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Monday, March 01, 2010

Well, Maybe March Will Go Out Like A Lamb

Life is kicking MY butt right now - not only am I still running a fever and coughing, the Chief wound up in the hospital again last night.

Anyway, spring is coming.... Maybe not economically though.

Briefly: NACM - Eked out a tiny increase, but services dropped. Manufacturing shows some trouble signs as well. Some of the commentary:
The growth manifested in January has been interrupted. However, the drop in activity in February was not enough to plunge the Credit Managers’ Index (CMI) back into negative territory.... Still, it feels more like a decline when compared to the big gains made in January.
...
“There now appears to be a reversal under way, but it may be more accurate to refer to this as a breather,” Kuehl said.
It's not a bad report, but it does raise a very definite question about continued momentum. There is a lot in this report about the inventory cycle, etc. It is quite consistent with the natural end of the inventory rebuild, especially the tightness in payments which shows that future growth will be more dependent on final demand.

ISM Manufacturing: More pessimistic than NACM. This turned in an "unexpected" decline, dropping from 58.4 in January to 56.5 in February. Employment rose. Production dropped and new orders dropped hard. Again, very consistent with the idea that the inventory cycle is completing. Order backlogs dropped. Export orders dropped. Both of these reports show that we are still expanding, but the rate of expansion will probably drop. The questions is whether there is a floor to that drop over the next five months.

Value of Construction: Still dropping in January. No one is surprised about THAT. The YoY rate is -9.3% (all these figures are seasonally adjusted). Total private -14.3% on the year; total public +2.1% on the year. However total public SA has been dropping for a few months, and it continued its fall in January with a -0.7%.

Consumers, consumers, consumers. BEA released its personal income and outlays for January: Disposable personal income in chained dollars dropped 0.6%. PCE in chained dollars rose 0.3%. This explains why consumers are unhappy - they are spending more than they have to spend. This only inspires confidence in Casey-Serin type consumers, and fortunately he is not that typical. On a current dollar basis, disposable personal income dropped 0.4% and PCE rose 0.5%.

Ah, needless to say, the stores are showing the effects. According to BEA higher personal current taxes had a lot to do with the drop. I question whether BEA is picking up all the local effects, however. If you go to H.8's second section (Liabilities), you see that January's other deposits did not increase. In short, consumers came up short.

While we are still in expansion, the ability to sustain the expansion is in question due to basic price increases, increases in taxes, and an inability of many producers to pass along their price increases. If the BEA is correct, proprietor's incomes dropped in January, and rental incomes dropped. One of the strongest indicators of future downturn is this economic configuration, which implies that companies must continue to cut costs. If it continues, it would be hard to see how we could avoid another downturn.

All in all, these are not encouraging reports. They raise doubts.

Comments:
"Extend and Pretend" on its last legs it seems.

I wish both you and the chief a quick recovery.

Thanks for the effort despite the illness.
 
Sorry life is kicking your butt right now; I share the sensation. I took care of a friend sick with pneumonia for a few days and have been having my own fight with the martian death flu for the last two weeks. Hope you and the Chief get better soon.

The dip is a little later than I expected, and I missed the 4th-quarter bounce, but otherwise this is pretty much what I expected from last summer. I had hoped to be WRONG. :(
 
At this time of year, those who are getting a tax refund tend to pay creditors. Come April 15th,
those who are paying taxes, will cut back on spending
until the bank account recovers. Less dollars in circulation next month.
 
John - yeah, we've all got to hope that we are not seeing something in this data that provides more hope.

The thing about risk analysis is that in the end, you always hope to be wrong about your conclusions. It's a dismal discipline.

Saloner - we'll survive.

Anon - yep. Except quite a few people aren't going to be getting tax refunds this year, and many more will be getting less than they expected. The tax credits last year were double counted for people who had more than one job, or a combination of other income and a job.
 
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