The Great Flattening of Q1 2011

This article originally appeared in The Daily Capitalist.

Putting aside the S&P threat to downgrade U.S. debt for the moment, it appears that consumer and business confidence is weakening, which would be consistent with other data we are seeing about such diverse things as retail sales and industrial production. For example, the Gallup Economic Confidence Index weakened substantially in March:

According to Gallup:

Gallup's Economic Confidence Index, which includes the economic optimism measure, also plunged in March to -31. This is worse than the -21 in January and about the same as the -30 of a year ago.

The Index is based on two questions, which measure Americans' views of current economic conditions and their future expectations. The sharp decline in the latter brought down the index score in the first quarter of the year. Americans' perceptions of current economic conditions are not much different in March -- with 44% rating the economy "poor" -- than they were in January, when 42% said the same.

You will note that the Index has been relatively flat for almost two years.

The Consumer Sentiment Index for April was positive, but:

Consumer sentiment, at 69.6 for the mid-month reading vs March's 67.5, is improving but remains near six-month lows. The gain is centered in the expectations component which is the composite's leading component and which gained more than three points to a 61.2 level that, however, is still near a six-month low.

Here is the chart for March (April not available):

The Conference Board's Consumer Confidence Index for March declined:

The Conference Board Consumer Confidence Index®, which had increased in February, declined in March. The Index now stands at 63.4 (1985=100), down from 72.0 in February. The Present Situation Index improved to 36.9 from 33.8. The Expectations Index decreased to 81.1 from 97.5 last month.

The latest National Federation of Independent Businesses (NFIB) report was equally concerning:

The Index of Small Business Optimism gave up 2.6 points in March, falling to 91.9.  Four components rose or were unchanged, while six lost ground. The “hard” components of the Index (job creation, job openings, capital spending plans and inventory plans) added two points while the “soft” components (the other six in the table above) gave up 31 points.

Index was driven by weaker expectations for real sales gains and business conditions and a marked deterioration in profit trends. The decline in the percent of owners expecting higher real sales and better business conditions in six months alone account for 76 percent of the decline in the Index.

The NFIB report on credit confirmed what the Fed is worried about. They call it a credit crunch or liquidity freeze, but what they don't understand is that demand for credit is weak because of the uncertainty in the business environment, especially "weak sales", and this is largely caused by the Fed's reckless monetary policies and the Administration's fiscal and legislative policies.

Overall, 93 percent reported that all their credit needs were met or that they were not interested in borrowing. Seven percent reported that not all of their credit needs were satisfied, and 53 percent said they did not want a loan. Four percent reported financing as their #1 business problem.  Twenty-five (25) percent of the owners reported that weak sales continued to be their top business problem (down 3 points), followed by 17 percent citing taxes and 17 percent government regulations and red tape.  The historically high percent of owners who cite weak sales means that for many owners, investments in new equipment or new workers are not likely to “pay back”. This is a major cause of the lack of credit demand observed in financial markets along with the deficiency in housing starts, a million units below “normal”. Twenty-nine (29) percent of all owners reported borrowing on a regular basis, 1 point above the record low.

All you have to do is read the headlines and you can understand why small businesses feel this way.

Another warning comes from the Consumer Metrics Institute's latest report:

On April 13, our Daily Growth Index sank to a level that exceeded anything we have seen before, surpassing the previous record low set on October 4, 2010. ...

But the length of the contraction is perhaps its most defining characteristic, because it has long since sucked our longer term 183-day and 365-day trailing indexes to levels that have been below their 2008 bottoms every single day since September of last year...

And one more thing. While everyone has been praising manufacturing, if you look at the latest report on industrial production, it has been flat to declining for the past 9 months:

It isn't as if there has been no real organic growth in the economy; there has. But much of the "growth" that is being heralded as a turnaround is just based on fiat money, or, paper, if you will. As I have discussed previously, things are great for the recipients of QE (financial sector) and for exporters (devalued dollar) but the rest of the economy seems to be flattening out which is consistent with my forecast for stagflation.

Comments

[geno-econ]

Capacity utilization is steady in the high 70s which is not that bad , but not over 80 where business profits grow. Weak link going forward definitly squeezed consumer and unemployment impact, wheras public sector spending [and buying] buoyed by Fed printing and Treasury raiding any credit allocation invented by humanoids. End of QEII , as well as export benefit of weak $ to entire economy is big unknown. And interest rate pressure sure to rear ugly head

[tom a taxpayer]

What's economics got to do with anything that matters like free gambling money from the Fed to Wall Street whales, HFT, Goldman Sachs bonuses, privatizing profits and socializing losses.

[bushboy]

Silver bitchez !!!!!!!