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Wednesday, July 28, 2010

April Was The Peak

Now it's just a question of
Slowdown or contraction?

Not only do retail figures confirm April as a peak,

but we now have durables (June report pdf):

And this is not surprising, because May's sales/inventories report showed the end game:

Rail is beginning to show the impact of a manufacturing slowdown as cumulative YoY carloadings begin to drop. One worrisome thing for rail is that retail-type activity is far higher than base production type activity YoY. I think retail restocking overran and will now have trouble clearing. (Intermodal container/trailer stats are still very high because of the longer retail stocking schedule.) The ATA Truck Tonnage index has shown two sequential declines in May and June. BTS publishes more slowly, but also showed a net drop in May.

Right now this looks like a slowdown and not a contraction.

However, reviewing these figures made my eyes roll in response to Geithner's "economy will withstand a tax increase in 2011" shtick. It can probably withstand a minor tax increase, but I don't see how it can withstand the major tax increase currently scheduled.

June's employment report was worrisome to say the least even when discounting the Census jobs exiting stage right. Perhaps July's will be a bit better, but I suspect not. At least, it will not be if the consumer confidence surveys are correct, because they show increasing worry about jobs and incomes.

One of the factors was the housing tax credit. The aftermath is clear, and the net from the housing tax credit seems to have been negative. It was merely a very costly way to make things look better for a while, until it delivered a series of bad news.

At this point, the state and local fiscal problems should be exerting a consistent and very widely spread drag on economic activity. This is not huge, but it is a depressive force.

Next up, we have cumulative problems in housing from the need to tighten standards to stop some of the mortgage defaults. We also have a serious problem developing in banks. Net Interest Margins are going to tend to drop, and I strongly suspect that some of these institutions have dumped their loan reserves too soon (except for those who transferred a lot of their bad loans directly to the taxpayers and future home purchasers via GSEs).

More later, but for heaven's sake don't hold your breaths, because my life is not getting any easier and "later" could mean a couple of days or a week!

MoM Take care of yourself and your family.The world will still be here when thos problems are resolved. You and they are in my prayers.

Sound like writing this blog is becoming your therapy. Hope it gets back to being merely your hobby sooner than later. Good luck.
MOM - please do another whirlwind tour of the globe. Been too long.

Fascinating blog. All the best to you and yours.
Thanks for the quality information and analysis.
It seems to me that the sales tax data from the
states is the most reliable indicator of economic activity.

We can wait as long as you need.

Yes, the rail shipments are telling. If they were iron ore or coal shipments, I might believe they were harbingers of good news. But when we hear the word "intermodal", we must think, a ha!, finished goods and accept the fact that these numbers are lagging indicators.

I agree with you that the restocking phase of the "recovery" is over. My best to you and yours.
Excellent pointers; thank you.

I do hope your family come through the crisis unscathed.
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