The Economic Data calendar for the week of the 2nd of September through the 6th is full of critical releases and events.  Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.



USD: That's What Matters

What's going on right now with the US dollar is of paramount importance. It could be the 1st, 2nd and 3rd most important thing in my notebook.


In case you hadn’t noticed, USD is up for the third consecutive week now. It's holding its higher-lows vs June and knocking the Yen solidly back into a Bearish Formation.


USD: That's What Matters - drake1


Here's the Hedgeye formula: #StrongDollar + #RatesRising = good things for the TREND that is growth stocks rising in the USA.


Bottom line? Keep a close eye on the dollar. Thank you for your support and have a great Labor Day weekend.


(Editor's note: This is an excerpt from Hedgeye CEO Keith McCullough's investment research. For more information on how you can subscribe to Hedgeye research, please click here.)

July Consumer Spending: Expectedly Light

Total Income - Savings = Capacity for Consumption


The simplicity of the above identity belies the gravity of the economic impact it holds for a domestic economy still beholden to consumption for 70% of GDP.  


Today’s preliminary estimates from the BEA showed Personal Income and Spending both grew 0.1% MoM in July while the Saving Rate held at 4.4%.  


On the income side, both personal and disposable income growth decelerated MoM but accelerated modestly on a YoY basis with Government sourced income serving as a discrete drag on DPI.  


On the spending side, spending growth on Non-durables accelerated on both a MoM and YoY basis while decelerating for both Services and Durables on that same basis. (see table below for a detailed breakdown).


We weren’t expecting upside in either metric and wouldn’t view today’s numbers as surprising nor necessarily negative. 


We’ve highlighted that upside in income growth, and consumer spending growth by extension, in 3Q13 would be constrained (i.e. positive, but hard to model any material incremental acceleration) primarily by negative government salary and wage growth driven by the combination of ongoing job loss at the federal level and the implementation of furloughs for some 700K+ employees which began in July. 


In its release of the personal income data, the BEA breaks salary & wage data down into private & government components.  The government figure is an aggregate number (Federal + State + Local) that doesn’t parse the federal component separately – complicating getting a clean read on sequestrations impacts on income in isolation.  On balance, however, growth in aggregate government sourced income is tracking in line with expectations. 


Previously (Consumption Check - Is Good, Good Enough?) we estimated aggregate government salary and wage income would decline 1.0% YoY in 3Q13.  The first, preliminary data point for 3Q13 shows income from government declining -54bps MoM and -41bps YoY  – accelerating -40bps sequentially from -0.0% YoY growth estimated in June.  The math underneath our baseline estimate, which we reprise below, is fairly straightforward: 


There are currently 2.75M federal employees, which represents 2.0% of the NFP workforce.  A continuation of current trends in Federal government employment growth alongside a 20% paycut for ~27% of the Federal workforce equates to a 7.2% decline in aggregate pre-tax income YoY.   Stated different, the collective impact of the furloughs and employment growth at the federal level should equate to a ~7% decline in income for 2% of the total workforce as we move through 3Q.


State & Local government employment growth went positive in May for the first time in 5 years.  Continued, positive job growth at the state/local level could serve as an offset to accelerating declines in federal employment and income growth.  Collectively, Federal, State, & Local government employment currently represents 16.1% of total payrolls.   Layering on an assumption of modest, but accelerating state & local gov’t employment growth to the furlough and employment related pressure at the Federal level, the net impact is ~1.2% negative aggregate income growth for 16% of the employment base.   


In short, negative income growth for 16% of the workforce will serve to constrain the potential for acceleration in personal disposable income growth, and aggregate consumption growth by extension, in 3Q13.


To put today’s data in slightly broader context:  The labor market data has been positive as the trajectory in the Initial Jobless claims data has been excellent and BLS reported employment gains have been moderate-to-good.  


Hours worked has been largely flat, nominal and real wage growth in the private sector has been muted, federal government employment growth remains in retreat (offset by state & local employment growth which has now gone positive after 5 years of negative growth) and fiscal policy will remain a discrete drag over the balance of the fiscal year.    


On average, the domestic macro data remains good on an absolute basis and is still better than good relative to other sovereigns – which keeps the “is good, good enough?”  question a relevant one as it relates to domestic equity exposure.


Alongside decent economic data and the still nascent phase shift in capital flows to equities (US equities in particular), will the market continue to look past middling consumer spending growth over the next few months with an eye towards a diminishing fiscal drag and easy compares as we annualize the sequestration and the tax law changes in early 2014?  At present, we’re still leaning towards yes. 


Domestic #GrowthAccelerating out of the 4Q12 trough has played out thus far in 2013 and, while we still like the intermediate term outlook for U.S. growth, the arb vs. consensus growth expectations isn’t overly asymmetric here and growth in consumption faces some constraints in the immediate term.   


From an investment perspective, we still like domestic, pro-growth style factor exposure, but we’re not expecting much upside in the reported consumer income/spending data in the very near term. 


July Consumer Spending: Expectedly Light - Income   Spending july



Christian B. Drake

Senior Analyst 

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Hedgeye Risk Management CEO Keith McCullough weighs in with his latest thoughts on the markets and why the US Dollar looms large in his notebook. 


Morning Reads on Our Radar Screen

Takeaway: A quick look at some stories on our radar screen.

Keith McCullough – CEO

Dollar hits three-week high (via Reuters)

U.K. Mortgage Approvals Rise to Highest Since March 2008 (via Bloomberg)

Japan seeks biggest defense budget rise in 22 years (via Reuters)

Age-Related Forgetfulness Tied to Diminished Brain Protein (via Bloomberg)


Morning Reads on Our Radar Screen - usd1


Todd Jordan – Gaming

Naming and shaming: Macau website targets deadbeat gamblers (via Reuters)


Jonathan Casteleyn – Financials

Treasuries Head for Fourth Monthly Loss Amid Fed Taper Prospects (JC note: The only way to stop the continued losses in the Treasury market is to close the market for Labor Day … via Bloomberg)


Josh Steiner – Financials

Bank of America lays off 1,000 in Beachwood; bank closes 3 mortgage offices in Ohio (via

New York to Seattle Buyers Tap Brakes After Rates Rise (via Bloomberg)


Howard Penney – Restaurants

Potbelly files for $75 million IPO (via NRN)

Chipotle Mexican Grill names Kimbal Musk to board (via Sacramento Bee)

Taylor Farms, Big Food Supplier, Grapples With Frequent Recalls (via NYT)


On Wednesday, September 4th at 11:30am EDT, please join the Hedgeye Macro Team for a ~15min conference call titled “Paddling Upstream?: Navigating #EmergingOutflows”. On the call, Senior Analyst Darius Dale will host a live Q&A session regarding recent developments in EM financial markets and our outlook for those asset classes and the economies that underpin them.



  • We think a protracted tightening of global credit conditions driven by sustained USD appreciation and a back-up in US interest rates will weigh on growth in EM fixed investment via an inflection(s) in portfolio and FDI flows. That same tightening will also weigh on growth in EM consumption via an inflection in purchasing power as overvalued EM currencies continue to mean revert lower.
  • Moreover, we think global asset allocators in developed markets are simply running out of places to direct marginal investment flows and growth assets priced in a strengthening USD are one of the few places that remain attractive on a go-forward basis. The resurgence of European capital markets and a resumption of JPY-induced Japanese equity reflation also supports a continuation of the DM vs. EM bifurcation that we have seen accelerate in 2013. Thus, our #EmergingOutflows thesis should continue to play out in spades.
  • Lastly, we think the impact on China’s secular economic slowdown will weigh heavily upon EM economic growth, as China’s credit-fueled fixed assets investment bubble has been a primary driver of marginal demand for many/most of the larger emerging market economies’ exports. In particular, the policy-induced unwind of said bubble should sustainably slow export and FDI growth across key commodity-producing countries.


CLICK HERE to download today’s 80-slide presentation; we look forward to fielding any follow-up questions you might have on next week’s call.




  • CONFERENCE CALL & PRESENTATION: Q2 2013 MACRO THEMES (4/16): #EmergingOutflows: Consistent with our call for continued U.S. dollar strength and commodity deflation, we think the very early innings of the next round of emerging market crises is upon us. Sustained USD appreciation exposes EMEs to a variety of economic risks that asset allocators have not had to appropriately discount for over a decade.
  • CONFERENCE CALL & PRESENTATION: EMERGING MARKET CRISES: INDENTIFYING, CONTEXTUALIZING AND NAVIGATING KEY RISKS IN THE NEXT CYCLE (4/23): We currently see a pervasive level of risk across the emerging market space at the country level and have quantified which countries are most vulnerable. As such, we find it prudent for investors to reduce their allocations to emerging market equity and currency risk in favor of US equity and US dollar exposure. #StrongDollar and commodity price deflation have been and should continue to be key catalysts for EM underperformance.
  • EXPERT CONFERENCE CALL & PRESENTATION: WILL CHINA BREAK? (4/29): We co-hosted a conference call with our Industrials Team, led by Managing Director Jay Van Sciver, featuring Carl Walter, co-author of Red Capitalism: The Fragile Financial Foundations of China's Extraordinary Rise (2012). The Party’s use of state owned banks to drive economic growth through fixed asset investment has left the financial system loaded with bad assets. The bad assets mirror bad investments in the real economy. They also can limit the ability of Chinese banks to make new loans.
  • CONFERENCE CALL & PRESENTATION: ARE YOU SHORT CHINA [AND OTHER EMERGING MARKETS] YET? (6/12): We think the outlook for Chinese credit growth is structurally impaired. Moreover, we anticipate that growth in non-performing loans will accelerate sustainably over the long term. Lastly, we believe that net interest margins across the Chinese banking industry face immense regulatory headwinds that may ultimately have dire consequences for China’s fixed assets investment bubble.
  • CONFERENCE CALL & PRESENTATION: Q2 2013 MACRO THEMES (7/15): #AsianContagion: China sneezes and the rest of Asia catches the flu. #RisingRates and #StrongDollar continue to perpetuate #EmergingOutflows across the developing Asia region while a likely resurgence of positive sentiment surrounding the Abenomics agenda and continued yen weakness should help Japanese equities continue to outperform the region.




  • Toll Free Number:
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  • Conference Code: 125514#
  • Materials: CLICK HERE



For questions regarding this call or to schedule a 1x1 discussion with Darius directly, please email .   


Enjoy the long weekend with your respective families. Best regards,


The Hedgeye Macro Team

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