Punxsutawney Ben, who just saw the printer's shadow, and predicts six more trillion of free money, will address the House Budget Committee later this morning. We will also get the latest BS from the BLS how thousands of mass layoffs every day result in a drop in initial claims.
Following the Fed's somewhat downbeat perspective on growth, confidence in investors' minds that the US can decouple has been temporarily jilted back to reality. It is of course no surprise and as the World Bank points out half of the world's approximately $15 trillion trade in goods and services involves Europe. So the next time some talking head uses the word decoupling (ignoring 8.5 sigma Dallas Fed prints for the statistical folly that they are), perhaps pointing them to the facts of explicit (US-Europe) and implicit (Europe-Asia-US) trade flow impact of a deepening European recession/depression will reign in their exuberance.
The Dallas Fed Manufacturing Index joined a long and distinguished list of recently disappointing macro prints by missing expectations - coming in at -14.4 versus an expectation of -11.4 (the fifth negative print in a row). While the Production sub-index was up and will provide fodder for bulls (it is still half what it was in July 2011), it is the drop in the outlook for future business activity to a -1.5 (the first such negative print since April 2009) that should have central planners the most concerned as borrowing demand is surely bound to drop further on these weak expectations. This combined with the Philly and Empire prints implies a sub-50 ISM print is forthcoming.
The second economic disappointment of the day comes from the Dallas Fed, which dropped from -2.0 to -11.4 on expectations of -9.0- this was the 4th consecutive negative print month. The report was, in a word, horrible, with just 2 of the 15 constituent indices posting an increase, and the bulk solidly in the red, led by Unfilled and New Orders which dropped 16.8 and 11.2, respectively: not good for economic growth. On the employment side there was nothing good either, with both employment and hours worked declining by -6.7 and -10.1, respectively. The only components rising were materials Inventories (must.restock.always), and CapEx, up 10.7. The most critical Production index declined by 9.7, just barely positive at 1.1, and the second lowest in 2011, with a worse number before that printing all the way back in 2009. Yet the most descriptive are the responses from the survey respondents themselves: two words "peak gloom." And why not: the ISM will print in the mid 40s and the NFP could well be negative. Which of course will send stocks soaring even higher on QE3 being priced in for the 666th time.
Three B-grade economic updates today to serve as an appetizer to the ISM release on Thursday and the NFP data (very likely negative - more shortly) on Friday.
The collapse in the manufacturing base continues: the Dallas Fed general business activity index just printed at a whopping -17.5 on expectations of -3.2, number that was supposed to be a gain from before, and yet another confirmation that Wall Steet is populated by a bunch of illiterate lemmings. From the report: "Perceptions of general business conditions were mixed in June. The general business activity index pushed further negative, falling from –7.4 to –17.5. Twenty-eight percent of respondents said activity weakened this month, the highest share in nine months. However, the company outlook index rose from 3.2 to 7.2, suggesting manufacturers were more optimistic about their firms’ prospects for the near future." Ah, back to consuming hopium. We wonder how many of these manfucturers were optimistic back in Q1 when the the index was printing in the 20 range only to see a near-historic collapse. We are now certain the ISM will pring sub-50, with a print as low as 46 most certainly possibly.
Yesterday it was the Dallas Fed confirming our assumption that the US economy in Q2 has hit stalled speed. Today, it is the Richmond Fed which plunged compared to expectations and the March print of 20, instead dropping to 10, and indicative of a major slowdown in the manufacturing sector. From the index: "In April, the seasonally adjusted composite index of manufacturing activity – our broadest measure of manufacturing – fell ten points to 10 from March’s reading of 20. Among the index’s components, shipments decreased seventeen points to 6, new orders dropped ten points to finish at 10, and the jobs index eased two points to 14....All broad indicators – including shipments, new orders and employment – continued to grow but at a rate below March’s pace. Other indicators were mixed. Fifth District contacts reported that capacity utilization continued to grow more slowly, while backlogs turned slightly negative. Vendor delivery times edged higher and raw materials inventories grew at a somewhat higher rate." Now "Below March's pace" means trending Q2 GDP is now at or below 2%. But that's fine: somehow the economy will really hockeystick in Q3. And if not, there is QE3, 4 and 5. And the kicker, as usual, Prices Paid jumped as Prices Received plunged: which is always bullish for (collapsing) margins. Elsewhere the CON board called 7 Wall Street CEOs w
And following the continuing plunge in new homes for sale reported earlier, we get the second validation of the theory that the Q2 GDP is about to get the rug pulled from underneath it. The April Dallas manufacturing number came precisely at the borderline we expected earlier would mean an outright downgrade of Q2 economic data by Goldman, or 10.5%. Of note: The production index, a key measure of state manufacturing conditions, moved down from 24 to 8, suggesting slower growth in output." We thing the proper word is "plunged." This is as expected considering our long held assumption that the Japanese economic collapse is already impacting the US. In addition to production, other indicators that saw a collapse were volume of shipments, down 10.9 and the average employee workweeks, which tumbled by over 13. But at least Bernanke is getting his hyperinflation wet dream on: average wages increased by 4. Probably the most important index: prices paid, barely budged, printing at 56.6 compared to 57.2 last month. We are confident that Hatzius will have some very unpleasant words when commenting on this latest contractionary data point. As for the respondents, they confirmed that the bulk of the broader inflation is about to hit, as manufacturers can no longer internalize plunging margins. To wit: "From a cost
standpoint, commodity prices continue to increase, negatively impacting
material and delivery costs. As a result, we are in the process of
taking a price increase to the market, which should occur in May" and "Our sales are up,
but our cost of goods sold and the cost of diesel are keeping our
margins at record lows" and, FTW: "Rapidly increasing costs and fuel costs have
shocked the consumer away from any nonmandatory spending." Pretty much says it all.
New home sales expected to rebound from record lows. Dallas Fed at 10:30 should confirm the Q2 economic contraction (expect Goldman to downgrade Q2 GDP if Dallas Fed comes under 10). After a one day absence, POMO is back, though today all Primary Dealer proceeds will likely go to fund margin calls.
Some stunning remarks from Dallas Fed's Dick Fisher: " Our duty is most distinctly not to monetize?or even
be perceived as monetizing?the debt of fiscally imprudent government.
Throughout the history of nations, monetizing the budgetary excesses of
governments has proven to be a direct path to economic perdition.
Having already peeked inside that door, I feel strongly that we must
now shut it, lock it and throw away the key." Well, thanks Dick. You are only $2.6 trillion dollars late.
Dallas Fed Big Miss, Prints at 11.5 On Expectations Of 18.4, Survey Respondent: "All Of Our Raw Material Costs Are At Record Highs"Submitted by Tyler Durden on 03/28/2011 10:41 -0400
The Dallas Fed diffusion index is out, coming at a disappointing 11.5 on expectations of 18.4, with the market completely ignoring it. After all good diffusion index data is to be bought even if it confirms surging inflation, and bad diffusion index data is to be avoided. And while the component data is pretty bad (projected wages and benefits 6 months ahead plunge by 12 points as do Capital Expenditures, as firms refuse to spend any more organic cash on growth, offset by expectations of lower input costs, which remains TBD), the true nuts and bolts of the index can be gleaned from the respondent surve, presented below, although the most relevant one is here: "Prices are high,
which makes for lower volume. The supply of cattle is limited. The cost
of grain for livestock is unusually high because of high corn prices,
partly attributable to ethanol subsidies. All of our raw material costs are at record highs. The cost of diesel also hurts us. A weak dollar is not good for us." No surprise there.
Today's Economic Data Docket - Savings Rate, PCE, Pending Home Sales, Dallas Fed, And Many Fed SpeechesSubmitted by Tyler Durden on 03/28/2011 07:36 -0400
Today's economic docket includes Personal Income and Spending (which is expected to show a jump in inflation) and the Savings Rate, core PCE, Pending Sales, the Dallas Fed, and a whole lot of dovish Fed speeches. These will be analyzed under a fine toothed comb to see if any of the more dovish members are starting to become as hawkish as their brethren from last week. In the meantime, Frost-Sack will monetize another $5.5-7.5 billion in 5 year debt.
Dallas Fed Provides Latest Confirmation Of Corporate Margin Collapse, As Prices Paid-Received Difference Hits Fresh RecordSubmitted by Tyler Durden on 02/28/2011 11:55 -0400
Everywhere one looks (assuming one is more than just a market momentum, block order frontrunning algorithm... or a Deutsche Bank "strategist" of course), one sees relentless evidence of collapsing margins. Most recently, this was the Philly Fed, whose Price Paid less Prices Received index spread came at the highest since 1979. Well, at least it wasn't a record the Koolaiders said. Alas, that rebuttal will not work for the Dallas Fed. The latest diffusion index, which came at 17.5, on expectations of 13.0, confirmed two very much expected things: i) economic "growth" continues to be predicated on inventory stockpiling, as has been the case for the past two years, which is nothing but a highly speculative bet that demand will eventually pick up (and we pray the Dallas Fed respondents use FIFO not LIFO accounting), and ii) margins are getting crushed. Recreating the Philly Fed Prices Paid less Prices Received index shows that the differential of 45.50 is now at all time wides. Notably, the last time the spread was at or above 45 was in early 2008 following which everything went to hell. Expect to see many more diffusion indices confirm the relentless erosion in corporate margins, which in turn will result in either accelerating end-user inflation (unlikely), or imminent margin and EPS downside guidance, which even a reluctant Wall Street will have no choice but to take into account over the next several weeks.
Dallas Fed's Richard Fisher, who despite his recent quite vocal disagreement with Fed policies (Dallas Fed's Fisher Stunner: Admits Worries Fed Has Created Nothing But Bubbles), yet who conveniently forgot to dissent with the decision to continue the status quo at the latest FOMC committee, thereby making the current batch of hawks even more useless than the previous one (at least back then Hoenig had the guts to put his dissent where his mouth was) is once more on the tape, and following last week's announcement by the Dallas Fed president, was once again caught stating that he will not support further Fed accommodation and he will dissent with further QE decisions. At this point it is mostly theatrics. Should there truly be more QE, as Ben Bernanke implied may be the case during last week's Press meeting, then watch oil, commodities and those pesky precious metals quickly ground any such ambitions.
Dallas Fed Misses Consensus, Comes At 10.9 On Expectations Of 15.0, Prior 12.8, More Input Cost WarningsSubmitted by Tyler Durden on 01/31/2011 11:35 -0400
The Dallas Fed prints at 10.9 and misses expectations. Stocks ramp as the miss would have been bigger if it had snowed in Texas, and so you must acquit. In the meantime, GETCO buying not just every single INTC share in Level 2 - 200, but moving on to everything not nailed down. Melt up must proceed as planned. Since this index missed and is thus completely irrelevant, here is the only notable extract from the report: "Prices climbed again in January. The raw materials price index jumped from 43 to 62, reaching its highest level since mid-2008. The share of manufacturers who saw an increase in input costs surged to 64 percent, compared with only 2 percent who saw a decrease. Finished goods prices rose for the third month in a row, although the great majority of respondents continued to note no change. Sixty percent of respondents anticipate further increases in raw materials prices over the next six months, while 40 percent expect higher finished goods prices."