Current Data Survey Points To Stagnation

From The Daily Capitalist

The economic data that has come in during the past 5 days reflects the overall stagnation of the economy. Reports on jobless claims, manufacturing, factory orders, and consumer spending were all rather flat to negative—except for jobless claims which have declined for the fifth straight week.

The most significant data relates to manufacturing. The ISM Manufacturing Index for September:

New orders are decelerating, and perhaps abruptly, while inventories climb and hiring slows. The ISM's new orders index, in prior months having already showed signs of slowing, fell two full points to 51.1 to indicate only mild month-to-month growth. Inventories, which had already been going up, really spiked, up more than four points to 55.6. This will raise concern that a significant part of the inventory build is more and more unwanted. Employment, which had been very strong, fell nearly four points to 56.5.

 

Backlogs are another bad sign, falling five points and showing month-to-month contraction at 46.5. The headline composite of 54.4 is still solid but orders are now a central concern for the manufacturing outlook. This report may prove to be a negative for today's stock market.

The thing to watch here is the manufacturers' inventory build which has been growing steadily, up by 0.1% in August, after increasing 0.9% in July. But durable goods inventories were up 0.4 percent.

Factory orders for August also declined:

U.S. factory orders dropped more than expected in August, marking the third decline in the last four months. U.S. manufactured goods orders decreased by 0.5% to $408.94 billion, the Commerce Department said Monday. Commercial airplanes drove the decline; excluding transportation, all other factory orders rose. ...

 

Factory orders are either durable or non-durable. Durables are designed to last at least three years -- things such as cars. The Commerce report Monday said durables dropped by 1.5%, revised from a previously reported 1.3% decrease. Nondurables rose by 0.3%. Capital goods orders fell 0.1%. Non-defense capital goods orders rose 0.1%.


Corporate profits are up again for Q2, but not as strongly as for Q1:

Corporate profits in the second quarter grew to an annualized $1.383 trillion from $1.370 trillion in the prior quarter. Profits in the second quarter were up an annualized 3.8 percent, following a 54.1 percent surge the prior quarter. Profits are after tax but without inventory valuation and capital consumption adjustments. Corporate profits are up 38.7 percent on a year-on-year basis, compared to up 50.8 percent in the first quarter.

The thing to remember about corporate profits is that they have been achieved through efficiencies, not growing sales, which is why they are also not hiring. I would venture to say that corporate profits are largely driven by the multinationals.

Which brings us back to the consumer. The Conference Board's Consumer Confidence index crashed in September:

Grim is the word the Conference Board uses to describe consumer confidence. The Conference Board's index is down nearly five points in September to 48.5 for the lowest level since the beginning of the year. What's important is the direction of confidence and that's, unfortunately, downward. Confidence hit a high in May of 62.7.


I should point out that the University of Michigan poll rose slightly in September from 67 to 68.2.

Real personal consumption expenditures (PCE) in September according to Roubini:

... rose by 0.2% m/m in August, slightly more than expected, to mark the fourth consecutive month of a positive reading. Personal income showed a 0.5% m/m uptick, driven by a 1.6% jump in transfer payments [unemployment benefits]. Revisions to data from previous quarters indicate that consumer spending has tracked a subpar, anemic recovery. The question remains as to whether a sustainable rebound in spending is likely in H2 2010 and 2011, given that wage-related income and assets still show weakness.

But it was pointed out that:

Still, there was moderate strength in the wages & salaries component which posted a 0.3 percent boost after increasing 0.4 percent in July. Private industry wages & salaries rose a sharp 0.5 percent, matching the July gain.


These numbers are rather sober, especially the PCE.

Another statistic jumped at me today: personal bankruptcies are rising:

U.S. consumer bankruptcy filings for the first nine months of this year reached the highest level since 2005, according to the American Bankruptcy Institute. Data collected by the National Bankruptcy Research Center said filings from January through September totaled more than 1.1 million, up 11% from the same period one year ago.

 

Consumer bankruptcy filings increased 3.3% from August, to 130,329. Chapter 13 filings accounted for 30% of those, also a slight increase from the month previous. The American Banking Institute it expects the number of bankruptcy filings to steadily increase.

 

“We expect that there will be nearly 1.6 million new bankruptcy filings by year end,” said Samuel Gerdano, executive vice president of ABI.

The big report this week will be the employment report on Friday. That will say a lot to the markets and the Fed.