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Friday, August 31, 2012

Chicago PMI et al

Mixed. At 53.0, the headline index isn't bad (although of course it is sharply off last years mean/median of 62.8/62.1). Order backlogs at a seasonally adjusted 41.7 don't provide much hope for the next couple of months. Inventories came down to an SA 41.7. Last month order backlogs had resurged to a 52.8, so maybe they will again. Prices paid came up to 57.0.

The order backlogs number is worrisome. It's the lowest of the year. Right now, this looks slowing but not moribund. 

Japan's Markit PMI for August was released showing a further decline from 47.9 in July to 47.7 in August. Since July industrial production came in -1.2%, this is not a good sign. Costs are declining fast. Basically Japan is in deflation.

Canada reports Q2 GDP at 1.8%, which was a bit better than anticipated, but still not very good. Q1 was revised from 1.9% to 1.8%, so now it's a steady state. However there is plenty of stuff on hand, so I'm guessing that the Bank of Canada is going to be considering cutting interest rates later this year. They are still worried about household debt up there in the great frozen North. It's being reported that exports are the problem, but there are some internal slowing factors as well. If you exclude growth in inventories, the picture was a lot worse - really no growth in the quarter. 

Well, Carney had been talking about raising, and he isn't going to raise. Next meeting he'll sit, then they'll slap some bankers around to make sure it won't cause too many problems, and then they'll cut. Business investment was very strong, but the housing sector is going to be weak for a while. 

South Korea's industrial production fell 1.6% after having fallen 0.6% in June. Asia is impacted by China (Thailand taking YoY drops, Singapore had a bad July, Malaysia slowed up in June), which is impacted by European weakness and generalized global sagginess. Indonesia's still hanging in. India's industrial production has been weakening and sometimes contracting.

We're all holding hands, strolling down the scenic walk to Recession Lake. They say sometimes groups of passionate but despairing economists jump off Easy Money Leap, and on moonlight nights you can hear their voices wailing across the waters. I hear Krugman is working on an epic economic verse romance about it.

 Bernanke refused to throw Mr. Market a meaty bone, so now everyone just has to sulk over a long weekend, but why not buy anyway? We all know the Fed is probably going to do it sooner or later. The problem for the commodity traders is that they may do it after the bottom drops out of prices. 

I have read all the Fedspeak and some of the Fedhead speeches, and I think the real policy is that the Fed will buy whatever bonds it has to buy in order to keep long bond yields from rising much, but that the real limitation is that they are desperately afraid of flattening the yield curve. And the problem is that buying long bonds will indeed raise the near-term inflation rate and thus most often short yields, and the rather huge volume stuck in these short yield auctions nowadays indicates that yields could rise suddenly. Buying short terms is a risky biz for that type of program.

Spain still don' wanna. Mr. Market knows what to do about that!

Funny seeing the talking heads gush over good revenues at retailers while consumer confidence is dreadfully low. These idiots can't understand why consumers are down when sales are up.

It's precisely BECAUSE sales are up that consumers are down. People saw the prices and nearly fainted, but it's back-to-school time and last fall's clothes don't fit the kids so you have no choice but to buy clothes. Consumers are obviously dipping into savings, or downgrading where they can. GAP reported good numbers, but it was their lowest-end brand that showed the most gains.

What I'm seeing is the top earning quintile is doing fine and is taking advantage of reduced demand for pricier items by the next 2 quintiles. Qunitles 2 & 3 are now demanding items that were only demanded by Quintiles 4 & 5 before, so the prices on those lower end items creep up and 4 & 5 REALLY feel it in the pocketbook.

Qunitles 2 & 3 aren't happy about having to now shop within their means, and 4 & 5 are feeling the pinch of higher prices. That's 80% that ain't happy.

Xmas shopping is A LOT more discretionary than Back-to-school shopping. Consumer mood tells me that people dipped into the Xmas funds for back-to-school. I'm sure lots of parents told their kids: "Consider this new outfit an early Christmas present."
Charles: That's why when Dear Wife (she of the Paris fashion education) told me she found an industrial sewing machine on Craigslist and wanted to put it in the family room where we'd planned to put a big-screen TV, I asked if maybe she needed a serger as well.

Right now, industrial equipment is cheap, but childrens' clothing may not always be. It's good to hedge one's bets.
We manufacture chemicals for the lighting industry. Our sales match the global economy since most new lighting goes into new construction or major renovation.

We just had the worst month in 15 years. We have about 10% of our usual orders for September and October. We just laid off 4 people out of 60, and that's for now.

Sure, it's anecdotal, but it's a valid data point nonetheless. We are so screwed right now.
Chris - I am very sorry to read of that, but it does square well with some of the other data out there.

10% of normal orders is just abysmal!
I'm not sure how good revenues really are - it seems to me that it is very disjoint, as you say. Higher-income families will spend for this type of thing - I'm afraid many lower income families can't.

I noticed Payless was running sales, I presume to get floor traffic. The first one was a week or two ago, and it was a $10 coupon off on a $25 purchase. I guess that worked, but many people didn't buy the second pair. The next one is $10 off a $30 purchase.

What I see in the grocery stores is that things are REALLY bad.
As for chain store sales in August, you can see the segmentation at this link.

Nordstrom's +21%, Kohl's +3.4%. We've seen this play before!
Thanks for the link. The BonTon # is exactly what I meant - a quintile 2 & 3 retailer that looked bad in comparison to the lower-targeted AND higher-targeted retailers.
Walmart doesn't release monthly figures any more, but if you listen to their advertising it's one stop shopping pushing lunch box food along with the regular stuff.

Money running out on the ground level, and the pain moving slowly up the ladder.
Neil - material is very expensive!


I foresee the potential for supply disruptions. Monetary policy, regulatory policy, or war could potentially cause sudden import deficiencies.

Hopefully these are remote possibilities, but she'll get good use out of the machines, anyway.

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