Investment & Economic Talking points
- I have been seeing oil get some press recently so I thought I would include a little comment on that. Most of what I have seen/read is the doomsday scenario – namely that oil prices are weakening due to lower demand, and therefore that must mean that global economic growth is weakening.
- In fact, the reason oil prices have been depressed and range bound is that supply has dramatically increased over the last 10 years. JP Morgan has a great chart showing the number of active drilling rigs in the US versus the number of barrels those rigs produce. Around 2014-2015, there was a noticeable drop in the rig count, but output still increased. Technological improvements have made oil discovery and production profitable at prices not thought possible just 6-7 years ago.
- Initial jobless claims fell to 247,000 last week. This may portend another positive jobs number for the month of July (reported in August).
- The Consumer Price Index (CPI) was unchanged in June, but is up 1.6% from a year ago. It is important to note that energy prices fell 1.6% in June, while food prices were flat – if you strip out the more volatile components like food and energy CPI rose 0.1% in June and is up 1.7% over the last 12 months.
- Embedded in the CPI report, and hardly mentioned in the financial media, was the hourly earnings rose 0.2% in June. Earnings are up 0.8% over the last year, and upo at a 1.3% annual rate over the past 6 months. 1.9% over the last three. This acceleration needs to be monitored – remember the definition of inflation is too many dollars chasing too few goods.
- Retail sales declined 0.2% last month, triggering some talking heads to announce this was the beginning of an economic slowdown. As will all data points, it’s important to look under the hood. Half of the overall drop was attributed to lower gas prices. It is also important to note that the month-to-month numbers can be volatile, and that core sales for the quarter were up 3% versus the first quarter.
It’s been a mixed bag so far for earnings – stay tuned.