Weekly Bull-Bear Recap: May 2-6,2011

Submitted by Rational Capialst Speculator

Weekly Bull-Bear Recap: May 2-6,2011


+ The Jobs recovery continues as the granddaddy of all US economic reports, the BLS “Employment Situation”, showed a solid increase of 244K jobs with an upwards revision of 46,000 in the previous 2 months. The charge was lead by the private sector, which notched its largest gain in almost 5 years.  The Gallup Poll announced that its “Job Creation” metric notched its best monthly reading of the recovery, while the unemployment rate fell.  Meanwhile, leading employment indicators point to continued improvement. Jobs are the final piece of the puzzle for the bullish thesis and it’s falling into place…

+ …These new jobs are igniting a “shadow demand” for housing, where recent graduates move out of their parent’s home and form new households.  Multi-family housing supply is getting mopped up by increased household formation, which will result in housing-related employment bottoming this year.  The housing market continues to heal.

+ The US economic recovery is sustainable and lead by strong growth in the manufacturing sector.  April’s ISM report showed that New Orders, Production, and Employment all notched very healthy growth rates.  Meanwhile Backlogs jumped from 52.5 to 61.0 and ensures that the sector will continue to grow in the months ahead.  This is further confirmed by March Factory Orders which climbed for the 5th consecutive month while last month was revised higher. 

+ Car Sales came in better than expected and are up 17% from April 2010.  The consumer is getting back on its feet (the plunge in oil may help), while business are expanding.  End demand will accelerate in the months ahead as the job market, the final piece of the bullish thesis, falls into place.

+ As per the Senior Loan Officer Opinion Survey, released by the Fed, credit is becoming available again and adds a key ingredient to the recovery.  Commercial and Industrial loan demand is increasing, a sign of expansion (=jobs).  Easing credit standards will facilitate the progression of the recovery.

+ Global growth is certainly present.  The world economy is on a sustainable recovery, led by Asia, which will lead the world into a new era of growth as demand for goods sparks an export-led recovery in the US and Europe.  Manufacturing at home has been strengthening and shows that this transition is occurring before our eyes.  Meanwhile, contrary to the bear’s sentiment, China is clearly showing signs of a soft-landing as their PMI shows slowing, but not crashing growth. 


- This isn’t your garden-variety recession, it’s a balance-sheet recession.  Consumer psyche has been scarred for a long time (think Great Depression scarred) as households are reluctant to take on debt despite bank’s increasing willingness to extend credit.

- ISM Non-Manufacturing index which tracks the service sector of the economy plunged from 57.3 to 52.8 in the largest drop since late 2008 and the slowest growth in 8 months.  New Orders led the fall while employment growth weakened as well.  This all-important sector, representing 80% of job growth and close to 90% of business in the US economy, is showing signs of a serious slowdown in growth.

- Consumption will likely take a hit as millions are set to lose their unemployment benefits in the coming weeks.   Along with spiking gas prices, stagnant real wages, a double-dipping housing market, and declining confidence, consumption growth may come to a grinding halt. 

- Ireland slashed its growth projections in half for 2011 and 12.  Austerity doesn’t seem to be working there and it looks like Portugal is headed in the same direction.  Meanwhile, rumors are surfacing that Greece may end up leaving the Euro which would be a tremendous blow to the Euro experiment and would signal a default on its sovereign obligations.  How long would it take for other countries to follow?  Europe continues to experience its slow-motion train wreck with austerity beating up on economies in that region and now a strong currency negatively affecting its most important one.

- Global growth is running into some serious headwinds.  Asian countries may be confronting a stagflationary type of scenario as they   raise rates in an effort to cool down inflation; unfortunately slower growth is a bi-product of most rate-tightening cycles.  Higher rates risk possibly popping a Real Estate bubble for the linchpin of the global recovery.    

-  This week was actually rather disappointing on the jobs front.  While the BLS jobs report showed strength on the headline, details under the hood were not all healthy.  Furthermore, Initial jobless claims surged again marking the 3rd straight increase up to 474K while last week was revised………guess.  The ADP employment report reported a less than expected increase of 179,000 (consensus was 195,000).  So for the bulls stating that the final piece of their thesis is in place, the data shows a more muddled picture.  The labor market remains very weak.


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