Conference Board

FedSpeak - Lost In Translation

Federal Reserve speakers appear to be suffering from an inability to contain themselves to the detriment of their audiences. So damaging is FedSpeak, so to speak, that it’s become the Fed’s greatest liability, chipping away at what little credibility monetary policymakers have left in reserve. Perhaps what is most disturbing about today’s stretch of FedSpeak is how it parallels with the months preceding the Great Recession.

The Message From The Collapsing Yield Curve

The FOMC is tightening monetary policy because Fed officials believe that the US economy is showing more signs of sustainable growth with inflation rising back near their 2% target. Yet the yield curve is warning that the Fed’s moves could slow the US economy and halt the desired upturn in the inflation rate. Most worrying for the Fed's narrative is the fact that the yield curve spread on a weekly basis has been highly correlated with the y/y growth rates in both the forward revenues and forward earnings of the S&P 500. The recent narrowing of the spread isn’t a good omen for either of them.

Consumer Confidence Plunges To 10-Month Lows As Job 'Hope' Fades

The Conference Board's consumer confidence measure has hovered around the 95 level for the last 6 months (as gas prices dipped and ripped, as stock prices dipped and ripped, and as political chaos reigned). This 'stability' is in stark contrast to other surveys of confidence such as Bloomberg's and Gallup's which are both at multi-month lows... until today. Consumer Confidence plunged to 92.6 (missing expectations of 96.1 by the most since November). May's dismal print (a 3 sigma miss) is below the lowest of 68 economist estimates as expectations slipped modestly but Present Situation tumbled with optimism on jobs sliding to 6-month lows.

Why This Friday's Payrolls Report Could See A Big Miss

When the main economic event this week hits this Friday at 8:30 am EDT, when the BLS releases the May payrolls report, Wall Street consensus wil be expecting a 160,000 print, a number which will have a big impact on market expectations for a Fed rate hike at the June or July FOMC meeting. However, consensus may be disappointed for one reason: the Verizon strike could chop off as much as 35,000 workers from the headline payrolls print.

Frontrunning: May 18

  • Stocks sag as U.S. rate rise expectations revive (Reuters)
  • Clinton, Sanders hit final stretch of nominating contest (Reuters)
  • Bernie Sanders Wins in Oregon, But He Needed Kentucky, Too (NBC)
  • Clinton less than 100 delegates from nomination (The Hill)
  • Trump needs 66 delegates to officially clinch nomination (The Hill)
  • Japan GDP Rebound Not Enough to Stave Off Stimulus (WSJ)

Warning Signs

Rising wages and employment costs (benefits, healthcare, etc.) are a direct input into the profitability equation. Therefore, as the economy slows and other cost-cutting measures, accounting gimmicks and share buybacks lose their ability to increase bottom line profitability, it is only a function of time before the focus returns to the cost of labor. With corporate profitability currently under pressure, overall economic activity weak and global conditions deteriorating, just how long can companies sustain employment and wage growth? The answer is not long.

Consumer Confidence Stagnant Since The End Of QE3 As Wage Growth Hopes Fade

We're gonna need more money-printing. Consumer Confidence dropped in April to 94.2, missing expectations of 95.8 and hovering at its lowest in 2 years. In fact, the current level is relatively unchanged since the end of QE3, despite all the recent surges in stocks as the post-2009 94% correlation between the S&P 500 and confidence is breaking down rapidly and ruining The Fed's animal spirits' party. Most crucially, income growth expectations are tumbling as The Conference Board suggests American consumers "do not foresee any pickup in momentum."

"It's Getting Worse" - Economic Outlook Plummets In Gallup Poll, Rising Gas Prices Blamed

It turns out that ordinary people are not as excited about the US economy as those who are cheerleading minimum wage job creation and market levels being close to all time highs, and certainly not as excited as that group of people called each month by either the Conference Board or UMich, the two far more closely tracked confidence indicators."Americans are confronted with presidential candidates using the economy as one of their talking points, mixed signals from national economic reports, volatility in the stock market and an apparent end of sub-$2 gas prices nationally -- all of which may be affecting their economic assessments."

As Conference Board Confidence Jumps, Gallup Confidence Dumps

A yuuge surge in stocks - amid collapsing earnings and GDP expectations - appears to have enabled a modest bounce off 2-year lows for consumer confidence. The Conference Board’s index of consumer confidence increased to 96.2 in March from 94 a month earlier - but still below January's levels. The bounce was driven purely by "hope" as expectations for the future rose and current conditions dropped to 4-month lows. At the same time Gallup's consumer confidence survey plumbes new depths to its lowest since 2015.

NIRP Hail Mary

Negative interest rates are a tax! Not a traditional tax paid to the government, but an expense paid, on savings. Years of policy designed to encourage spending and discourage savings is likely reaching the end game; the point where those exhibiting prudence must be punished to keep the game going.  At some point, and likely soon, central bankers will be forced to realize the efficacy of lowering interest rates is vanishing and is hindering achievement of their goals. When this occurs a paradigm shift in the way monetary policy is conducted will likely occur. Investors that understand this dynamic, and what it portends, will be in a much better position to protect and profit from the asset price adjustments that lie ahead.

Neil Howe Warns The 'Professional Class' Is Still In Denial Of The Fourth Turning

"The world has fundamentally shifted over the last decade, especially since we’ve emerged from the Great Recession... But the professional class has been very slow to understand what is going on, not just quantitatively but qualitatively in a new generational configuration that I call the Fourth Turning. They don’t accept the new normal. They keep insisting, just two or three years out there on the horizon, that the old normal will return – in GDP growth, in housing starts, in global trade. But it doesn’t return."