World trade prices (exports and imports) dropped materially since mid-2014, in tandem with oil prices. Trade prices fell by 45 % for advanced economies (AE), 60% for emerging economies, while oil prices dropped 120% in the same period ! (welcome to log % changes !!)

This has confused some pundits that often mention the collapse in global trade growth looking only at nominal (or current US$) trade performance. Looking at trade volumes one reaches a different conclusion (more on this below).

The overall drop in trade prices for both emerging and advanced economies masks an important difference: the regions faced opposite terms of trade shocks in recent years. Advanced economies are facing improving terms of trade, while EM economies are facing a declining terms of trade (but with a tentative sign of a rebound, see charts).

Looking at trade volumes, one can see that demand (imports) from advanced economies picked up late 2013 and is growing at a healthy 3.5% pace, but might have slowed a bit more recently.

Emerging economies show a completely different picture. Both export and import volumes have been relatively flat since mid-2014. More recently, imports are tentatively rebounding, but exports remain lackluster.

The consolidated world trade statistics show a puzzling divergence: consolidated imports (of which EM account for one-third) is growing at a healthy pace, while consolidated exports (of which EM account for 40%) are roughly flat. Growth of average trade volume is at 1% yoy, with imports growing at 2%yoy and exports flat.

The chart below shows CPI in the last 6 years. Headline CPI was growing close to the underlying core CPI in a period where oil prices were roughly flat, but the gap opened from mid-2014 onwards with the sharp drop in oil prices. It is interesting also to note that the strong US dollar has, so far, barely dented the trend in core inflation (except for the 2H 2014 period, when core CPI softened a bit in tandem with the sharp drop in energy).

The table below compares total IP, Manufacturing production, Core manufacturing and IP excluding energy. All have been weak in recent months, but the energy sector has had a material negative impact on total industrial activity. Excluding energy, one can see a slowdown in production since late 2014 -- but the overall picture still seems aligned with the weak trend growth observed since 2010.

What about the upcoming months? Can we expect any improvement?

The Markit PMI has converged to the (weak) ISM, and both suggest there's no upside for industry in the near term.

A simple linear regression with the ISM makes this point clear.

The Conference Board leading indicators are also catching down with weak industrial activity.

The diffusion index of industrial production tends to lead actual production by a few months, and it shows a tentatively better picture for IP.

Weakness in the oil sector and USD strengthening continue to weight on industrial activity.

Lowest expected long term inflation rate since this question was first asked in 1979!

Excluding residual gasoline sales that are inside the control group (fuel dealers) shows a better picture, with adjusted-control sales growing faster than the number reported.

Also, it is important to recall that (control group) retail prices have been trending down in the last year...

...which results in a very healthy growth rate in retail volumes.

The Q3 2015 GDP data by industry was released today. Below I've updated the two charts showing value added and gross output for the mining sector. It shows the collapse of the sector continued well into Q3.

I have compiled some key numbers of the mining sector (a broad classification, which includes oil and gas) to give some color on the importance of the sector to the broad US economy. The overall point is that the sector has collapsed in 2015 and will likely continue to contract in 2016. Despite the collapse in 2015, the broader economy has, so far, shown resilience to the crisis in the sector: GDP up by 2%, 2.6 million jobs created (220k/month average), consumer confidence close to highs, etc.

The good news is that the size of the mining sector compared to the overall economy has shrunk substantially. Therefore a similar sized collapse in 2016 would have a smaller impact in the broad economy.

The bad news is that contagion (HY market and overall tightening in financial conditions), assuming the level of stress in the market continues, can be enough to slowdown the economy substantially.

Investment on mining exploration, shafts, and wells structures peaked at 30% of the total nonresidential investment in structures, but has already dropped to 15% (Obs: this sector is broader than just the oil & gas).

However, investment on the sector is much smaller when compared with overall investment or GDP. Mining exploration, shafts, and wells structures account for 2.5% of total investment (down from 5.7%) and for 0.4% of GDP (down from 0.9%).

Both the increase since early 2000 and the recent drop are not a merely a price effect -- when comparing quantities it is also clear that the volume of investment in the sector outpace the overall volume of nonresidential investment in structures from 2000 to 2011 and has now underperformed materially since 2014.

The chart below shows that the high frequency data on rig count is a good proxy for the investment in the sector; and it suggests further downside in the near term.

GDP measured via the product approach is released with a delay and the most recent data refers to Q2 2015. Data is only available (quarterly) for the mining sector, which is broader than the oil sector. Value added in the oil and gas extraction sector accounts for about two-thirds of the broader mining sector. The chart below shows that the value added by the mining sector amounts to 1.9% of GDP, down 0.8 percentage points from the 2.7% peak in mid-2014.

But value added does not account for the sector spending on intermediate inputs (materials, services). For the mining industry, intermediate inputs are roughly 45% of the value added (a bit lower for the oil sector alone: 35%). The chart shows that gross output of the mining sector amounts to 2.5% of GDP, down 1.6 percentage points from the recent peak in mid-2014.

There are currently around 185 thousands employed in the oil and gas extraction sector, down from 200 thousands by late 2014. This represents a mere 0.1% of total employment. Even though the oil and gas industry accounts for about two-thirds of gross output in the mining sector (and two-thirds of value added) it accounts for a much lower share of total employment (25%). Total employment in the mining sector fell from 860 thousands to 730 thousands in one year (and now accounts for 0.5% of total employment). Before the boom, mining employment was 500 thousands (0.4% of total employment).

Another way of looking at the impact of the mining crisis in employment and its potential spillovers is to split the US states in oil producing vs non-oil states.

The chart below clearly shows that employment growth in the oil producing states has slowed since late 2014. Total employment in the oil producing states, however, is much smaller than the overall employment in non-oil states (25 million vs 118mn).

If employment in the oil producing states (outside of the mining sector) had moved in tandem with employment in the non-oil states, then employment in the non-mining sector of the oil states would be around 140 thousands higher than what is currently observed (or an average of 12k/month). Comparing this with the loss of employment in the mining sector (130 thousands) one can guess that the spillover to employment in other sectors was large (about one-to-one). The good news is that the counterfactual (i.e., the employment growth without the oil / mining crisis) would have been 2.9 million in 2015, rather than the 2.6 million reported.

If employment in the mining sector goes back to levels before the boom, around 500-550 thousands (depending on whether the low is measured in absolute or relative to total employment), that would imply an additional loss of 180k-230k jobs on top of the 130k loss reported in 2015.

Assuming the same spillover reported above, that would imply total job losses in the 360k-460k range. If this loss happens over a one-year period it would reduce job growth from the 2.9 million pace (counterfactual) to 2.4 million (substantial, but still a healthy 200k/month monthly payroll !!).

Even doubling the spillover (2 jobs for each job loss in the mining sector), the outcome would be job growth of 2.2 million (185k/month) !

Off course it all depends on the counterfactual job growth of 2.9 million / year, which is 2% yoy growth. If the counterfactual (or underlying growth, not related to the mining direct and/or indirect impact) slows down to, say, 1.5% yoy, then average monthly payroll would be in the 120k-140k per month ballpark.

The average mining worker earns $1250/week and works 46 weeks/year, taking home an annual pay of $57,500. If, as assumed above, 200 thousands mining workers lose a job, that will represent a loss of $11.5bn in total wages. Even accounting for the one-to-one spillover mentioned above, the total wage loss would amount to $23.6bn, a mere 0.1% of GDP.

The chart below shows CPI in the last 6 years. Headline CPI was growing close to the underlying core CPI in a period where oil prices were roughly flat, but the gap opened from mid-2014 onwards with the sharp drop in oil prices. It is interesting also to note that the strong US dollar has, so far, barely dented the trend in core inflation.

I have compiled some key numbers of the mining sector (a broad classification, which includes oil and gas) to give some color on the importance of the sector to the broad US economy. The overall point is that the sector has collapsed in 2015 and will likely continue to contract in 2016. Despite the collapse in 2015, the broader economy has, so far, shown resilience to the crisis in the sector: GDP up by 2%, 2.6 million jobs created (220k/month average), consumer confidence close to highs, etc.

The good news is that the size of the mining sector compared to the overall economy has shrunk substantially. Therefore a similar sized collapse in 2016 would have a smaller impact in the broad economy.

The bad news is that contagion (HY market and overall tightening in financial conditions), assuming the level of stress in the market continues, can be enough to slowdown the economy substantially.

Investment on mining exploration, shafts, and wells structures peaked at 30% of the total nonresidential investment in structures, but has already dropped to 15% (Obs: this sector is broader than just the oil & gas).

However, investment on the sector is much smaller when compared with overall investment or GDP. Mining exploration, shafts, and wells structures account for 2.5% of total investment (down from 5.7%) and for 0.4% of GDP (down from 0.9%).

Both the increase since early 2000 and the recent drop are not a merely a price effect -- when comparing quantities it is also clear that the volume of investment in the sector outpace the overall volume of nonresidential investment in structures from 2000 to 2011 and has now underperformed materially since 2014.

The chart below shows that the high frequency data on rig count is a good proxy for the investment in the sector; and it suggests further downside in the near term.

GDP measured via the product approach is released with a delay and the most recent data refers to Q2 2015. Data is only available (quarterly) for the mining sector, which is broader than the oil sector. Value added in the oil and gas extraction sector accounts for about two-thirds of the broader mining sector. The chart below shows that the value added by the mining sector amounts to 1.9% of GDP, down 0.8 percentage points from the 2.7% peak in mid-2014.

But value added does not account for the sector spending on intermediate inputs (materials, services). For the mining industry, intermediate inputs are roughly 45% of the value added (a bit lower for the oil sector alone: 35%). The chart shows that gross output of the mining sector amounts to 2.5% of GDP, down 1.6 percentage points from the recent peak in mid-2014.

There are currently around 185 thousands employed in the oil and gas extraction sector, down from 200 thousands by late 2014. This represents a mere 0.1% of total employment. Even though the oil and gas industry accounts for about two-thirds of gross output in the mining sector (and two-thirds of value added) it accounts for a much lower share of total employment (25%). Total employment in the mining sector fell from 860 thousands to 730 thousands in one year (and now accounts for 0.5% of total employment). Before the boom, mining employment was 500 thousands (0.4% of total employment).

Another way of looking at the impact of the mining crisis in employment and its potential spillovers is to split the US states in oil producing vs non-oil states.

The chart below clearly shows that employment growth in the oil producing states has slowed since late 2014. Total employment in the oil producing states, however, is much smaller than the overall employment in non-oil states (25 million vs 118mn).

If employment in the oil producing states (outside of the mining sector) had moved in tandem with employment in the non-oil states, then employment in the non-mining sector of the oil states would be around 140 thousands higher than what is currently observed (or an average of 12k/month). Comparing this with the loss of employment in the mining sector (130 thousands) one can guess that the spillover to employment in other sectors was large (about one-to-one). The good news is that the counterfactual (i.e., the employment growth without the oil / mining crisis) would have been 2.9 million in 2015, rather than the 2.6 million reported.

If employment in the mining sector goes back to levels before the boom, around 500-550 thousands (depending on whether the low is measured in absolute or relative to total employment), that would imply an additional loss of 180k-230k jobs on top of the 130k loss reported in 2015.

Assuming the same spillover reported above, that would imply total job losses in the 360k-460k range. If this loss happens over a one-year period it would reduce job growth from the 2.9 million pace (counterfactual) to 2.4 million (substantial, but still a healthy 200k/month monthly payroll !!).

Even doubling the spillover (2 jobs for each job loss in the mining sector), the outcome would be job growth of 2.2 million (185k/month) !

Off course it all depends on the counterfactual job growth of 2.9 million / year, which is 2% yoy growth. If the counterfactual (or underlying growth, not related to the mining direct and/or indirect impact) slows down to, say, 1.5% yoy, then average monthly payroll would be in the 120k-140k per month ballpark.

The average mining worker earns $1250/week and works 46 weeks/year, taking home an annual pay of $57,500. If, as assumed above, 200 thousands mining workers lose a job, that will represent a loss of $11.5bn in total wages. Even accounting for the one-to-one spillover mentioned above, the total wage loss would amount to $23.6bn, a mere 0.1% of GDP.

Industrial production fell 0.6% mom in November, again largely due to energy. Non-energy industrial production was flat in November.

The table below compares total IP, Manufacturing production, Core manufacturing and IP excluding energy. All have been weak in recent months, but the energy sector has had a material negative impact on total industrial activity. Excluding energy, one can see a slowdown in production since late 2014 -- but the overall picture still seems aligned with the trend growth observed since 2010.

What about the upcoming months? Can we expect any improvement?

The Markit PMI has converged to the (weak) ISM, and both suggest there's no upside for industry in the near term.

A simple linear regression with the ISM makes this point clear.

The Conference Board leading indicators are also catching down with weak industrial activity.

The diffusion index of industrial production tends to lead actual production by a few months, but it weakened in the last few of months.

Weakness in the oil sector and USD strengthening continue to weight on industrial activity.