personal income, consumer spending, PCE, and core PCE come out today. Economists got all of them correct, actually being a bit pessimistic on spending. Once again though, autos lead the way.
The consumer came to life in May, boosted by a 0.5 percent rise in personal income and helping to support a 0.9 percent surge in personal outlays that reflects heavy spending on autos and retail goods. And gains are not inflationary, at least yet, based on the very closely watched core PCE price index which edged only 0.1 tenth higher in May and is at a very benign 1.2 percent year-on-year rate which is actually down a tenth from an upward revised April.

Components on the income side are very solid with wages & salaries up 0.5 percent in the month. Both proprietors' income and rental income show especially strong gains. Spending components show special strength for durables, again tied especially to autos, and also strong gains for non-durables, here tied to higher pump prices. Spending on services once again shows an incremental gain.

Turning back to PCE prices, the overall price index looks a little hot in May at plus 0.3 percent but the year-on-year rate is unchanged at only 0.1 percent. That's right, that's the year-on-year rate at only the most incremental level of inflation. And the 1.2 percent year-on-year core appears to be moving in reverse, down 1 tenth in each of the last two reports and further away from the Fed's 2 percent target.

Consumers, in an expression of their confidence, dipped into their savings to spend, with the savings rate down 3 tenths to 5.1 percent. This is a good report for the bulls, showing a strong non-inflationary bounce for the second quarter. This report won't be keeping the doves up at night and does not move forward the Fed's coming rate hike.
For those who wish to view the actual report, here is a link to the BEA news release on Personal Income and Outlays for May 2015.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com 

Creditors Issue "Final" Ultimatum; ECB Keeps ELA Lifeline, Bundesbank Protests

Posted: 25 Jun 2015 05:59 AM PDT

Air of Finality?

I cannot possibly count the number of "final" offers nor count how many times the clock hit midnight only to have it move back to 11:58 PM.

Today, however, there finally appears to be an air of finality. We will see soon enough.

Ultimatum From Creditors

The Financial Times reports Creditors Issue Ultimatum to Greece
Greece's creditors have presented Athens with a last-ditch offer for a deal to unlock €7.2bn in desperately needed rescue aid after marathon talks failed to narrow the differences between the two sides.

Bailout monitors presented their final offer — with terms much closer to those demanded from Athens earlier this month — after Greek prime minister Alexis Tsipras failed to meet an earlier deadline to come up with acceptable concessions of his own.

Arriving for the meeting, German finance minister Wolfgang Schäuble, was gloomy about the prospects for a deal. He said there had been "not much progress" and a "big difference" remained between Greece and its creditors. It was up to the Greeks to move, he warned.

"The Greeks didn't move at all," said one senior official of the talks on Wednesday and earlier Thursday between Mr Tsipras and the heads of the European Commission, International Monetary Fund and European Central Bank.

"The level of frustration is so high. I don't see a deal," the official added. "It's looking pretty grim right now."
ECB Keeps ELA Lifeline, Bundesbank Protests

Reuters reports ECB Holds Athens Lifeline Unchanged as Bundesbank Protests.
The European Central Bank held a crucial cash lifeline for Greece unchanged on Thursday, a person familiar with the discussion said, as the head of the Bundesbank objected to the way Greek banks are being funded.

ECB policy-setters held the limit on their emergency funding for the banks steady for the second day running, a source familiar with their talks said, having previously increased it steadily over many weeks.

Greece's central bank may not have asked for an increase, though the country's lenders have seen their reserves dwindle daily as savers spooked by the prospect of default continue to withdraw cash. It is not clear how much longer they can cope without further hikes in such funding back-up.

It comes as Bundesbank President Jens Weidmann gave his strongest criticism yet of the use of emergency credit to prop up Greece's banks. Weidmann said those banks should not continue to buy the short-term debt of their government.

"The Eurosystem must not provide bridge financing to Greece even in anticipation of later disbursements," said Weidmann, who also sits on the European Central Bank's Governing Council, which approves such funding - dubbed Emergency Liquidity Assistance (ELA) - to Greece.

"When banks without access to the markets buy debt of a sovereign which is likewise locked out of the market, taking recourse to ELA raises serious monetary financing concerns," he said at a conference in Frankfurt.

As president of the Bundesbank, Weidmann also sits on the ECB's Governing Council, which holds daily phone calls to discuss the extension of ELA. This group can restrict such funding if a two-thirds majority agrees.
What Does it Matter?

At this point it hardly matters whether the ECB keeps the ELA for another few days or not. Capital flight has been intensive for months on end. Withdrawals  have been about a billion euros a day so we are talking about another few billion euros or so, assuming of course, there really is a deadline to this ultimatum.

I suspect the ECB is still holding the lifeline so that the eurogroup finance ministers take the blame rather than the ECB.

The stalling tactics of Greece were impressive if this was the plan all along.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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