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Commentary on The Capital Markets- Category [Macro Factors]

This is a huge problem folks...

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for April, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $436.8 billion, virtually unchanged (±0.5%)* from the previous month, but 0.9 percent (±0.9%)* above April 2014.

There's no good news in here.  +0.9% annual "growth" is damn close to zero.  That's not a monthly aberration, it's very visible over the last year and can no longer be dismissed.

The bad news was virtually everywhere, other than in building materials -- which is expected, given that there's this thing called "weather" that stunts construction in the winter.

Other than that, take your pick -- food and beverage stores, health and personal care, electronics, furniture, cars, sporting goods, general merchandise and Internet sales, all down (unadjusted.)

Oh, and people are out of money to spend on getting drunk to placate their misery as well.

Yeah, it was that "good"....

Economic "growth"?  Nope.  The lying Ryan and Demothuglican nonsense coming from Washington, enabled by The Fed, has run out of gas and been exposed as the economically bankrupt nonsense that I have argued would come to pass.....

PS: Gasoline sales were up last month but the modest increase in price might have had something to do with that....

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The ADP report missed, but the news is really in here:

Nonfarm business sector labor productivity decreased at a 1.9 percent annual rate during the first quarter of 2015, the U.S. Bureau of Labor Statistics reported today, as output declined 0.2 percent and hours worked increased 1.7 percent. (All quarterly percent changes in this release are seasonally adjusted annual rates.) The decline in productivity follows a decline of 2.1 percent in the fourth quarter of 2014. From the first quarter of 2014 to the first quarter of 2015, productivity increased 0.6 percent, reflecting increases in output and hours worked of 3.5 percent and 2.9 percent, respectively. (See chart 1 and table A.)

Oh oh...

This is the second quarter of negative output sequentially; that hasn't happened in quite some time (several years.)  Further, it's also the second sequential quarter of increasing costs, which also hasn't happened.

Hours worked went up but output went down.  This is particularly trouble in the manufacturing sector where costs bottomed in 2014 and have been rising smartly since; output per-hour has declined in the last two quarters as well.

This spells trouble ahead, particularly given the GDP revisions now in the pipe as a result of trade imbalance -- an imbalance, I might add, that the President and Congress intend to and will add to if we allow TPP to be passed.

"Here it comes."

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There are an increasing number of estimates being ratcheted down to an outright negative GDP print for the second quarter (first quarter is already in the crapper, incidentally.)

As I've repeatedly noted this has become increasingly likely as the so-called "monetary heroin" cannot work indefinitely and the hangover from such shenanigans is a cumulative poison in the economy.

The reason is that contrary to Bernanke's pronouncements (along with others) it is supposed to be expensive in relative and real terms to borrow.  This market force prevents you from doing so en-masse for uneconomic things, such as consumption or speculation.

Pulling forward demand with low interest rates while at the same time spurring asset prices higher via buybacks and similar games does not create economic demand.  At best it is a time shift with a hangover and the problem is that the act of doing it exacts a tax on the economy as a whole that cannot be avoided and is permanent in its impact.

So while the benefits are fleeting the costs are not and when they come home to roost the inevitable hangover means much lower growth than would otherwise be the case.  Unfortunately asset prices and behavior become predicated on this artificial horizon and as a result the next downward move becomes both inevitable and of far worse depth than it would have otherwise been.

Welcome to the consequences.

PS: 2 quarters of sequential negative GDP has a common name.  It's "Recession."

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2015-04-29 07:44 by Karl Denninger
in Macro Factors , 152 references
 

Uh, oops.

Real gross domestic product -- the value of the production of goods and services in the United States, adjusted for price changes -- increased at an annual rate of 0.2 percent in the first quarter of 2015, according to the "advance" estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 2.2 percent.

The immediate claim is that this was "the weather."  Uh, sure it was.

Let's have a look inside.

The price index for gross domestic purchases, which measures prices paid by U.S. residents, decreased 1.5 percent in the first quarter, compared with a decrease of 0.1 percent in the fourth. Excluding food and energy prices, the price index for gross domestic purchases increased 0.3 percent, compared with an increase of 0.7 percent.

That's low, even on core, but not negative.  The negative deflator is going to get goosed next quarter, and hard -- oil prices have rebounded smartly in the interim.  We'll see if people "disregard" the (quite) hot headline number here come the June release.

Real personal consumption expenditures increased 1.9 percent in the first quarter, compared with an increase of 4.4 percent in the fourth. Durable goods increased 1.1 percent, compared with an increase of 6.2 percent. Nondurable goods decreased 0.3 percent, in contrast to an increase of 4.1 percent. Services increased 2.8 percent, compared with an increase of 4.3 percent.

Now that's not good.  But..... it does say (at least in theory) that we'll see inventory depletion over the next month or two, which tends to blunt the potential for a recessionary environment.  Nonetheless, this is weak.

Real exports of goods and services decreased 7.2 percent in the first quarter, in contrast to an increase of 4.5 percent in the fourth. Real imports of goods and services increased 1.8 percent, compared with an increase of 10.4 percent.

Eat the economists; they're low-carb and most are high fat.  They continually claim that while a strong currency will depress exports it stimulates imports as your currency goes further.  Well?

The change in real private inventories added 0.74 percentage point to the first-quarter change in real GDP after subtracting 0.10 percentage point from the fourth-quarter change. Private businesses increased inventories $110.3 billion in the first quarter, following increases of $80.0 billion in the fourth quarter and of $82.2 billion in the third.

Oh oh.... but for inventory build the print was negative.

Current-dollar personal income increased $148.6 billion in the first quarter, compared with an increase of $146.9 billion in the fourth. The small acceleration in personal income primarily reflected an acceleration in government social benefits to persons that was partly offset by a downturn in proprietors’ income.

Welfare, welfare everywhere, but not a dollar earned from private industry.....

Finally, current-dollar GDP (adjusted for currency) was a statistical zero.

This is a crap report.

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Oh my....

New orders for manufactured durable goods in March increased $9.3 billion or 4.0 percent to $240.2 billion, the U.S. Census Bureau announced today. This increase, up two of the last three months, followed a 1.4 percent February decrease. Excluding transportation, new orders decreased 0.2 percent. Excluding defense, new orders increased 2.6 percent.

Transportation equipment, also up two of the last three months, drove the increase, $9.5 billion or 13.5 percent to $80.3 billion.

The entire increase was driven by transportation, including aircraft.

Pay very careful attention right here ladies and gentlemen because this is a quite-reliable leading recession indicator:

That's three months of negative new-order numbers sequentially in non-defense, non-aircraft.  Aircraft have to be excluded because their swings are utterly enormous; 30% swings (as with this month) or even 100%+ swings (as for defense aircraft and non-defense a couple of months ago) are quite common and trash any sort of comparisons that include them.

The only bright spot is a very material (10%) rise in computers and related products in both new orders and shipments this month.  That's a serious outlier but the three-month series of declining orders for both fabricated metals and machinery are extremely bad news.

In addition inventories are at the highest level since the initiation of this series in 1992; inventory builds add to GDP but if unsold wind up destroying corporate balance sheets when they have to be disposed of at fire sale prices or written off entirely.

In the context of the number of people calling for Nasdaq 10,000 (!) by 2016 this morning, a clean double from where it is today, I think it's quite safe to say that the macro and market environment looks disturbingly like late 1999 or the first few months of 2000.

The warning is a two-edged sword -- in 1999 it was evident that the economy was slowing and tech valuations were ridiculous.  Today those valuations are even more ridiculous (Amazon's stock is up $50, more than 10%, on deteriorating margins in their "cloud" business and the economy is slowing again) but in 1999 the Nasdaq doubled before it all blew up.

Be careful.

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