May 2011 has been the worst month for data releases so far this year. QE2 will be shortly ending. The market direction appears unclear.
This past week gave us terrible advance durable goods data. Econintersect had forecast an economic cycle peak in April, but durable goods data was not a peak – but a contraction when inflation is considered (analysis here).
This view that a contraction occurred is confirmed when you view order backlog which fell slightly. Backlog is manufacturing fat – it grows when there is expansion, and when order booking falls provides a cushion and there is a contraction. Admittedly this contraction is statistically insignificant if measured by backlog.
click on all charts to enlarge
The last of the April 2011 data will be coming shortly. Manufacturing (including final durable goods) will be revealed next week, as well as employment complements of ADP and BLS. Jobs growth is the best metric of “real” economic growth.
Durable goods is not a driver in the new normal economy contributing less than 5% of employment – but has contributed to the economic growth since the last part of 2010. Most of the employment growth has come from the service end of the economy.
The durable goods numbers did cause us to take a second look at the data reviewed this year. As Econintersect counts “things”, and does not base their economic evaluation on money flows – inflation has been ignored in our evaluation of US Census / Commerce Department data.
The data used in the above graph is new orders for both manufacturing and retail sales - and not seasonally adjusted (NSA), but has been adjusted for inflation. For the inflation adjustment: in the case of manufacturing, the non-seasonally adjusted Producer Price Index (finished goods) was used – and for retail sales, the non-seasonally adjusted Consumer Price Index (all items except shelter) was used.
This data is roughly proximate to the YoY transport counts we are seeing – somewhere around 4% YoY improvement. Compare this to GDP which is 1.8% (analysis here). When you count things you can see that the economy is expanding.
There is little question that YoY improvements have been trending lower over the last six months, and if the current trend lines continue, the economy will be recessing within a year. But to think this way requires an assumption that the economy is static – and it is not. Further, as the year progresses – it will come up against weaker comparable data – and look stronger in comparison.
For now, it should be assumed the poor durable goods data is resulting from strong YoY comparables, and a consumer retrenchment due to having to fill their gas tank rather than buying a new car. The consumer is still spending, but rising prices limits the number of things their static paychecks can buy.
Main Street has seen no real recovery from the Great Recession. The consumer is somewhat limited in experiencing a further contraction in spending – after all “yah gotta eat and get to work.”
The consumer is limiting trips to the broader consumption trough in order to continue to get the basic living essentials - and this translates into continuing economic malaise.
Economic News this Week:
Econintersect’s economic forecast for May 2011 indicates a peaking of this current economic sub-cycle. In simple words, the same rate of improvement of the moderate recovery seen in March and April will continue in May.
This week the Weekly Leading Index (WLI) from ECRI declined from 5.3% to 5.0%. This level implies the business conditions six months from now will be approximately the same or slightly improved compared to today.
The four week moving average of initial unemployment claims fell slightly this week. As the data has been quite noisy, the 4 week moving average is the best way to view the data. Econintersect’s articles this week included a linkage between the fall in stimulus to the less good unemployment data (analysis here).
The April data released this week shows an economy whose rate of expansion continues to contract – this could be a reporting anomaly influenced by the Japanese disaster, new normal seasonal factors, or it could be the economic cycle peak Econintersect forecast in April.
Weekly Economic Release Scorecard:
|Consumer Metrics ||Down ||Rick Davis shows the deviation between Main Street and GDP. |
|UM Consumer Sentiment ||Up ||Doug Short technically reviews this unexpected improvement |
|April PCE ||Up ||Considering inflation and population growth – data is flat to negative |
|April Pending Home Sales ||Down ||Seriously terrible data – there is no way to spin this 26% decline as good |
|1Q2011 GDP ||Unchanged ||Rick Davis sees growing consumer headwinds|
|Initial Unemployment Claims ||Up ||What effect does the lower stimulus of the economy effect initial unemployment claims? |
|1Q2011 GDP ||Unchanged ||Doug Short joins me in breaking down 1Q2011 GDP |
|Short Sales ||Up 25% ||CoreLogic says it causes headwinds for stabilizing home prices |
|Wines In China ||Elliott Morss describes the snob appeal of Bordeaux|
|April Durable Goods ||Down ||Durable goods sales had an outright contraction YoY |
|April New Home Sales ||Up ||Maybe up, but the data is so terrible you cannot dress up this ugly pig |
|May Auto Sales ||Down ||John Lounsbury puts car sales into perspective |
|Mortgage Delinquencies ||Keith Jurow charts out growing homeowner serious deliquencies which can only end in foreclosure|
|April CFNAI ||Declined ||Shows the economy was still expanding but less good MoM in April |
|Obesity and Health Care Costs ||Elliott Morss looks for investment opportunities |
|Consumer Metrics ||Rick Davis shares graphically the terrible state of the consumer |
|China & Germany ||Dirk Ehnts shows how the big exporters’ imbalances are growing again |
|Eurozone Banking Crisis ||Clive Corcoran describes the current crisis as alternatively national and European |
|Identifying THE current economic problem ||Frank Li is hitting hard at American politics which he claims is “cancerous” |
|Reinventing the Economy ||Rick Davis’ current essay installment on getting a recovery going on Main Street |
|Homeowner Association Foreclosures ||Kieth Jurow lists of a litany of abuses by Homeowner’s Associations |
|Oil vs S&P 500 ||Albertarocks illuminates graphically how poorly stocks have done vs. commodities|
|Commodities ||Eric McCurdy believes a commodity correction is likely |
Bankruptcies this Week: Protein Polymer Technologies (OTC:PPTI), Jackson Hewitt Tax Service