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Friday, September 14, 2012

Retail & CPI

Retail report here. Two-thirds of the SA increase from July to August was in gas. Spending at grocery stores did not change, which is a trouble sign. The rest seems to be in motor vehicles. Overall, not a good report. There was an increase in bar and restaurants, but non-store retailers were flat MoM, clothing & general merchandise stores were negative, sporting & hobby was flat, and electronics & appliances were negative.

CPI - In June and July all-items CPI was flat. In August it increased 0.6%.  Gas was up 9%. The 0.5% gain in bars and restaurants has to be balanced with the 0.3% increase in food away from home prices. Food at home is listed as being up .1% on the month. This is something of an illusion, because basic food commodities are pretty high, but that is being offset somewhat by desperate struggles for the grocery dollar at retailers. I saw bread pricing ads in September, which just can't be a good sign!

Therefore, real retail sales gains are very slim, and we are definitely in the trouble zone. I already knew this, because of my roaming through the aisles looking at price changes. What I see is the classic consumer bust, but that is probably exaggerated by the pressure of back to school spending.

Industrial production: -1.2% in August. Consumer goods -1.2%. Utilities -3.6%:
Manufacturing output decreased 0.7 percent in August, but it remained 3.8 percent above its year-earlier level. The factory operating rate moved down 0.7 percentage point in August to 77.0 percent, a level 1.8 percentage points below its long-run average.
The production index for durable goods decreased 1.1 percent in August. Declines were widespread among the major durable goods industries, with the largest drop coming in motor vehicles and parts. Only primary metals posted an increase. Capacity utilization for durable goods manufacturing was 77.3 percent, a rate 0.2 percentage point above its long-run average.
We've maxed out on the auto thang. It's worth reading through the entire industrial production report to get a feel for just how diffused the slowdown is, which, btw, matches very well with the manufacturing diffusion index on the employment report for August.

Business inventories will be out later. I may not get to that until this weekend, because I am pretty busy. 

Where we are now in the business cycle is that the consumer-led recession has now moved through to the production side, which then forces slowness in manufacturing, which then induces another round of consumer/business contraction.

If you are wondering what the Fed's actions yesterday will do to help this situation, the answer is that it will make it considerably worse. Then we have to add the US fiscal problems to the mix, so what would naturally be a relatively mild inventory cycle recession is apt to turn into The Blob.

I have, btw, always found that the waterways freight indicator is good, and it's been showing recession all summer. 

Since we are well into Stage 2 of this thing, the Fed had no ability anyway to correct it. The Fed would have had to start early in the spring to possibly goose anything, but its current toolbox is empty. Currently the Fed is into homeopathic economic remedies, but unfortunately the illness is real.

So enjoy your apricot pits! 

It is obvious that a slowing economy is good for stocks.
Gasoline prices way up and consumer sentiment way up. Interest rates up in the U.S. and down in Italy and Spain. Dollar down and Euro up. Foreign policy in shambles.

What more can stocks ask for? Oh wow! Industrial production is down! No wonder the stock market is happy.

Rigorous - it is if the Fed is willing to pump money in to increase asset prices. Ad infinitum.

Which is what Joseph is getting at.

As for Main Street, the feelings are very different.

NFIB has shown a monumental drop in small firm actual profits this summer. Da squeeze is on!

If you are wondering, the longer term effect will be an acute reversion, but WS runs on a quarterly basis.

Look at indicators of expected inflation. Use gold if you like, or USD vs. other currencies. Or TIPS. If you adjust for inflation expectations, the stock market is treading water at best.

That's about what you'd expect since the prospects for the economy haven't changed much in the last couple of years. A couple of years ago, we were talking about the Fed maybe having to buy Treasuries and its likely impact on consumer prices. Today we're talking about the Fed buying Treasuries (among other things) and its likely impact on consumer prices.

If you adjust for inflation expectations, the stock market is treading water at best.

The government doesn't let you adjust for inflation when computing capital gains. Funny how that works out, eh?

Funny like a malignant tumor, yes.

The Fed's Cunning Plan to Save Our Economy

Warning: There may be heavy sarcasm within the post.
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