"Kee" Points with Jim Kee, Ph.D.

  • US Economy
  • Global Numbers
  • Energy Independence?


US Economy

In the US, the Federal Reserve Bank of New York’s recent “U.S. Economy Snapshot” shows consumer spending basically flat in May, with increases in durable (long-lasting) and non-durable goods spending roughly offset by decreases in services spending. Business spending (available quarterly) rose moderately in the first quarter and has been pretty solid over the past four quarters, with new orders of capital goods (excluding aircraft orders, which are lumpy) slightly above shipments. That suggests near-term positive momentum (New York Fed). Housing indicators, payroll numbers, retail sales, and second quarter earnings (thus far)…all point to expansion in the US. “Nowcasting” model estimates for second quarter GDP growth, which will be released on July 27th, range from 2.7% (New York Fed) to 4.5% (Atlanta Fed), with Blue Chip consensus estimates closer to 4%. Inflation is pretty close to the Fed’s target 2%.

Global Numbers

Internationally, things are turning a bit more cloudy, with the “balance of risks shifting to the downside,” according to the IMF. In the July 16threlease of its World Economic Update, the IMF kept its global growth forecast unchanged (from April) at 3.9%, but it expects growth to be a bit more uneven. Specifically, it cited widening gap between growth in the U.S., on the one hand (stronger), and Europe and Japan (weaker) on the other. Emerging markets, particularly Developing Asia, are expected to maintain “robust performance” (IMF). China’s National Bureau of Statistics reported second quarter GDP growth (China is always the first to report) coming in at the expected 6.7%. Most major equity (stock) markets outside of the US (and a few oil exporters) are negative for the year in dollar terms, which points to a lack of clarity on global trade agreements.

Energy Independence?

On the topic of Oil (currently Brent=$72/barrel, WTI=$68/barrel), I mention in our upcoming webcast the book by Trump advisor Peter Navarro, written in 2011. Oil independence was one of Navarro’s “big three” (trade and tax reform being the others), and I think it is interesting that Navarro wrote on the eve of the fracking boom. He talked of a theoretical optimal level of oil “dependence,” or oil imports as a percentage of total consumption, particularly from the Persian Gulf region. The idea was that if oil prices were too low, then we would import too much oil, because domestic (US) production costs are so much higher than those of other major oil producers. That would make us too dependent on imported oil, which (to Navarro and others) is an economic risk. On the other hand, if oil prices are too high, then US producers would supply more (lowering our “dependence”), but at the cost of reduced economic growth. So somewhere (Navarro gave an example of $100/barrel) between high ($150?) and low ($40?) oil prices lies (according to the author) the “optimal level of oil dependency.” Now since that book was published we’ve had the fracking revolution in the US, and we have pretty much reached all-time highs in oil production. We are now actually exporting as much oil as we import from the Persian Gulf region. I’ll be talking more about oil in next week’s Kee Points.