BREAKING RISK: Fed Fights Economic Reality

Takeaway: Yellen's speech before Congress today was a nice bit of storytelling, but had little to do with the actual U.S. economy.

BREAKING RISK: Fed Fights Economic Reality - Yellen Yoda cartoon 12.01.2015

 

It's been a gangbuster year for economic storytelling. Unfortunately, most of the tall tales told have failed to come close to anything resembling reality.

 

We like a good yarn as much as the next person. But Fed Chair Janet Yellen's rate hike perpetuating speech before Congress today obfuscated so many key facts about what is actually happening in the U.S. economy that we thought we should set the record straight.

 

BREAKING RISK: Fed Fights Economic Reality - darius pmi

 

Hedgeye CEO Keith McCullough was particularly fired up discussing the #GrowthSlowing data during today’s preamble to a live Real-Time Alerts broadcast:

 

“Today we had some [economic] data that further corroborated the Hedgeye view that U.S. growth is slowing. I must say that ex-Housing and Autos, there hasn’t been any November data that hasn’t slowed. This morning’s ISM non-manufacturing data was horrible.

 

Now, earlier this year, you had all of these people who said ‘If you back out energy the economy looks fine.’ Well, now you have to back out energy, manufacturing and the consumer and then, and only then, is everything fine.

 

[Mccullough called up this chart. Click to enlarge...]

BREAKING RISK: Fed Fights Economic Reality - ism non manu

 

What you’re looking at here is a Late Cycle Slowdown.

 

You can see this month’s -2.2% Services number. It must have been the result of climate change or something. I’m going to eventually figure it out, especially, if I back out everything. But that’s the slowest number of the year. And if you didn’t know that the economy is slowing, just look at the retailers this quarter.

 

We we’re out front on this. And, to be clear, last year we were really bullish on the consumer and, coming out of 2012, we got really bullish in general. But the cycle top for U.S. consumption is corroborated by today’s ISM non-manufacturing readings.

 

Interestingly, that February top [circled in green above] was also the peak in non-farm payroll growth. So literally, both topped in February. Isn’t that amazing and ironic. Well, not so much. That is the cycle.” 

 

Here's the chart McCullough is referencing on non-farm payrolls...

BREAKING RISK: Fed Fights Economic Reality - 11.03.15 chart2

 

But the Fed is "data dependent." Right?

 

BREAKING RISK: Fed Fights Economic Reality - fed fail


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