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Wednesday, April 24, 2013

Not Very Encouraging Durables

To tell the truth, none of the manufacturing data has been all that encouraging, but it's hard to find a bright spot in this durables advance report. It's the three month totals that are worrying me. 

YTD YoY, shipments are up 2.5% but new orders are fractionally down. Capital goods new orders are down 5.8%. Nondefense capital goods orders are down 3.5%. Fabricated metals and machinery orders are still up. 

Motor vehicle new orders are up 9.8%, and total inventories are down less than 1%. That's the bright spot. Computers continue to be the worst, really. 

This report agrees pretty well with the slowing shown in Markit US PMI, released yesterday and showing a slowing trend with slightly contracting backlogs of work. Richmond Fed manufacturing survey was startlingly negative, but most US surveys seem to show a pattern of slowing activity, rather than contracting/stagnant activity. CFNAI showed the pattern quite clearly, with a big bounce in Feb and then a decline in March.

Still, the US looks sharply better than Europe. Chinese manufacturing PMI was distinctly worse than ours. The signals are that the global economy isn't moving into the second quarter with any great abandon or energy.

India has been weak and may continue to be quite weak. Singapore really does usually flag slowdowns in the Asian economies, and in the first quarter it fell into an annual negative for the first time since the Late Great Unpleasantness. That despite large rises in construction. 

We have to wait for one more month to see how much trouble Germany is really in for 2013. Construction PMI has shown consistent weakening and March was particularly bad, but weather had to be a significant factor. France is in a very weak state, so Germany has to stay up for Europe to stabilize. There's a lot more to come in France, because the drag from increasing unemployment has accumulated and they are just beginning to hit their housing wall. The Dutch economy stinks because of the hangover from their own housing funny-money loan debacle. 

In May the real drag from the FICA increase begins to hit the US, and some additional negatives from the sequester should start showing up. Housing should continue to be a positive for this year, but not a huge positive. Maybe it will be better than I think now - the next two value of construction reports should give us a better indication. 

But real growth in the US won't be epic this year. The first quarter was assisted by income effects - especially the shift in income payments last last year to beat the tax increases. But that implies a takeback this year. 

Thailand is doing well, probably out of Chinese outsourcing. I have no idea how Japan's going to work out this year. Their Scylla/Charybdis ploy takes some luck and good management. There is no doubt it helps their exporters.

> Motor vehicle new orders are up 9.8%, and total inventories are down less than 1%. That's the bright spot.

That's a strange artifact of how new vehicle inventories are calculated. Days of inventory use the most recent month divisor. A big February sales rate makes for a big March divisor. Monthly autos are not reliable.

Deflation, deflation, deflation. At least for now. And the Fed's QE seems to all go into housing.

How long can Ben stand it before he goes the full Abe?

Rob - that's the quarterly rate YoY.
Neil - that is a good question, but I think the Fed is not dealing with reality.

The Fed can't boost consumer inflation with what it is doing, because the Fed is not boosting employment and money flows through the economy.

What's improving employment numbers and, to some degree, money flows are retirements and retirement benefits.

I think the Fed is utterly clueless about what it is doing. More on that later.
Neil - one clue as to what the Fed is doing lies in the CB's buying equity funds. Article.
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