Connect with us

Economics

Canadian Dollar Pauses 2020 Rally Against US Peer Amid Falling Crude Prices

The Canadian dollar weakened against its US peer to close out the trading week, with energy prices and producer prices coming into focus. The loonie is still on track to record a modest weekly gain against the greenback, but its overall 2020…

Share this article:

Published

on

This article was originally published by Forex News

The Canadian dollar weakened against its US peer to close out the trading week, with energy prices and producer prices coming into focus. The loonie is still on track to record a modest weekly gain against the greenback, but its overall 2020 performance in the foreign exchange markets has been remarkable.

According to preliminary estimates from Statistics Canada, the producer price index (PPI) slumped 0.6% in November, up from a 0.4% decline in October. This represented the second consecutively monthly slide. The drop in industrial producer prices was mainly driven by lower prices for lumber and other wood products.

The PPI edged up 0.1% at an annualized rate, making it the fourth straight monthly bump on a year-over-year basis.

In the third quarter, Canadian companies expanded their production capacity, bringing the capacity utilization rate to 76.5%, up from 70.7% in the second quarter. While the rate is still below pre-pandemic levels, most Canadian industries, especially manufacturing and construction, experienced a gradual recovery.

On Wednesday, the Bank of Canada (BoC) held its December policy meeting, where policymakers left interest rates unchanged at 0.25%. Officials also maintained their quantitative easing (QE) campaign with $4 billion in government and corporate bond purchases every week.

The central bank does not believe it will meet its 2% inflation target or raise rates until 2023, noting that the economic recovery will require monetary policy support for a few more years.

Lower energy commodities weighed on the loonie to finish the trading week. January West Texas Intermediate (WTI) crude oil futures fell $0.21, or 0.45%, to $46.57 per barrel. February Brent crude futures were flat at $49.98 a barrel.

Canada maintains a current account deficit, so exports are critical to economic expansion. With oil and gas remaining the country’s top exports, any change in prices — high or low — can affect the broader economy and the currency.

The Canadian bond market was red across the board. The benchmark 10-year bond fell 0.021% to 0.714%. The one-year note dipped 0.005% to 0.205%, while the 30-year bond slid 0.009$ to 1.266%.

The USD/CAD currency pair advanced 0.23% to 1.2771, from an opening of 1.2741, at 18:59 GMT on Friday. The EUR/CAD was unchanged at 1.5469.


© AndrewMoran for Forex News, 2020. | Permalink | No comment | Add to del.icio.us
Post tags: , , , , , , , , ,

Feed enhanced by Better Feed from Ozh

Economics

#EmptyShelvesJoe Trends On Twitter Amid Supply Chain Snarls 

#EmptyShelvesJoe Trends On Twitter Amid Supply Chain Snarls 

The hashtag #EmptyShelvesJoe was one of the hottest trends across Twitter…

Share this article:

#EmptyShelvesJoe Trends On Twitter Amid Supply Chain Snarls 

The hashtag #EmptyShelvesJoe was one of the hottest trends across Twitter Thursday as people en masse are waking up to the fact that international supply chains are clogged, and shortages have resulted in empty store shelves at their local retailer. 

The hashtag, number one in the US on Thursday, comes one day after President Biden issued a port directive to operate 24/7 to alleviate snarled supply chains. But the move to have Ports of Los Angeles and Long Beach, a point of entry for 40% of all US containerized goods, work in hyperdrive to alleviate congestion is "too little, too late" to save Christmas, said one top toymaker. 

Earlier this week, 80 container ships are at anchor and 64 at berths across the twin ports. The backlog doesn't stop there as it takes well more than a week for entry into the port. Once the containers are unloaded, it takes another week to leave the port to warehouses.

Those tweeting the hashtag placed most of the blame on Biden and Transportation Secretary Pete Buttigieg for their inability to normalize supply chains as congestion creates shortages of consumer goods and rapid inflation. 

An aerial visual of the backlog at the Port of Los Angeles shows tens of thousands of containers are sitting dockside. Some have said it's the lack of truck drivers that have resulted in delays. 

"Are f**king container yards are stuffed," said one Twitter user. 

As the hashtag continued to go viral on Thursday afternoon, Twitter police decided to remove it from the list of trending topics. 

"Empty store shelves" on Google Trends is also surging. 

Here are some tweets of people across the county complaining about empty store shelves and using the #EmptyShelvesJoe hashtag. 

According to the latest Rasmussen poll, "62% of Americans say they've already noticed shortages of basic items in stores where they live."

Broken supply chains, raging inflation in energy, food, and housing, and the overall cost of living getting more expensive - compound this all with shortages of consumer goods, the president's job approval number continues to tumble. 

One can assume with congested supply chains unlikely to abate anytime soon, Biden will be blamed on Twitter for ruining Christmas as certain consumer goods won't make it under the tree this year.    

Finally, just in case you wondered who was to blame for "empty shelves", here is Joe Biden himself explaining it last year... "We don't have a food shortage problem — we have a leadership problem."

Tyler Durden Fri, 10/15/2021 - 18:10
Continue Reading

Economics

Retail And Food Sales: If It’s Not Inflation, And It’s Not, Then What Is It?

OK, so we went through the ways and reasons consumer price increases are not inflation, cannot be inflation, are nowhere near actual inflation, and what…

Share this article:

OK, so we went through the ways and reasons consumer price increases are not inflation, cannot be inflation, are nowhere near actual inflation, and what all that really means. The rate they’ve gone up hasn’t been due to an overactive Federal Reserve, so it has to be something else. This is why, though the bulge has been painful, it’s already beginning to normalize. Without a persistent monetary component (in reality, not what’s in the media) the economy will adjust eventually.

It already has. Several times, and that’s part of the problem.



If not money, and it’s not, then what is behind the camel humps? No surprise, Uncle Sam’s ill-timed drops along with reasonable rigidities in the supply chain.

An Economist might call this an accordion effect. One recently did:

The closures and reopenings of different industries, coupled with the surges and lags in consumer purchasing during the pandemic, have caused an “accordion effect,” says Shelby Swain Myers, an economist for American Farm Bureau Federation, with lots of industries playing catch-up even as they see higher consumer demand.

Not just surges and lags, but structural changes that have been forced onto the supply chain from them. With the Census Bureau reporting US retail sales today, no better time than now and no better place than food sales to illustrate the non-economics responsible for the current “inflation” problem.

When governments panicked in early 2020, they shut down without thinking any farther than “two weeks to slow the spread.” This is, after all, any government’s modus operandi; unintended consequences is what they do.

The food supply chain had for decades been increasingly adapted to meeting the needs of two very different methods of distributing food products; X amount of capacity was dedicated to the at-home grocery model, while Y had been set up for the growing penchant for eating out (among the increasingly fewer able to afford it). Essentially, two separate supply chains which don’t easily mix; if at all.

Not only that, food distributors can’t simply switch from one to the other. And even if they could, the costs of doing so, and the anticipated payback when undertaking this, were and are massive considerations. McKinsey calculated these trade-offs in the middle of last year, sobering hurdles for an already stretched situation back then:

Moreover, many food-service producers have already invested in equipment and facilities to produce and package food in large multi-serving formats for complex prepared-, processed-, frozen-, canned-, and packaged-food value chains. It would be highly inefficient to reconfigure those investments to single service sizes.

And if anyone had reconfigured or would because they felt this economic shift might be more permanent:

For food-service producers, the dilemma is around the two- to five-year payback period of new packaging lines. Reinvesting and rebalancing a food-service network for retail is not a straightforward decision. Companies making new investments would be facing a 40 percent or more decline in revenue. And any number of issues could extend the payback period or make investments unrecoverable. Forecasts are uncertain, for example, about the duration of pandemic-related demand shifts, the recovery of the food-service economy, and the timeline of returning to full employment.

So, for some the accordion of shuttered restaurants squeezed food distributors far more toward the grocery and take-home way of doing their food businesses. And it may have seemed like a great bet, or less disastrous, as “two weeks to slow the spread” morphed to other always-shifting government mandates which appeared to make these non-economics of the pandemic a permanent impress.

More grocery, less dining. Forever after.

In one famous example, Heinz Ketchup responded to what some called the Great Ketchup/Catsup? Shortage by rearranging eight, yes, eight production lines to spit out their tomato paste in individual servings rather than bottles. CEO Miguel Patricio told Time Magazine back in June (2021) there hadn’t actually been any shortage of product, just the wrong packaging for it:

It’s not that we don’t have ketchup. We have ketchup, but in different packages. The strain on demand started when people stopped going to restaurants and they were ordering takeout and home delivery. There would be a lot of packets in the takeout orders. So we have bottles; we don’t have enough pouches. There were pouches being sold on eBay.

But then…vaccines. Suddenly, after over a year of the above, by April 2021 the doors were flung back open, stir-crazy Americans flew back to their local pubs and establishments (see: below) and within months, according to retail sales, it was almost back to normal again. Meaning pre-COVID.



The accordion had expanded back out but how much of the food services supply chain had been converted to serve the eat-at-home way which many companies had understandably been led to believe was going to be a lasting transformation?

Do they undertake even more costly and wasted investments to go back? Maybe they resist, just shipping what they have even if not fully suited in the way it had been before all this began.

Does Heinz spend the money to reconfigure those same eight production lines so as to revert to producing their ketchup in bottles? Almost certainly, but equally certain they’re going to take their sweet time doing it; milking every last ounce of efficiency – limiting their losses, really – they can out of what may prove to have been a bad decision (again, you can’t really fault Mr. Patricio for being unable to predict pandemic politics).

Rancher Greg Newhall of Windy N Ranch in Washington likewise told NPR that he has the animals, beef, pork, lamb, chicken, goat, but distributors are caught in the accordion (Newhall didn’t use that term):

NEWHALL: People don’t understand how unstable and insecure the supply chain is. That isn’t to say that people are going to starve, but they may be eating alternate meats or peanut butter rather than ground beef.

GARCIA-NAVARRO: Newhall says he hasn’t had any issues raising his animals. It’s the processing and shipping that’s the bottleneck, as the industry’s biggest players pay top dollar to secure their own supply chains.

The usual credentialed Economist NPR asked for comment first tried to blame LABOR SHORTAGE!!! issues, including those the mainstream had associated with the pandemic (closed schools forcing parents to stay home, or workers somehow deathly afraid of working in close proximity with others) before then admitting:

CHRIS BARRETT: And there’s also the readjustment of the manufacturing process. As restaurants are quickly opening back up, the food manufacturers and processors have to retool to begin to supply again the bulk-packaged products that are being used by institutional food service providers.

With US retail sales continuing at an elevated rate, the pressures on the goods sector are going to remain intense.


Because, however, this is not inflation – there’s no monetary reasons behind the price gouge – the economy given enough time will adjust. And it has adjusted in some ways, very painful ways.

Painful in the sense beyond just hyped-up food prices and what we pay for gasoline lately, the services sector has instead born the brunt of this ongoing adjustment. Consumers have bought up goods (in retail sales) at the expense of what they aren’t buying in services (not in retail sales); better pricing for sparsely available goods stuck in supply chains, seeming never-ending recession for service providers.

According to the BEA’s last figures, overall services spending remains substantially lower than when the recession began last year. And it shows in services prices which had been temporarily boosted by Uncle Sam’s helicopter only to quickly, far more speedily and noticeably fall back in line with the prior, pre-existing disinflationary trend following a much smaller second camel hump.



Once the supply and other non-economic issues get sorted out, we would expect the same thing in goods, too. It is already shaping up this way, though bottlenecks and inefficiencies are sure to remain impediments and drags well into next year.

Those include other factors beyond food or domestic logistical nightmares. Port problems, foreign sourcing, etc. The accordion has played the entire global economy, and in one sense it has created the illusion of recovery and inflation out of a situation which in reality is nothing like either.

That’s the literal downside of transitory. We can see what the price bulge(s) had really been, and therefore what it never was.

Continue Reading

Economics

Milton Friedman and “Zero Cost” Expanded Government

President Joe Biden has declared that his proposed $3.5 (or is it $5.5?) trillion “Build Back Better” social agenda will have a “zero” cost—as…

Share this article:

President Joe Biden has declared that his proposed $3.5 (or is it $5.5?) trillion “Build Back Better” social agenda will have a “zero” cost—as in $0.00! Why?  Because the added expenditures will be covered by increased revenues drawn from businesses and the “rich.”

The President and other progressive Democrats, who have parroted the Biden claim, should reflect on the wisdom of the late Milton Friedman, who had a knack for crystallizing stark economic truths.

During the early 1980s, when supply-side economics was the rage, Reagan Republicans promoted tax-rate cuts as a means of reviving the economy (because the cuts would increase people’s incentives to work, save, and invest), which Friedman believed distracted them from concern about what was happening to government outlays, which continued to rise throughout the decade.

Friedman framed the fiscal issues of the day differently, and with far greater clarity than anyone else. He admonished everyone (including President Reagan’s advisors), to “Keep your eye on one thing and one thing only: how much government is spending, because that’s the true tax. . . If you’re not paying for it in the form of explicit taxes, you’re paying for it indirectly in the form of inflation or in the form of borrowing.”

And make no mistake, government outlays have risen substantially, especially lately, increasing from $3.9 trillion in 2016 to $6.6 trillion in 2020 (including Covid outlays). Even without passage of the reconciliation bill, the White House estimates that federal outlays will continue their upward march through 2026.

Friedman understood that the real taxes on the economy ultimately come in the form of government outlays siphoning off resources for public purposes that would otherwise be used in the private sector. If the government chooses to build a bridge or road, the concrete and steel could have been used to produce houses and office buildings.

How the added government outlays are financed—through taxes, newly printed dollars and inflation, or debt—is of secondary importance, perhaps only marginally affecting people’s incentives. The costs of expanded government outlays will be incurred through the shift of resources from private-directed uses to public-directed uses.

By declaring that his “Build Back Better” agenda has no costs, President Biden must be confused—if he truly means what he has been saying. He may think that the dollars expended for an expanded array of welfare recipients will come only at the expense of the “rich.” Not so at all. Those transferred dollars will enable the recipients to buy goods they could not otherwise buy, which means they can pull resources away from the production of the variety of goods that ordinary Walmart (and Home Depot and Kroger) shoppers, many with far less-than-privileged means, would have bought.

 


Richard McKenzie is an economics professor (emeritus) in the Merage Business School at the University of California, Irvine. His latest book is The Selfish Brain: A Layman’s Guide to a New Way of Economic Thinking (2021).

(0 COMMENTS)
Continue Reading

Trending