Whereas in restructurings one has fulcrum securities (just ask an equity committee, and valuation fight counsel what that is), in lemmingoloy one has fulcrum Wall Street economists. As always, the only one that matters in this regard is Jan Hatzius, whose every word is assayed with a fine toothed comb by the Wall Street econoshortbus: all it takes is for Hatzius to issue some unkind words about a GDP component and the downgrade avalanche begins. Which is why reading his comments following less than flattering data is always very informative (after all it was Goldman with their disastrous in retrospect call in December to upgrade the economy that forced everyone, except us, to have an overebulient outlook for Q1 GDP, subsequently friendo'ed). Below is his take on the Philly Fed which according to us is the first salvo that will confirm Q2 GDP is about to be whacked, leading to a full year GDP reduction, and setting the stage for QE3, as we have been claiming since January.
The key section:
1. The Philadelphia Fed index fell to 18.5 in April from 43.4 in March, a much larger decline than anticipated. However, the level of the index remains consistent with steady expansion, and is inline with readings in the November to January period. Nevertheless, the news is disappointing, and suggests that factory sector growth may have cooled a bit in early Q2. As discussed in yesterday's US Daily [TD: posted here], supply chain disruptions resulting from the natural disasters in Japan may affect manufacturing output in Q2, but we have no specific information that this was at work in today's report.
Oh but you will soon enough Jan. And how is your December "American golden age" call going to look then when your well built house of cards topples into the sea of another $1 trillion in mandated liquidity?
The balance of the note:
2. The sub-indexes of the Philly Fed report generally mirrored the headline: most of the major indexes declined, but remain at reasonably good levels. New orders fell to 18.8 from 40.3, shipments to 29.1 from 34.9, and employment to 12.3 from 18.2. The index of unfilled orders remained very high (though it also declined a small amount), and the index for supplier delivery times rose - perhaps consistent with supply chain problems.
3. The FHFA house price index - a measure of prices for homes with agency-conforming mortgages - fell by 1.6% mom, a much larger decline than anticipated and the second largest in the series' history. The decline in this price index is particularly worrying because, due to its composition, it should be less affected by distressed sales. The fact that it is also declining very sharply implies that the prices on homes with higher-quality borrowers are also slipping.
4. The index of leading economic indicators rose by 0.4% mom in March, a little more than expected, and the previous month was revised up. Gains came from the average workweek, supplier delivery times, building permits and the slope of the yield curve.