It's Not So Rosie: What Keeps A Gloomy Realist Up At Night

Yesterday, we were offered 'hopes and prayers' by Gluskin Sheff's David Rosenberg. However, as he warned then, there are some things to be worried about. From the wide gaps in voting patterns across socio-economic lines and the expectations that populist policies will be the hallmark of Obama's second term to the mixed-to-negative data across employment data, consumer spending indications, housing, and Europe; it appears the market is starting to price in some positive probability of a fiscal cliff and these macro data do nothing to subsidize that reality.


Via David Rosenberg of Gluskin Sheff:

The wide gaps in voting patterns across socio-economic lines were as wide as they have ever been (55% of those earning more than $250,000 voted for Romney, while 42% voted for Obama; 59% of the white vote went to Romney, just 39% to Obama: the black vote went 93% for Obama and just 6% for Romney). If Obama caters to those who voted for him, then we can certainly expect populist policies to be the hallmark of his second term. Let's hope in this quest for greater income equality that he doesn't narrow the band by dragging everybody's purchasing power down. While the President does not face the Great Recession of four years ago, he does confront the "Not So Great Recovery" nonetheless.


The data remain broadly mixed, but even data like the last jobs report are lacking the necessary wage-based income growth needed to generate sustainable growth, let alone durable above-potential growth. The recently-released .JOLTS report (Job Opening Labor Turnover Survey) showed a jobs market that in fact is taking three steps back for every step forward. One step back was the job openings number, which in September sank 100k, down two of the past three months to a five month low of 3.561 million (much lower than the market call for a modest decrease to 3.65 million). The second step back was in hiring activity, which also shrank 255k in September, down three of the past four months and the largest decline since April 2011. The private sector cut 201k jobs and the public sector shed 55k. And the third step backward was in the number of job quitters which fell 175k in what was the sharpest falloff since November 2008 - as well as being the third drop in the past four months (fewer voluntary job leavers is suggestive of lower worker confidence). The step forward, thankfully, was in the layoffs component, which slid 147k, down two of the past three months. At least the slips aren't turning pink even more, even if HR departments aren't very busy placing job ads either.


This subdued employment backdrop along with the disruption from Sandy is predictably exerting a drag on consumer spending growth at this crucial seasonal period for the retail sector when merchants had been busy preparing for what prior surveys had been foreshadowing - a decent holiday shopping backdrop. Unfortunately, the ICSC (International Council of Shopping Centres) index showed that same-store sales fell 0.2% for the week ending November 3rd and were up 1.4% YoY. Month-to-date, sales fell 0.2% MoM and were up 1.4% from year-ago levels - below consensus views of a 2-3% YoY gain. The comparable Redbook survey confirmed this result Chain store sales were off 0.6% MoM thus far in November and up 0.8% YoY running below the 2.1% sales target. The consumer frugality theme has hardly gone away as well - with the latest fad for the coming holiday season being 'slim Christmas trees'. Have a look at Svelte for the Holidays on page D1 of Wednesday's WSJ.


On the housing side, signs of sputtering are coming to the fore. Total mortgage applications in the November 2nd week declined 5%, and have sagged now for five weeks in a row - sliding at an annual rate of 95%(!!) during that period. Applications for new home purchases slipped 4.8% and are down two of the past three months. The prior boom we saw in mortgage refinancings is also over as the MBA Refinancing index dropped 5% during the same week and has declined now in each of the past five weeks.


Overseas events are also quite challenging. Greece faced a contentious vote in parliament over $23 billion of fresh government spending cuts (narrowly passed yesterday and needed as a quid pro quo for $40 billion in rescue financing from its creditors). Here in the U.S., another storm in the Northeast is on its way which once again is likely to disrupt economic activity in a part of the country that represents 20% of GDP (five times the share we typically see directly affected when these disasters hit the deep south). Geopolitical tensions are back on the front burner too - especially the more bellicose tone coming out of the Israeli leadership (see Netanyahu Says He'd Go It Alone on Striking Iran on page A5 of the Wednesday NYT). Angela Merkel said this week that "whoever thinks this can be fixed in one or two years is wrong" and this sentiment was affirmed by Mario Draghi yesterday and ratified by the latest slate of German data (industrial orders collapsed 3.3% in October on top of a 0.8% decline the month before: a final reading on the manufacturing-services PMI fell to 47.7 in October from 49.2 in September), which now suggest that German GDP is going to contract in Q4 as the euro zone recession deepens and spreads out to the north.


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