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Monday, March 22, 2010


First, the US. CFNAI for February has been published. The pdf release is here.

The three month average dropped. February's one-month reading was -0.64. The best one-month reading in the recent series was Nov 09's +0.14. These readings are very volatile month-by-month.

The three-month moving average (CFNAI-MA3) for February was -0.39.

There is usually a high rate of correlation across three months between some of the leading edge NFIB indicators. When both NFIB and CFNAI are moving in the wrong direction, I worry. Confidence measures in larger business surveys are often dependent on the news cycle; confidence in smaller businesses tends to change more related to experience.

This appears to be related more to the end of the inventory cycle than anything else, but the patterns of consumer spending we are seeing do not skew the picture favorably. CFNAI can hang in the negatives for a long period of time without implying a contraction of the economy, but when it does, it implies weakness and vulnerability.

And now on to Germany. Germany's current status is that employment has held up well, and the economy, while flat in the fourth and weak in the first, still has some sources of growth. Bundesbank expects the second and third quarters to be better in terms of growth.

The average German citizen is still furious about what has happened with the banks and bad debt, concerned about debt and fiscal stability, and deeply opposed to bailing out Greece. But Germany's economy is very export-dependent, and the implications of Greek debt and fiscal problems in other Euro-area countries imply that European trade will be less vibrant for Germany:
Deutsche Telekom AG, Pernod Ricard SA and Lafarge SA are among companies bracing for shrinking demand as Greece, Spain, Portugal and Ireland tighten their belts to slash budget deficits.
“Fiscal measures will definitely have strong repercussions on economic growth,” said Luca Mezzomo, head of economic research at Intesa Sanpaolo SpA in Milan. “The effects of the measures will be particularly harsh on consumer spending as they will cut disposable income and increase prices.”
Italy really should be in the above list because it has a very large fiscal problem. Germany is going to be dependent on its ex-European exports to sustain growth. Thus, actions such as the Indian interest rate increase are dampening the mood. Many countries (including Germany and Japan) gave hefty incentives to consumers to buy goods last year. As those incentives depart, consumer sales of some items are now dropping.

Overall world trade is still recovering, but it isn't recovering in a booming manner, so few countries that are in bad fiscal straits are going to be bailed out by booming tax receipts. Tax increases and spending cuts, however necessary, limit final demand. Since most of the resurgence is sitting in emerging markets and Asia, anxiety over rate increases and various other measures in those markets is inducing caution.

When you can't grow exports, you will try to curb
imports. Every country will now fight for a smaller slice of a smaller pie. It is better to impose tariffs
now, while we still have a middle class, than to wait.

I'm curious what impact this is going to have on German economic performance, if they really do push it to the Lehman-style cliff? The dirty little secret is how many of those bad Greek bonds are on the books of the German banks ...
thats awfully clsoe to -,74 on that CFNAI index and considering the chart below I think a double dip is quite a high probability.

But Sporkfed, if we impose tariffs than so do other countries, other countries will impose tariffs in return, and our costs of manufacturing are likely to go up, not down.

We don't have the manufacturing base we once did. There are many essentials we don't make at all any more. And we are the largest single economy (unless you count the Eurozone as a whole, which I do) in the world.

What are we going to tariff? Clothing? Furniture? Shoes? Steel? Electronics?

Suppose we slapped tariffs on most essential consumer items. Would it really help the middle/working class if the cost of most of those items doubled or tripled? That is what it would take to bring those items back to being manufactured in this country.
John - Greece is such a tiny country that the banks can handle those bonds. Assume that Greece exits the Euro and chugs along on a devalued New Drachma, thus effectively writing down those bonds.

There will still be some value in them. It's not a total loss.

No, the Euro problem is the debt of other much larger countries such as Italy.
Anon - I found the Consumer Metrics data interesting, and I even subscribed. That's how interesting I found it.

Nonetheless, right now I am not seeing the drop in store hours and staffing that will be the ultimate knell of doom; the pickup in staffing of last year is still running except for failing stores. What I do see is that this thing is exquisitely tightly balanced; the shake-down in brands and shelf space continues apace in competitive environments. Baked goods especially are losing ground fast. You just can't sell the pricier stuff in nearly the same quantities.

A look at Smucker's last call and financials shows what is happening. Now at-home coffee is under pressure. The great consumer scale-down is marching right along.

High sales taxes are one problem for non-groceries. Many consumers appear to have shifted to ordering larger items online or by mail in order to avoid paying sales taxes, which hurts retail employment and local/state revenues.
We need to bring basic manufacturing back to this country and we need to have less of a consumer
driven economy. Tariffs on manufactured goods.
Eliminate the payroll tax for both the employee and
employer. Right now we are forcing our manufacturers and workers to compete from a disadvantage.
The motto should be " if you make it here you can sell it here". This needs to be done while we are still a desirable export market. If we wait until the middle class is gone, the game is over. We used tariffs for well over a hundred years to protect our manufacturers. Time to return.
MOM, my point was that after Lehman's bankruptcy, the market panicked about the other big banks. Will it do the same if the Greeks fail and it looks like the Spanish, Portuguese, and Italians are right on schedule to follow?

As you say, the Greeks are tiny. Spain, still small. Italy, not so small at all.
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