A feature of the economic story of 2022 has been how often eyes have turned to New York. The era of US interest-rate rises and consequent strong US Dollar has sent out quite a bass line accompanying the inflation drumbeat. So we have seen its economic and monetary policy be even more important than usual and for much of the year it has been a malign influence for others. The strong dollar raised inflation in other countries which put pressure on them to match US interest-rate rises. The route where you ignored the interest-rate rises saw you currency depreciate quite sharply as Japan discovered. So where are we now?
Economic Growth
Last week updated us on the third quarter.
Real gross domestic product (GDP) increased at an annual rate of 2.9 percent in the third quarter of 2022 (table 1), according to the “second” estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP decreased 0.6 percent.
This leaves us with an off pattern as the US economy surged at the end of last year ( 7% annualised) but has essentially trod water since. Just to add to therather curious pattern we are expecting another strong end to the year albeit less than last time.
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2022 is 3.4 percent on December 6, up from 2.8 percent on December 1. ( Atlanta Fed)
Also in a contrary move to the US Dollar strength was something likely to cause trouble for econometricians.
Also, the nowcast of the contribution of the change in real net exports to fourth-quarter real GDP growth increased from 0.16 percentage points to 0.37 percentage points.
Have you figured it? Anyway the official data so far looks more stronger than elsewhere. The factor I was thinking of is this.
As part of this, the US will strive to export at least 9-10 billion cubic metres of LNG over the next year via UK terminals, more than doubling the level exported in 2021 and capitalising on the UK’s leading import infrastructure. This will be good for both UK and European partners as we look to replenish gas storage next year. ( UK Government )
That is something for the future but symbolises the change represented by the flow of tankers heading with US LNG to Europe boosting its exports both via volumes and higher prices and hence GDP.
Energy
This always was a strength for the US but events have made it much stronger.
This year, the United States became the world’s biggest liquefied natural gas (LNG) exporter as deliveries to energy-starved buyers in Europe and Asia surged. ( OilPrice.com)
But it is more than that because US industry has both a reliable supply and a relatively cheap one. Here is the latest update from the EIA.
Henry Hub spot price: The Henry Hub spot price fell $2.27 from $6.80 per million British thermal units (MMBtu) last Wednesday to $4.53/MMBtu yesterday.
Last month Politico ran a comparison with Europe.
On average, the price across all Cheniere contracts is 115 percent of Henry Hub plus $3, Grindal said. That works out to about €33 per megawatt-hour. For comparison, the current EU benchmark rate, dubbed TTF, is €119 per MWh.
If you had an energy intensive business where would you base yourself? This is not necessarily that fast a process as moving existing industry will have heavy fixed costs. But for new plant it is not much of a debate.
As an aside an industry we have looked at from time to time must be having a party. Perhaps lighting up cigars with US $100 notes. I mean the shale oil and gas wildcatters. We have wondered if they can cover their debts in the past? Also noted that when oil prices went negative in the Permian basin they were burning off the gas for nothing. Now they can get high prices for as much as they can produce.
Next up is a move which benefits consumers more generally.
After months in which gasoline prices in the United States have been one of the most visible symbols of inflation, they have a new distinction: Prices at the pump are now lower than they were a year ago……….
The national average price for regular gasoline stood at $3.33 a gallon on Thursday, according to AAA. A year ago, the average price at the pump was $3.34.
At their peak, gasoline prices were just over $5 a gallon in mid-June. ( New York Times)
The principle of cheaper petrol and diesel should spread around the world providing an economic boost and is added to by the recent weaker US Dollar. It is even happening in the UK where prices have fallen by 2 pence per litre in the last week,
We can move on as we recall how prescient the Rolling Stones were.
But it’s all right, I’m Jumpin’ Jack FlashIt’s a gas! Gas! Gas
Inflation
This has been the bugbear of 2022 and is ongoing with the CPI up by 7.7% over the past year. Looking ahead there are some signs of better news which can start with the fall in natural gas prices since the summer peak and also this.
Crude oil prices are about to book a week of sizeable losses, during which market movements erased all gains Brent and West Texas Intermediate had made since the start of the year.
According to Bloomberg, the cumulative weekly loss for the benchmarks could reach 10 percent if today’s trade is in line with what we’ve seen so far this week, as demand concerns trumped the news of China reopening after massive Covid restrictions. ( OilPrice.com)
That raises the issue of the oil price cap. Has it worked? I do not think so as it is mostly irrelevant but let’s watch this space.
Whilst there are issues with Chinese numbers in general and also around Covid. This as reported by Reuters does provide some food for thought.
The producer price index (PPI) was down 1.3% on a year earlier, unchanged from an annual contraction seen in October, according to National Bureau of Statistics (NBS) data issued on Friday.
Comment
The data as we have it looks rather good at this point. We have a booming energy sector and an economy looking strong, Also inflation looks set to see a weaker phase. But economic life is rarely that simple as we switch to expectations.
“The survey data are providing a timely signal that the
health of the US economy is deteriorating at a marked
rate, with malaise spreading across the economy
to encompass both manufacturing and services in
November. The survey data are broadly consistent with
the US economy contracting in the fourth quarter at an
annualized rate of approximately 1%, with the decline
gathering momentum as we head towards the end of the
year. ( S&P PMI)
There you have the present quandary where apparently strong economic growth is according to expectations already over. With inflation looking set to dip we switch to the US Federal Reserve next week. I expect another 0.5% interest-rate rise but after that expect a switch to 0.25% at most and maybe it will be the last rise.