.comment-link {margin-left:.6em;}
Visit Freedom's Zone Donate To Project Valour

Thursday, December 27, 2007

UI & The Dawning Light Of Reality

The weekly UI report is out. Last week's initial claims figure was revised up to 348,000, and this week's preliminary is 349,000. The four week moving average for the 22nd wasn't statistically different than last week's at 342,500.

More notable, the SA number for Dec 15th continuing claims was 2,713,000, compared to the previous year's 2,498,000. The NSA total is 2,813,463, compared to the previous year's 2,565,805. Either way, we have reached the significant YoY increase of 200,000 and passed it. The NSA difference is over 245,000. I think we will continue to set new YoY increases in the weeks ahead. A lot of seasonal jobs always drop out anyway at this time, and this year it will hurt more than most years. (To see the trajectory, go to this page and select the option called Weekly Claims data at the bottom right.)

The economic press is about to get interested in this number because initial claims are going to pass 350,000. That may happen when this week's figure is updated next week.

The durable goods report for November was depressing again. After 3 consecutive declines, November new orders finally rose. Inventories rose, and shipments dropped. The October revisions were negative. The YoY comparisons have improved, but that is largely because we are now comparing this year's figures to the prior year with the inclusion of the very weak period at the end of 2006.

I can't emphasize enough that whether we can escape with a somewhat mild recession versus a long, hard recession really depends on how well manufacturing can exploit the weak dollar, which largely depends on how other developed and developing economies can weather the credit crisis.

That is a long cycle - manufacturing orders often have a long lead time. So while this report is not dire (new orders for nondefense aircraft showed a pleasing pop), it is disappointing.

Demand in the US is doomed to be weak from consumers and businesses. With food and fuel pushing services prices up, many consumers are strapped. The impact is going to show up in service businesses around the nation. Commercial real estate is poised to take a real downturn, and building and tenanting commercial real estate (think strip malls and office buildings) drives a big portion of internal demand. It's not just carpeting, and fixtures. It's desks, cabinets, lighting, furniture, computers and POS systems, plus internet/phone, all of which show up in the GDP category called gross private domestic investment. That category drives the rest of the internal economy.

What we have lost for 2008 is a good portion of the retail expansion. That is really going to hurt as it adds to continued drops in residential construction and a pullback in office condos. The financial sector had produced a lot of growth as well, and that is gone. An additional downward vector will be slower growth in state and local government employment and spending - and in the hardest hit areas, outright cutbacks.

If we don't get rising demand from foreign sources, both domestic jobs and investment will take a determined downward plunge in 2008. They are doomed to trickle along the downward slope anyway because of tighter consumer spending. If we throw a broader decline in business spending on top of that, it is going to be UGLY.

Waiting for November preliminary trucking figures. Through October, it looked like this. Note that we continue a string of YoY declines:

We did not manage to get the pre-holiday rise in truck freight we had in 2006, and it will be interesting to see if we get the plunge. We are still looking at YTD YoY declines in rail freight. There was some improvement in November, but it is not clear if that continued into December. There is a high correlation between trucking and rail, so the probability is that truck freight did well in November and tailed off in December, which would forecast poor manufacturing growth.


Comments:
I can't emphasize enough that whether we can escape with a somewhat mild recession versus a long, hard recession really depends on how well manufacturing can exploit the weak dollar, which largely depends on how other developed and developing economies can weather the credit crisis.

That is a long cycle - manufacturing orders often have a long lead time. So while this report is not dire (new orders for nondefense aircraft showed a pleasing pop), it is disappointing.


:::

The most important part of the cycle isn't even captured let alone reported - that's the MOST disappointing part of the story. That being the number of new products in the development pipeline. If you want to see a big bump in mfg orders then you need more than credit being made available to end users... you also need fresh products people will demand. Heck go out of their way to buy - must have products.

Personally I see quite a few new design efforts out there but my visibility is narrow - I see only a limited slice of the product universe.

I am not terribly optimistic however - given tight credit conditions I seriously doubt executives will keep development budgets intact as sales soften and lending gets tighter. They will likely decide its 'wiser' to put those resources toward 'stock buy backs' and 'dividends' - not future products. That's how a short minor consumer lead recession turns into a long hard funk.

People don't know it but that is actually likely to be the biggest & most painful fallout from the credit crunch. Cut backs in future product releases - and there is no reporting of it except in aerospace and pharma.
 
MoM,

The problem is that a material currency-driven improvement in net exports requires a dollar deval vs. reserve currencies -- mainly the BRIC's and Japan/Korea/Taiwan. If we get that deval, we also get an acceleration in inflation in all tradebles. Not what we need right now.

Its funny that the media has focused on the dollar devaluing. It has done very little of that against the currencies that matter.
 
Dryfly, I was talking to an engineer not long ago who said the same. Your comment on the executives pulling the development budgets immediately reminded me of Motorola. I think you're right. Some of this is just pure bad management by executives who are too divorced from the business to know what matters.

David - the biggest problem I see for Japan and so forth is that the tightly chained economies move with ours. I noted with some interest that Japan's CB is worried about growth and expects to ease. And China, of course, is determined to keep its currency low enough to maintain its cost advantage.
 
Post a Comment

Links to this post:

Create a Link



<< Home

This page is powered by Blogger. Isn't yours?