Today’s economic reports continue to point to weakness rather than growth. This is something we have been forecasting for some time. We had forecast at best stagnation for the second half of 2012, and, at worse, a “double-dip.” It reinforces my belief that it will put the Fed into a corner and cause them to unleash another round of quantitative easing later this year.
Last week we saw that housing prices continued to decline in February as the Case-Shiller Housing Report showed that prices were down 3.6% (10 city) and 3.5% (20 city). That is to say that homeowners are still getting hammered. CoreLogic noted that 31% of homeowners had negative equity in their homes (latest data, year-end 2011) and that 1,000,000 homeowners who took out mortgages in the past two years are now underwater.
Last week also saw March industrial production show zero growth and manufacturing declined 0.2% — two months in a row. The all-important measure of durable goods orders were down -0.4.2%, continuing a four-month trend. GDP came up short in Q1, to a much unexpected 2.2%. To pile on the data, the Chicago Fed’s National Activity index declined last month as well on its three-month moving average. The most recent data from the National Federation of Independent Business’s “Small Business Economic Trends” optimism index for March dropped 20 points. The NFIB report conflicts with the latest Gallup survey.
We see also that the Kansas City and Dallas (!) Fed districts industrial activity is declining, and the ISM Chicago PMI report that came out today dropped sharply from 62.2 to 56.2. The PMI measures new orders and this is the second month of decline. The Chicago Fed’s report of manufacturing stalled, but the component of manufacturing dropped 0.2%.
Two indices that the Fed follows closely were sluggish at best. Real Personal Consumption Expenditures (PCE) were up 0.1% in March. Note that energy costs were substantially higher (+3.7%, YoY) and could account for much of the spending. Real disposable income was up 0.2%, and the Fed’s favorite measure of price inflation was up 0.2%.
We have reasons why we were expecting such data and the data is meeting our expectations. More on this soon.
Hi Jeff
I follow a number of blogs and have to say that your blog is increasingly my number one. Thanks for all the excellent work.
I fully concur with Judge Huber’s findings!
Thanks!
and the dow is leading the nasdaapl and s&p more often than not. over the top and down the backside we go…slowly and bumpy.
Also a thank you to Jeff and everyone at Minyanville for your hard work and integrity.
I too expect to see more easing from the Fed, but I think Bernanke is hesitating. This is due to 3 reasons: some opposition within the Fed; the economic numbers not being bad enough, for long enough, to “justify” more easing, and also because the stock market is still doing well (never mind that the economic and business fundamentals don’t justify most stock prices being as high as they are now).
I think more easing will come later in the year, as the bad data piles up, Europe’s problems come to a boil again, and the election nears. I look for an economic “sugar high” in late Summer to early Fall.
Consistent with Jeff’s analysis, yields on Treasurys from the 2-year to the 10-year are in decline. Because this involves short maturities as well as long ones, it is not solely due to the Fed’s Operation Twist. Further supporting this view, the 10 year Bund is at a record low of 1.66%, and the benchmark 10-year Japanese Govvie has collapsed to a near-record low of 0.88%. Yields are at or near record lows in Brazil, Indonesia, and Malaysia. This simply does not happen if business and trade are in any way robust. Past is not always prologue, the future not having happened yet, but several decades of personal market experience has led me to respect the message of the bond market in preference to that of stocks.
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Messrs, Harding and R. Wenzel, have both indicated that once the priming stops (printing) so will the economy.
The Bank Bernank is like a doctor, who is afraid to take his patient off life support; in fear that it may not result in a full recovery.
Dr. Bernank, to the ER, Dr. Bernank, to the ER!
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With all of these economic indicators headed south; what do the wall street investors see that we don’t? Dow hit a four year high today, May1. The Q ratio Percentage Change from its Arithmetic Mean indicates that stocks are over price by 30% – 36%. Stifel Nicolaus research indicates they are overvalue by at least 20% But CNBC financial analyst say stocks are “Cheapest they have seen” P/E ratio’s suggest stock undervalue.
WOW, when this bubble bursts a lot of people are really going to get hosed.
Bob
OMG not yet ANOTHER ‘easing’???? It does not work…why can’t anyone see that?? Is is hyperinflationary, devalues the already worthless dollar and only puts the US more upside down against the GDP. WTF????