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Paul Krugman Admits He “Got Inflation Wrong” But Stands By “Transitory” Narrative

Paul Krugman Admits He "Got Inflation Wrong" But Stands By "Transitory" Narrative

Authored by Tom Ozimek via The Epoch Times,

Paul Krugman, Nobel-prize winning economist and New York Times columnist, has conceded that his prediction that…

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Paul Krugman Admits He "Got Inflation Wrong" But Stands By "Transitory" Narrative

Authored by Tom Ozimek via The Epoch Times,

Paul Krugman, Nobel-prize winning economist and New York Times columnist, has conceded that his prediction that the inflationary wave now battering American households would be benign was wrong and he “didn’t see the current surge coming,” though he continues to see the upward price pressures as “transitory.”

Krugman made the admission in a series of posts on Twitter, which come days after Labor Department data showed consumer price inflation vaulted to an over-the-year 6.2 percent in October, the highest pace in nearly 31 years.

“I got inflation wrong,” Krugman wrote. “I didn’t see the current surge coming.”

Offering an explanation, Krugman said he “didn’t think the fiscal stimulus early this year would boost demand as much as Summers et al predicted,” he added referring to former Treasury Secretary Larry Summers, who was early to sound the alarm on the current bout of surging prices and has been a vocal critic of the Fed’s easy-money policies.

Summers said in a CNN interview last week that, unless the Fed makes a significant change to policy or an “accident” delivers a major disruptive blow to the economy, it’s “quite unlikely” the rate of inflation will fall back to the central bank’s 2 percent target in the foreseeable future. His remarks dealt another blow to the “transitory” inflation narrative that Krugman has vocally defended in the past and, in his recent posts on Twitter, made clear he has not abandoned.

“What’s happened, however, is that we’ve faced supply constraints, both supply-chain issues in meeting huge demand for durable goods and withdrawal of workers from the labor force, i.e. Great Resignation,” Krugman wrote.

The pandemic-related shift in buying behavior led to a rotation of spending from services to goods, with many products seeing a sharp run-up in prices. This has been exacerbated by supply-side constraints, like a lack of semiconductors, a factor widely blamed for the surging prices in used cars, for example.

A used car dealership in Annapolis, Md., on May 27, 2021. (Jim Watson/AFP via Getty Images)

The labor force participation rate, meanwhile, stood at 61.6 percent in October, well below the pre-pandemic level of 63.6 percent in February 2020 and far off the historical peak of 67.3 percent in April 2000, providing an illustrative data point for the current labor shortage that has led businesses to boost wages to attract workers.

“This doesn’t say that the inflation will necessarily be transitory, although I think that’s still the best bet,” Krugman said.

“But it is important to realize that the story is more complicated than excessive stimulus,” Krugman wrote, while sharing an analysis by economist Matthew C. Klein on his blog The Overshoot, titled “The Case for Patience on Inflation.”

“This is a very good analysis of where we appear to be at right now,” Krugman wrote, with Klein making the case in his post that the current price pressures remain “confined to the same batch of idiosyncratic sectors that have been driving inflation all year.”

“Moreover, measures of actual consumer behavior suggest that Americans are responding to higher prices not by hoarding in anticipation of even more inflation, but by postponing their spending in the expectation that affordability will improve,” Klein wrote.

“The risk is that consumers and businesses start believing that even bigger price increases are coming in the future—and adjust their behaviors in response. That would eventually lead to hoarding, tightening financial conditions, less production, and shortages,” he argued.

“Fortunately, that doesn’t seem to be happening—yet,” Klein wrote.

But with prices running high and little sign of immediate relief, consumer expectations for what the rate of inflation will be in the future have risen to all-time highs.

The New York Fed’s most recent consumer inflation expectations survey showed that short-term (one year ahead) inflation expectations rose in October to 5.7 percent, the highest reading in the history of the series. The medium-term (three years ahead) inflation expectations remained unchanged from the prior month’s level of 4.2 percent, which was a record high.

Bond markets, too, are pricing in a more persistent bout of inflation that the “transitory” camp—including Fed policymakers and Biden administration officials—believe. A key measure of the bond market’s expectations for upward price pressures over the next five years, known as the five-year breakeven inflation rate, surged to an all-time high of 3.113 percent on Nov. 10, the day government data was released showing consumer price inflation rising at its fastest annual rate since 1990.

The sharp rise in the bond market-derived gauge suggests that investors expect inflation to average over 3 percent a year for the next five years and that upward price pressures will be more persistent than the Fed’s “transitory” expectations, potentially forcing the central bank to accelerate its timetable for a rate hike.

Former Treasury Secretary and Harvard Professor Larry Summers makes remarks during a discussion on low-income developing countries at the annual IMF and World Bank Spring Meetings in Washington on April 13, 2016. (Mike Theiler/AFP via Getty Images)

Summers told CNN in the interview that he believes the labor market is tight and loose monetary policy is counterproductive.

“We’ve got to recognize our problem is not that not enough people have jobs,” Summers told the outlet.

“The current problem is that we are pushing demand into the economy faster than supply can grow and that we are just going to get more and more inflation until we stop doing that,” he said.

“That’s the real problem,” Summers added, with his remarks coming nearly two weeks after the Fed’s policy-setters met and voted to start phasing out the central bank’s $120 billion in monthly asset purchases by around $15 billion per month, while leaving monetary policy broadly accommodative, saying it’s not yet time to start hiking interest rates.

Summers called for a faster taper of the bond-buying program, urging for it to be phased out over three months, not eight.

Tyler Durden Wed, 11/17/2021 - 10:00

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Economics

FT-IGM US Macroeconomists Survey for December

The FT-IGM US Macroeconomists survey is out (it was conducted over the weekend). The results are summarized here, and an FT article here (gated). Here’s some of the results. For GDP, assuming Q4 is as predicted in the November Survey of Professional…

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The FT-IGM US Macroeconomists survey is out (it was conducted over the weekend). The results are summarized here, and an FT article here (gated). Here’s some of the results.

For GDP, assuming Q4 is as predicted in the November Survey of Professional Forecasters, we have the following picture.

Figure 1: GDP (black), potential GDP (gray), November Survey of Professional Forecasters (red), November SPF subtracting 1.5ppts in Q1, 05ppts in Q2 (blue), FT-IGM December survey (sky blue squares), all on log scale. FT-IGM GDP level assumes 2021Q4 growth rate equals SPF November forecast. NBER defined recession dates peak-to-trough shaded gray. Source: BEA 2021Q3 2nd release, Philadelphia Fed November SPF, FT-IGM December survey, and author’s calculations.

In the figure above, I’ve used the SPF forecast of 4.6% SAAR in 2021Q4; the Atlanta Fed’s nowcast as of yesterday (12/7) was 8.6% SAAR. A new nowcast comes out tomorrow.

Interestingly, q4/q4 median forecasted growth equals that implied by the Survey of Professional Forecasters November survey (which was taken nearly a month before news of the omicron variant came out).

The q4/q4 forecast distribution for 2022 is skewed, with the 90th percentile at 5% growth, the 10th percentile at 2.5%, and median at 3.5%. I show the corresponding implied levels of GDP (once again assuming 2021Q4 growth equals the SPF ).

Figure 2: GDP (black), November Survey of Professional Forecasters (red), FT-IGM December survey (sky blue squares), 90th percentile and 10th percentile implied levels (light blue +), my median forecast (green triangle), all on log scale. FT-IGM GDP level assumes 2021Q4 growth rate equals SPF November forecast. NBER defined recession dates peak-to-trough shaded gray. Source: BEA 2021Q3 2nd release, Philadelphia Fed November SPF, FT-IGM December survey, and author’s calculations.

On unemployment, the median forecast is for a deceleration in recovery,

Figure 3: Unemployment rate (black), November Survey of Professional Forecasters (red), FT-IGM December survey (sky blue square), 90th percentile and 10th percentile implied levels (light blue +), my median forecast (green triangle). NBER defined recession dates peak-to-trough shaded gray. Source: BEA 2021Q3 2nd release, Philadelphia Fed November SPF, FT-IGM December survey, and author’s calculations.

The survey respondents also think that the participation rate will take a long time to return to pre-pandemic levels.

Source: FT-IGM, December 2021 survey.

On inflation, the median is higher than the November SPF mean estimate for 2022 of 2.3% (and Goldman Sachs’ current estimate).

Source: FT-IGM, December 2021 survey.

The entire survey results are here.

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Over 170 companies delisted from major U.S. stock exchanges in 12 months

  Over the years, United States-based exchanges have remained an attractive destination for most companies aiming to go public. With businesses jostling to join the trading platforms, the exchanges have also delisted a significant number of companies….

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Over the years, United States-based exchanges have remained an attractive destination for most companies aiming to go public. With businesses jostling to join the trading platforms, the exchanges have also delisted a significant number of companies.

According to data acquired by Finbold, a total of 179 companies have been delisted from the major United States exchanges between 2020 and 2021. In 2021, the number of companies on Nasdaq and the New York Stock Exchange (NYSE) stands at 6,000, dropping 2.89% from last year’s figure of 6,179. In 2019, the listed companies stood at 5,454.

NYSE recorded the highest delisting with companies on the platform, dropping 15.28% year-over-year from 2,873 to 2,434. Elsewhere, Nasdaq listed companies grew 7.86% from 3,306 to 3,566. Data on the number of listed companies on NASDAQ and NYSE is provided by The World Federation of Exchanges.

The delisting of the companies is potentially guided by basic factors such as violating listing regulations and failing to meet minimum financial standards like the inability to maintain a minimum share price, financial ratios, and sales levels. Additionally, some companies might opt for voluntary delisting motivated by the desire to trade on other exchanges.

Furthermore, the delisting on U.S. major exchanges might be due to the emergence of new alternative markets, especially in Asia. China and Hong Kong markets have become more appealing, with regulators making local listings more attractive. Over the years, exchanges in the region have strived to emerge as key players amid dominance by U.S. equity markets. As per a previous report, the U.S. controls 56% of the global stock market value.

A significant portion of the delisted companies also stems from the regulatory perspective pitting U.S. agencies and their Chinese counterparts. For instance, China Mobile Ltd, China Unicom, and China Telecom Corp announced their delisting from NYSE, citing investment restrictions dating from 2020.

Worth noting is that the delisting of firms was initiated due to strict measures put in place by the Trump administration. The current administration has left the regulations in place while proposing additional regulations. For instance, a recent regulation update by the Securities Exchange Commission requiring US-listed Chinese companies to disclose their ownership structure has led to the exit of cab-hailing company Didi from the NYSE.

Impact of pandemic on the listing of companies

The delisting also comes in the wake of the Covid-19 pandemic that resulted in economic turmoil. With the shutdown of the economy, most companies entered into bankruptcies as the stock market crashed to historical lows.

Lower stock prices translate to less wealth for businesses, pension funds, and individual investors, and listed companies could not get the much-needed funding for their normal operations.

At the same time, the focus on more companies going public over the last year can be highlighted by firms on the Nasdaq exchange. Worth noting is that in 2020, there was tremendous growth in special purpose acquisition companies (SPACs), mainly driven by the impact of the coronavirus pandemic. With the uncertainty of raising money through the traditional means, SPACs found a perfect role to inject more funds into capital-starving companies to go public.

From the data, foreign companies listing in the United States have grown steadily, with the business aiming to leverage the benefits of operating in the country. Notably, listing on U.S. exchanges guarantees companies liquidity and high potential to raise capital. Furthermore, listing on either NYSE or Nasdaq comes with the needed credibility to attract more investors. The companies are generally viewed as a home for established, respected, and successful global companies.

In general, over the past year, factors like the pandemic have altered the face of stock exchanges to some point threatening the continued dominance of major U.S. exchanges. Tensions between the US and China are contributing to the crisis which will eventually impact the number of listed companies.

 

Courtesy of Finbold.

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Economics

Stock futures open flat as Omicron concerns ease

Dow futures edged up 0.02%, while contracts on the Nasdaq Composite inched up 0.10%…
The post Stock futures open flat as Omicron concerns ease first appeared on Trading and Investment News.

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Dow futures edged up 0.02%, while contracts on the Nasdaq Composite inched up 0.10%

Stock futures opened relatively flat on Wednesday evening, though sustaining gains posted by a three-day recovery rally that was led by cooled investor concerns around the Omicron variant of the coronavirus.

Dow futures edged up 0.02%, while contracts on the tech-focused Nasdaq Composite inched up 0.10%. All major indexes closed up, with the S&P 500 adding 14.46 points to end the session at 4,701.21, just 0.5% short of the trading session on Nov. 24, a day before the latest COVID-19 variant was announced by the World Health Organization (WHO).

The moves were supported by eased virus fears after Pfizer Inc. and BioNTech reported that early lab studies show a third dose of their coronavirus vaccine mitigates the Omicron variant.

The vaccine makers had indicated the initial two doses may not be enough to protect against infection from Omicron. Shares of Pfizer (PFE) traded 0.62% lower on Wednesday, closing at $51.40.

With virus concerns diminishing, investors are pivoting their attention back to economic data, awaiting Consumer Price Index (CPI) figures on Friday to assess the extent inflationary pressures will persist.

If the Omicron variant was to lead to a resurgence in goods spending at the expense of services or to further complicate supply disruptions, there could be a clear inflationary impact, too, HSBC economist James Pomeroy wrote earlier this week in a research note to clients.

He stated: The inflation news in the past few weeks has been decidedly mixed — with upside surprises in both the U.S. and eurozone being offset by the possibility of some of the supply chain issues starting to alleviate, while energy prices have fallen sharply in recent days.

The post Stock futures open flat as Omicron concerns ease first appeared on Trading and Investment News.

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