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.