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Houston, We Have Contraction

Tyler Durden's picture




 

And so we have recoupling, with the ISM printing below 50 (i.e. contraction) at 49.7 for the first time since July 2009. Expectations of a 52.5 print were obviously blown away, as the final number came well below the lowest Wall Street forecast of 50.5. Prices plunge to 37 on expectation of 57 and there go your corporate margins; Employment down from 56.9 to 56.6, and New Orders implode from 60.1 to 47.8. Epic disaster which proves that no, decoupling, does not exist and now puts the Fed back in play, which however, with the S&P just shy of 2012 highs, can do didley squat.

PMI drops to a contractionary state for the first time since July 2009 with its biggest miss since July 2011.

 

and the Prices Paid sub-index tumbled to April 2009 levels...

Summary:

From the respondents;

  • "Business is still strong, with some nagging question whether it will be sustained." (Machinery)
  • "The economy and general business seem to be getting better even though recent data say otherwise." (Fabricated Metal Products)
  • "Significant raw materials price correction underway." (Plastics & Rubber Products)
  • "Local labor market shows no signs of slowing down. Competition for technical services/skilled craft remains tight." (Petroleum & Coal Products)
  • "Overall demand signals from sales forecast are trending down in all regions." (Computer & Electronic Products)
  • "Although our shipments are up year over year and from prior month, we can feel some head winds, especially from Europe. We are watching our expenses very tightly and being cautious." (Apparel, Leather & Allied Products)
  • "Business continues to exceed forecast in all markets." (Primary Metals)
  • "Economy seems to be slowing slightly due to concerns in Europe; however, production has not changed a great deal." (Transportation Equipment)
  • "Business has started to show signs of slowing." (Furniture & Related Products)
  • "Slowing world economies, particularly China, are reducing 3Q and later orders and drastically dropping some raw material prices." (Chemical Products)
 

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Mon, 07/02/2012 - 10:08 | 2580476 ihedgemyhedges
ihedgemyhedges's picture

MAN OVERBOARD!!!!!!

Mon, 07/02/2012 - 10:11 | 2580492 ihedgemyhedges
ihedgemyhedges's picture

And exports dive while imports stay level. Jan Hatzius cranking on his 10 key right now figuring his new GDP forecast......

Mon, 07/02/2012 - 10:14 | 2580496 sunaJ
sunaJ's picture

ROFL @ the FED - so muscle-bound, they are paralyzed.  Eventually the legs will give out.

Mon, 07/02/2012 - 10:36 | 2580571 HD
HD's picture

Decoupling?

Someone better get Bob Pisani on the phone...

Mon, 07/02/2012 - 10:36 | 2580576 The Monkey
The Monkey's picture

I would hate to be the Fed.

Mon, 07/02/2012 - 11:33 | 2580740 bdc63
bdc63's picture

? ... I would give my right arm to be the FED ... where else do you get a license to print money? ...

Mon, 07/02/2012 - 10:20 | 2580525 Snidley Whipsnae
Mon, 07/02/2012 - 10:22 | 2580532 EscapeKey
EscapeKey's picture

DJIA rebounding, though this hardly needs saying.

Equities - much like housing - only ever goes up.

Or at least, so the Fed would like you to think.

Mon, 07/02/2012 - 11:39 | 2580755 RmcAZ
RmcAZ's picture

Blame this on the weather... it's too hot to manufacture anything.

Mon, 07/02/2012 - 10:12 | 2580478 bdc63
bdc63's picture

we hope you enjoyed last week's window-dressing special ... and now, back to your regularly scheduled program ...

Mon, 07/02/2012 - 10:09 | 2580482 Quintus
Quintus's picture

"Houston, We Have Contraction"

 

 

I guess the contractions will start getting closer and closer together until.......QE3 pops out.

Mon, 07/02/2012 - 10:21 | 2580530 dexter bland
dexter bland's picture

Its clear there is a global glut of manufacturing capacity and Chinese industrial output is still growing at 10% p.a. (their recent PMI figures do NOT imply contraction - contrary to recent ZH article).

Low value manufacturing in rest of the wrold is in a structural downtrend (this is hardly news.)  In the short term exports are stuffed (again no surprise).

But smell the roses: high demand for skilled employees, strong construction and housing numbers, services sector doing just fine. US seems by far the strongest economy at present.

QE 3 still highly unlikely. Need to find some other rationale to spruik gold.

Mon, 07/02/2012 - 10:28 | 2580550 EscapeKey
EscapeKey's picture

Yes, because - much like BLS stats - numbers out of China are completely reliable.

Mon, 07/02/2012 - 12:12 | 2580848 Bunga Bunga
Bunga Bunga's picture

Stores are still full of Chinese crap. So I think the Chinese stats are more reliable than BLS.

Mon, 07/02/2012 - 10:31 | 2580561 Quintus
Quintus's picture

"...high demand for skilled employees, strong construction and housing numbers, services sector doing just fine..."

 

Life must be great if your only source of information is CNBC and its stock-spruiking happy-talkers.



Mon, 07/02/2012 - 10:09 | 2580483 Debtless
Debtless's picture

Hi Tulving? Yes, I'd like to place another order today.

Mon, 07/02/2012 - 10:10 | 2580487 mrktwtch2
mrktwtch2's picture

call the chinese..ask them how to fudge numbers..lol

Mon, 07/02/2012 - 10:10 | 2580488 Temporalist
Temporalist's picture

Priced into the HFT algos.

 

Clearly there is much to be bullish of but I cannot find the index for Bank fraud.

Mon, 07/02/2012 - 10:10 | 2580489 RobotTrader
RobotTrader's picture

All dips being bought with a vengeance.

 

Nobody wants to be the fool to miss the 4th intermediate low since the rally kicked off in 2009.

Lots of guys are still piling into bonds, they are barely off the highs.

It's all good.

- Cheap oil.

- Stocks still in an uptrend.

- Lowest interest rates in 60 years.

- Zero inflation

Mon, 07/02/2012 - 10:14 | 2580500 SilverTree
SilverTree's picture

Talk is cheap.

Mon, 07/02/2012 - 10:43 | 2580611 El Oregonian
El Oregonian's picture

Did you mean to say "Talk from Sheep"?

Mon, 07/02/2012 - 10:14 | 2580502 azzhatter
azzhatter's picture

zero inflation eh? do you eat?

Mon, 07/02/2012 - 10:20 | 2580523 ihedgemyhedges
ihedgemyhedges's picture

Robo's only inflation is the number of down arrows on ZH........as dumpster diving for food is free........

Mon, 07/02/2012 - 10:20 | 2580526 Saro
Saro's picture

Don't you know? Robots eat old peoples' medicine for fuel.

Mon, 07/02/2012 - 10:16 | 2580511 Everybodys All ...
Everybodys All American's picture

- No economic growth.

- No job growth.

- No political leadership.

 

 

Mon, 07/02/2012 - 10:50 | 2580628 odatruf
odatruf's picture

It's worse than no political leadership. What we have is a policital system and class who are taking actions that are contrary to the interests of the general population.

I'd take inept over the current corruption any day.

Mon, 07/02/2012 - 11:00 | 2580659 El Oregonian
El Oregonian's picture

Washington D.C. and " Prez. ZerO" sounds kind of like the cruise ship "Costa Concordia" and cowardly Captain Francesco Schettino.

Rut-Row, here come the rocks...

Mon, 07/02/2012 - 10:20 | 2580527 Coast Watcher
Coast Watcher's picture

Well, you got one out of four right. Better than your usual average.

Mon, 07/02/2012 - 10:32 | 2580564 HellZero
HellZero's picture

stocks up AND bonds up.

How rational

Mon, 07/02/2012 - 11:48 | 2580777 The Monkey
The Monkey's picture

This is a top. We will likely eek a few more points off ES, but earnings and backdrop are not very compelling at these prices.

1400 is a sell on the S&P.

Mon, 07/02/2012 - 10:11 | 2580490 John Law Lives
John Law Lives's picture

"Prices plunge to 37 on expectation of 57 and there go your corporate margins."

Ouch!  There is also not a whole lot of fat for corporations to trim these days.

Mon, 07/02/2012 - 10:11 | 2580491 Number 156
Number 156's picture

Let me know when interest rates go negative.

Mon, 07/02/2012 - 10:11 | 2580493 Temporalist
Temporalist's picture

How do I call you in 2008?

Mon, 07/02/2012 - 10:13 | 2580495 lizzy36
lizzy36's picture

Maybe it is not the fiscal cliff, or uncertainty (when has there ever been certainty), or Health-care, or......Maybe just maybe it is a really shitty economy, the requires far more debt repudiation and the only thing the fed ever accomplished, was making "wealth effect" for the upper 20% at expense of bottim 80%.

Mon, 07/02/2012 - 10:13 | 2580497 azzhatter
azzhatter's picture

Bullish!!! Let's rally

Mon, 07/02/2012 - 10:13 | 2580498 Savyindallas
Savyindallas's picture

You don't think the the S&P being 4% under its 4 year highs is enough of a national disaster to justify QE3? THe stock market is the only thing working in this country (Thanks to Ben). If we allow it to drop, we are all surely doomed.

Mon, 07/02/2012 - 10:13 | 2580499 ziggy59
ziggy59's picture

Shrinkage!

Mon, 07/02/2012 - 15:23 | 2581451 SDShack
SDShack's picture

Like a scared turtle!

Mon, 07/02/2012 - 10:14 | 2580503 monopoly
monopoly's picture

Going down, this is the down elevator. Down only!

Mon, 07/02/2012 - 10:15 | 2580506 HaroldWang
HaroldWang's picture

But what about Construction Spending?? A miracle that somehow it blows away expectations on a terrible ISM. Good enough to juice the market off the lows. Rally on! Cherry pick your data points.

Mon, 07/02/2012 - 10:25 | 2580542 bdc63
bdc63's picture

Marc is absolutely right.  And anybody reading Germany's "body language" knows that is the direction they are headed.

The Euro will survive, but all the strong countries are going to abondon it and go back to their pre-millenium currencies.  The Euro will be a bigger joke than the Peso by this time next year.

Mon, 07/02/2012 - 10:15 | 2580509 SeverinSlade
SeverinSlade's picture

And to think, the entire 100 point rally in the S&P began on a rumor, no action by the ECB, and no QE3 by the Fed...Amazing.

Mon, 07/02/2012 - 10:21 | 2580529 Cursive
Cursive's picture

@SeverinSlade

You nailed it.  Amazing.  And talking heads wonder why retail "investors" are leaving in droves.

Mon, 07/02/2012 - 10:40 | 2580512 LeisureSmith
LeisureSmith's picture

 "The economy and general business seem to be getting better even though recent data say otherwise." (Fabricated Metal Products) Fabricating Metal Products, isn't that what the LBMA and Comex is all about. aka. ETF's.

Mon, 07/02/2012 - 10:18 | 2580520 genr8n
genr8n's picture

Pfff... Rally Rally (risk on ... until Euro announce "agreement" of terms of MoU on 9 July, pass it on)

Mon, 07/02/2012 - 10:20 | 2580524 Flakmeister
Flakmeister's picture

It's ok.... the heat wave will stimulate purchase of AC units and those little water sprayers with the battery operated fans, so the economy will be ok...

As an added bonus, rebuilding parts of the grid downed by the Derecho on Friday will also be stimulative...

But seriously, the Heat Index in Aberdeen MS was 136 degrees on Saturday....

http://www.wunderground.com/history/airport/KM40/2012/6/30/DailyHistory.html?req_city=NA&req_state=NA&req_statename=NA

Mon, 07/02/2012 - 11:02 | 2580663 aerojet
aerojet's picture

All the heat index and "real feel" bs is total nonsense--it's the weather industry trying to be as dramatic as possible because only the squeaky wheel gets any attention.  Here's a newsflash--before A/C was invented, the south was a really shitty place to live for most of the year!  It gets hot in land-locked states like MS, it always has, and some years it gets really fucking hot, enough to melt the asphalt.  It has always been this way, it is not some new phenomenon.  What is "new" is that a bunch of assholes are trying to make money off of it selling you dumb ideas.

Mon, 07/02/2012 - 11:22 | 2580720 Flakmeister
Flakmeister's picture

So we agree, the South is a shitty place to live...

Not sure how they are making money off this as I didn't know the Dew Point was commercially interesting...

I imagine most Americans think that the Dew point is when their girlfriend starts to get a little moist, if you catch my drift...

PS MS is not landlocked.... 

Mon, 07/02/2012 - 10:22 | 2580531 HaroldWang
HaroldWang's picture

Who cares? Apple won the case in China to keep the iPad name. Now that's news!

Mon, 07/02/2012 - 10:23 | 2580534 Silverhog
Silverhog's picture

Go back to sleep Bernanke, we have everything under control.

Mon, 07/02/2012 - 10:25 | 2580544 BBullionaire
BBullionaire's picture

Not a good start to Q3. neg gdp on the way?

http://bulletsbeansandbullion.blogspot.co.uk/

Mon, 07/02/2012 - 10:25 | 2580545 search
search's picture

More proof that QE doesn't work. More proof that China is hurting bad. What can Ben do when his QE will do nothing but re-introduce inflation to  the so called "engine of economic growth". Subtext China Recoupling, beautifully said Tyler.

Mon, 07/02/2012 - 10:26 | 2580548 JackT
JackT's picture

PPI in at 37.0 on expectation of 47.5 --> Deflation.  Anyone know where I can find a nice historical chart on PPI?  I'm curoius to see when other 10.5+ contractions have occurred.  

Mon, 07/02/2012 - 10:38 | 2580591 machineh
machineh's picture

In the top chart, today's PMI is at about the same level as in July 2008 -- when the economy was already in its 8th month of recession.

The ISM still bravely maintains that a PMI above 42.6 indicates economic expansion.

But the 42.6 figure is an average of many business cycles. In 2008, the PMI falling below 50 signaled recession early and accurately.

Mon, 07/02/2012 - 10:28 | 2580549 BigE
BigE's picture

Don't forget manufacturing accounts for only about 13% of GDP, the Non-Manufacturing report I think will come in around 51.0

I've been using the World Economics SMI to make my predictions each month and although it tracks above the ISM when you combine the Man and non-Man sectors you get a good guide:

http://www.worldeconomics.com/SMI/SalesManagersIndex.efp

Mon, 07/02/2012 - 10:33 | 2580568 Flakmeister
Flakmeister's picture

Forgot to mention that a powerful El Nino is forming:

http://www.osdpd.noaa.gov/ml/ocean/sst/anomaly.html

http://www.cpc.ncep.noaa.gov/products/CDB/Forecast/figf4.shtml

Last one this strong was in 1998... you know the year the AGW deniers said that the warming stopped...

Mon, 07/02/2012 - 11:04 | 2580672 aerojet
aerojet's picture

Oh brother.  The last time there was an El Nino, the media could not shut up about it! 

Mon, 07/02/2012 - 10:47 | 2580574 MFL8240
MFL8240's picture

Looks like a healthy economy to me?  What do ya think? Exactly the type to impose 28 Billion in new taxes on the middle class with the ObamaCare con game of lies and decpetion??

 

Read:  http://www.humanevents.com/2012/06/30/wsj-chief-economist-75-of-obamacare-costs-will-fall-on-backs-of-those-making-less-than-120k-a-year/ 

Mon, 07/02/2012 - 10:42 | 2580607 Shizzmoney
Shizzmoney's picture

This economy is gay

Mon, 07/02/2012 - 10:45 | 2580620 LeisureSmith
LeisureSmith's picture

Fake and gay.

Mon, 07/02/2012 - 11:40 | 2580714 Temporalist
Temporalist's picture

Ben is getting ready to print $3 bills?  I think $3000 bills are gonna be needed.

Mon, 07/02/2012 - 11:42 | 2580763 Flakmeister
Flakmeister's picture

Almost forgot.... with all the openings in fighting wild fires, the Jobs report will be peachy keen this week...

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