Congress Reaches Deal on Government Funding… Republicans and Democrats reached a deal that includes limited funding for border fencing and does not reduce the number of beds in detention facilities.
What it means – President Trump is clearly unhappy with the deal, but also seems unwilling to force another government shutdown. The compromise includes $1.37 billion for border fencing, far below the president’s request for more than $5 billion, but more than nothing, which is what House Speaker Pelosi had stated she would support.
The president has explored other ways to fund a border wall, including unused funds in other departments and an executive order declaring a national emergency. A Democrat lawsuit has already been filed challenging the declaration.
December Retail Sales Lurch Lower, Down 1.2%… Analysts had expected sales just above zero. Excluding autos, retail sales fell even sharper, down 1.8%.
What it means – The report is a month late, which usually means absolutely no one will care. But the figures were so off from expectations that people are paying attention. The dismal report removed all hopes for a strong holiday season at the end of the year and confirmed what earnings season had already shown, the U.S. consumer is slowing down.
Aside from autos, the only other sector not in the red was building materials, which is interesting because those two sectors aren’t part of normal holiday sales. Department stores took a big hit, down 3.3%, and restaurant sales also dipped, down 0.7%. One “bad is good” note, gasoline sales dropped 5.1%, reflecting lower prices, which helps consumers.
U.S. Consumer Prices Flat Again, Up 0.2% Excluding Food and Energy… Headline inflation clocked in at 0.0% for January, and up 1.6% for the year. Excluding food and energy, core inflation came in at 0.2% for the month and 2.2% for the year.
What it means – The Fed has access to government data long before we see the reports, and it seems obvious that Jay Powell and his fellow governors knew that consumer prices were well under control. The dreaded wage-driven inflation that we and others expected hasn’t arrived, and prices have moderated instead.
Without inflation, there’s little reason for the Fed to raise rates, which is why investors cheered the news. But there remains the nagging question of, “Why?” If unemployment really sits at 4%, and businesses are struggling to get workers, why isn’t pay moving higher, and therefore driving inflation due to higher consumer demand?
So far, no one can answer that question, which leaves us looking for inflation around every corner.
Eurozone Industrial Production Fell 0.9% in December, Down 4.2% for 2018… The numbers are worse than expectations, down 0.4% and 3.2%, respectively.
What it means – The ugly situation in Europe is getting worse. Both capital goods and consumer non-durable goods fell 1.5%. Consumer durable goods edged up 0.7%, but that was after falling 1.5% in November. Overall, the economic bloc is treading the unchanged level, flirting with recession. This makes ECB’s job harder just as the central bank begins contemplating the next president since Mario Draghi’s term ends this year.
Eurozone GDP Up 0.2% for the Fourth Quarter of 2018… Annualized, this equates to GDP growth of 0.8%, which is a slowdown from the 1.2% growth rate over 2018.
What it means – Economic growth in the economic bloc fell from 0.4% in the third quarter. Growth was dragged down by the typical strong man of the group, Germany, which chalked up GDP growth of 0.0%, narrowly averting recession after growth contracted by 0.2% in the previous quarter. There isn’t much on the horizon to suggest better growth ahead, especially with France battling the yellow vests and Italy mired in budget debates. At least Lithuania, Cyprus, and Latvia are expanding, with quarterly GDP growth of 1.6%, 1.1%, and 1.1%, respectively. But those countries are so small that they don’t have much of an effect on the overall numbers.
While there isn’t much to suggest growth in the future, there is a rising worry about contraction. The March 29 Brexit deadline is looming. If Britain opts for a hard Brexit, then trade disruptions between the United Kingdom and Europe could further erode GDP growth on both sides of the English Channel.
Hungary Offers Women Money and a Free Pass on Taxes to Have Children… Hungarian President Viktor Orban wants domestic women to have more children, so he unveiled a loan forgiveness and tax program to persuade them.
What it means – The government will loan $35,000 to any woman under 40 years of age, and then forgive one-third of the loan when she has her first child, two-thirds for the second, and the remaining balance for the third. If a woman has four or more children, she never has to pay taxes again. The plan sounds aggressive, but there’s no reason to believe it will work.
Other nations have tried to persuade their population to have children, from Russia’s patriotic call to do it to celebrate Russia Day, to Asian nations running dating programs.
The only proven way to increase birth rates comes from Romania, where Nicolae Ceausescu outlawed contraception and abortions. The baby population exploded, which led to overrun orphanages and runaway social costs for the government. Needless to say, it didn’t end well for Ceausescu either. Following a show trial on Christmas Day in 1989, he was executed along with his wife, Elena. They weren’t killed for their social engineering, but the program didn’t rank among their limited successes, either.
Denmark Builds a Wall… The Danes are building a wall, but it’s not to keep out illegal immigrants. Instead, they are trying to avoid a livestock disaster by keeping out feral German pigs that might carry the African Swine Flu (ASF). Danish lawmakers are concerned that an infection among Danish livestock could cause widespread disruption in their famous pork industry.
Data supplied by Dent Research/Delray Beach Publishing
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