With industrial production falling, the likelihood of an economic recovery seems farther and farther away for Messrs. Bernanke and Obama. The way I look at the data, the US economy continues its slide into stagnation. This isn't a "double-dip" -- we never did recover from the '08 Crash -- but a consequence of monetary and fiscal stimulus.
From the Deustche Bank voodoogist who just can't catch a break on any coin toss so far in 2011. Below are Joey La-Vorg's latest thoughts on the unfolding stagflation in the US: "We have trimmed our current quarter growth estimate further based on the most recent economic data which showed higher inflation in the current quarter as well as preliminary evidence that the soft patch is extending into June. Core inflation is presently up 1.5% year-on-year, and we expect it to further accelerate through yearend (2.1%). The larger-than-expected increase in the CPI implies the inflation adjustment to current quarter consumption will be larger than we initially anticipated, thereby softening the profile of household spending in real terms. Furthermore, we expect June to be another dismal month for auto sales. As a result, we lowered our Q2 PCE estimate to 1.0% from 2.0%, which in turn lowers Q2 GDP to 2.3% from 2.7%."
May PPI Comes In At 0.2%, Higher Than Expected 0.1%, Eleventh Consecutive Increase; Retail Sales Slightly Better Than ExpectedSubmitted by Tyler Durden on 06/14/2011 07:47 -0500
US May PPI came in at 0.2% sequentially, on expectations of 0.1%, and down from 0.8% previously. This was the 11th consecutive increase in PPI. The 12 month change in PPI came at a multi year high 7.3%, much higher than the 6.8% expected, which supposedly is a good thing: inflation is back. PPI ex food and energy was in ling with expectations at 2.1%. Elsewhere, the May Advance Monthly Sales came at -0.2%, on expectations of -0.5%, down from a lower revised 0.3%. Retail sales ex auto and gas came at 0.3% on expectations of 0.2%, with the previous revised lower to 0.2% from 0.3%. Stocks appear to enjoy the increasing inflation on declining economic output.
Today's Economic Data Docket - Less Retail Sales And More Producer Price Increases Lead To Better StagflationSubmitted by Tyler Durden on 06/14/2011 06:56 -0500
The heavy economic data week begins with Retail Sales, expected to come negative, a drop from April, and PPI, expected to post another solid gain in the past month. In the meantime NFIB small business optimism declined in May, as expected.
David Rosenberg provides the key bulletized market observations that have marked the broad capital markets over the past few months.
- $950 billion of paper equity wealth has been wiped off the map in the past six weeks.
- The Dow is below 12,000 for the first time since March 18th.
- The Transports are down more than 8% from the nearby highs and are down for the year as well
- The Transports/Utilities ratio has broken down to its lowest level since November 9th of last year.
- The Nasdaq is now down for the year (-0.3%)
- The Russell 2000 index is also down for the year (-0.5%).
- The S&P 500 is just 1.1% away from seeing the same fate.
- The S&P 500 has declined in each of the past six weeks, the longest losing streak since June-July 2008.
...And much more
According to the just released Beige Book, there was slower growth seen in New York, Philadelphia, Atlanta, Chicago districts. Only Dallas reported acceleration. And yet the denials continue: "wage growth generally remained modest", and there was "widespread improvement reported in credit quality." We wonder where they get these imaginary data feeds from. More from the report: "Manufacturing activity continued to expand in most parts of the country, though a number of Districts noted some slowing in the pace of growth. Activity in the non-financial service sectors expanded at a steady pace, led by industries related to information technology and business and professional services." Shockingly, the Fed admits there is food price inflation: "Elevated food and energy prices, as well as unfavorable weather in some parts of the country, were said to be weighing on consumers’ propensity to spend." Lastly, Japan is the new snow: "Widespread supply disruptions—primarily related to the disaster in Japan—were reported to have substantially reduced the flow of new automobiles into dealers’ inventories, which in turn held down sales in some Districts. Widespread shortages of used cars were also reported to be driving up prices....Many Districts indicated that supply disruptions, primarily from Japan, have contributed to lean inventories, which have impeded auto sales somewhat....Inventory levels are mixed, with one retailer explaining inventory has been temporarily increased due to global supply concerns, such as output disruptions in Japan." And so forth. Key word count of the word: Japan - 25 times; Inflation - 1 time; Deflation - zero.
JPM Lowers Q2 GDP For Second Time In A Week, Warns Of A "Severe Downgrade" To Forecast In Case Of A Technical Default (No, Really)Submitted by Tyler Durden on 06/01/2011 15:06 -0500
And to think they cut it from 3% to 2.5% just a week ago. Michael Feroli, take it away: "When we revised down our estimate of Q2 GDP growth last week to 2.5% we noted that the risks to this quarter were still to the downside. Given the hard activity data we've received since then -- particularly the auto sales and construction report -- it looks like those downside risks are being realized, and we are lowering our Q2 projection to 2.0%. Even with this revision we'd assess the risks as still a little to the downside. Most of our downward revision in Q2 is located in consumer spending, where we think growth this quarter is tracking close to 1.5%. If our new estimate for Q2 is realized, GDP growth relative to a year-ago would be only 2.4%, implying almost no closing of the output gap over the past year -- an abysmal performance given that the output gap is arguably greater than 5% of potential GDP, or less arguably, that there are still almost 14 million unemployed workers. Our forecast implicitly assumes the debt ceiling issue is resolved in a manner which does not see a technical default of the US Treasury. Of course if that assumption were not to hold all cards would be off the table and we almost certainly have to pencil in a much more severe downgrade to our growth forecast. Our Fed call is unchanged and continues to look for a first hike in 1Q13."
- Hilsenrath: What to Watch in Fed Statement: ‘Inflation Expectations' (WSJ)
- Japan Debt Outlook Cut to ‘Negative’ by S&P on Reconstruction (Bloomberg)
- China’s Wen to Spur Investment, Tap Resources in Southeast Asia (Bloomberg)
- Holding Bernanke Accountable (David Leonhardt)
- Hong Kong Exchange And Clearing Chief Prepares for 'Seismic Change' From China (WSJ)
- Because Europe is not enough...China Seeks Bigger Role in Australia Economy (WSJ)
- Tank convoy seen moving around Damascus (Reuters)
Joe LaVorgna needs no introduction: the Deutsche Bank (not pronounced Döuche Bangk) "strategist" is easily the posterchild for Microsoft Excel's goalseek function. As such, he is rarely if ever mentioned among the first 26 tiers of economc analysts (one needs to migrate to Hex from ASCII to catch a reference), as his goal seeking tends to take place only after given the green light by Goldman, Morgan Stanley and BofA (in that order). Which is why it does not surprise us that the strategist has had enough and is now valiantly punching through to the front of the line. The permaungloomer, who for the longest time saw the physical silver lining in the mushroom cloud, has just submited his application to the big boys club by being the first to cut Q2 GDP (and yes, he also finally cut Q1). That said, as expected yesterday, look for everyone to do the same as the hockey stick in US economic activity (once again) fails to materialize.
March Retail Sales At 0.4%, Below Expectations, Down From 1.1% In February; Ex-Autos And Gas Slightly BetterSubmitted by Tyler Durden on 04/13/2011 07:38 -0500
March retail sales which came at 0.4%, below expectations of 0.5%, and down from an upward revised 1.1% February, confirm that the economy in Q1 slowed down materially toward the end, and was certainly not as hot as had been predicted early in 2011. This was the lowest improvement since June 2010. The number was offset by the "ex autos and gas" number which came at 0.6%, better than expected, although with ever more capital being diverted to gas purchases this is cold comfort to those who have to use gas. The biggest weakness was in auto sales which dropped by a substantial 1.7%. Retail sales increased a modest 0.3% (and retail and food total up 0.4%). Gasoline stations saw another sizable increase of 2.6% sequentially and 16.7% from a year earlier. Food and beverage stores were among the weakest posting just a 0.1% increase in March.
Bad News For GM: As China's Own "Cash For Clunkers" Program Ends, Car Sales Come Far Below Expectations; BYD Sales PlungeSubmitted by Tyler Durden on 04/12/2011 16:38 -0500
Two months ago we reported that the recently bailed out Unionized Carmaker, for whom China (where they apparently do not care about falling steering wheels) has become a market more important than even the US, had seen some jarring demand weakness, following a 10% drop in January sales. We now learn that GM was not only the beneficiary of last year's Cash For Clunkers program in the US, but has been the recipient of recent incentives offered in the domestic Chinese market. Alas those are now over, and as Bloomberg reports "China’s passenger-car sales grew in March at a pace that was below forecasts after incentives ended and fuel prices rose, the China Association of Automobile Manufacturers said." That's putting it mildly: for an economy in which a growth rate of 10% is considered stagnating, what happened in March was equivalent to a drubbing: "Dispatches of cars including multipurpose vehicles and sport-utility vehicles to dealerships rose 6.52 percent from a year earlier to 1.3 million units, the association said in a statement today. That pace was about one-tenth of the 63 percent sales increase reported in March of last year." Which brings us to the question of the day: how does one spell "short GM" in Mandarin? Yet the irony of the day award goes to Charlie Munger, who may or may not have been completely "open" with his purchase of BYD shares: BYD sales plunge in March by 41% (Y/Y). Suck it in, Charlie.
It seems like we're having great news today about consumer spending, at least if you read the articles coming from the Journal and Bloomberg. They don't let you forget that consumer spending is 70% of the economy. They seem to ignore the debt bomb and its impact on spending.
Atlanta Fed's Lockhart is out with another prepared speech (and this week we will get over ten of these; keep in mind this is all talk - when it comest to voting, Hoenig was the only man who actually could not be accused of hypocricy). Lockhart weighs economic headwinds and tailwinds and comes to a net positive outlook for the rest of 2011 and 2012. Headwinds holding back economic recovery include continued declines in home prices, higher food and energy prices, crises abroad, and fiscal adjustments. Favorable forces—tailwinds—that are pushing the economy forward include improved household finances, moderate employment and income growth, and corporate profitability and ample liquidity. Per Dennis, the financial system continues to heal, supporting growth, although lenders remain conservative and some businesses and consumers still have only limited access to credit. Lockhart foresees continuation of moderate growth, gradually declining unemployment, and the settling of price movements around an inflation rate that is consistent with the Federal Reserve's price stability objective. While short-term measures of inflation have accelerated in the last few months, in Lockhart's view this trajectory will not continue. Lockhart believes that growth in overall consumer prices—at around 2 percent per year through a period of three or four years—is consistent with the Federal Reserve's price stability mandate. He continues to see this objective as attainable. Lockhart remains satisfied with the current stance of monetary policy but is prepared to support a change of policy if evidence accumulates that the low and stable inflation objective is at risk. In other words, Lockhart likely saw subprime as contained back in 2006. In other words, Lockhart most certainly saw subprime as contained back in 2006. The kicker from Lockhart's speech: "contrary to popular opinion, Fed officials actually do eat and fill up their gas tanks." That's admirable: is it with banker money though?
Two and a half years into the so-called recovery and the country is still in the throes of a severe multi-year depression.
The macro picture and market reactions became more complex last week. On one hand global activity and hence demand remain solid. Last week’s global PMIs have been very strong and now stand at exceptionally high levels with a few exceptions. The US labour market continues to perform strongly. But on the other hand, Oil prices continue to be the main focus, as market participants continue to debate the risks for supply disruptions. The sudden shift to a much more hawkish stance by the ECB highlights that inflation targeting central banks may have to act to keep inflation expectations anchored...In a relatively data-light week, the main focus will therefore be on policy developments again. First, the instabilities in the MENA region will remain key, with heightened focus on potential demonstrations in Saudi Arabia on Friday, March 11. The second political development is the intensification of Eurozone sovereign negotiations ahead of the “grand bargain” summit on March 24/25. Finally, the US budget negotiations remain a critical issue and there are some tentative signs that the policy consensus shifts slightly towards more frontloaded fiscal tightening. Bond issuance will be focus point in that context. The US is scheduled to issue $66bn worth of Treasuries in maturities ranging from 3-30 years. Portugal will tap the market with a small issuance despite the fact that last week the national railway company failed to raise government guaranteed debt. Merkel and Schaeuble are scheduled to speak towards the end of the week ahead of important regional elections in Germany. On Friday, Eurogroup leaders meet for another summit, trying to agree on measures to finally put the sovereign crisis behind.