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Wednesday, October 01, 2014

So, October Data Begins

Okay, on the last post someone asked me about recession odds. First, I wasn't looking at a 15-20% chance of recession next year. I was seeing a 15-20% chance of AVOIDING recession next year. 

The earliest time when I could meaningfully update that forecast would be late in October, as we got a read on the rolling impact of price changes and attempts to adapt. Well, it is October. As I get 'em I will try to post 'em.

The first read is CMI covering September. Published yesterday, it showed a hard fall in credit indicators for manufacturing, with the weakness concentrated in the unfavorable factors. This is the one I have been watching most closely, because it leads other indicators by several months. I expected it, it is not dire, and we are not yet in the realm of spiraling negative correlations, but it is certainly not encouraging. Some of the words used in the narrative were "collapse", "not a small reversal of fortune", "almost shocking", and "intense concern".

Services didn't improve either, but the problem is much milder. Is it an adjustment? I don't know and I don't think anyone can tell right now. It's very possible that over the next few months this could clear through and growth could continue on a somewhat lower trajectory.

So far this has been pretty classic, with credit standards loosening as everyone attempts to keep the wheels of commerce greased. The sole very definite thing one can say about yesterday's CMI (I'm not sure if we are allowed to link it any more), is that the negatives are harsh enough that credit issuance is going to have to tighten. From there, it's anyone's guess.

The standard PMIs and so forth won't tell me much until about December. They are later in the sequence.

We do have some good things which may help to offset the difficulties of the last year. We also have some bad stuff. The fall in oil prices helps, food prices are still a strong negative, but that may be starting to fall out, rents are WAY too high (very intractable), forget the housing market, strong dollar is not a good thing for manufacturers, but strong dollar does attract some refuge money.

Ebola? Not a help. The CDC issued a guidance to funeral homes in the US, which made my heart stop. I feel no confidence there.There will be multiple arrivals in the US, and this first one was not handled in a way to generate confidence.

Europe looks to be in real trouble. The weaker Euro can help only over months, and Germany's Mittelstand is apparently now walking through mud. But the weaker Euro imposes costs on US manufacturers. As of August, the durables report showed a roughly balanced situation. But the dollar is too strong and the international situation too difficult for this to continue.

Transportation (ATA truck tonnage and rail) have been showing strength. The weakness is all in consumer finances.

On Ebola; It's disturbing that arrivals from West Africa aren't being screened on entry. It wouldn't take very many "oopsies" like the one in Dallas to create an epidemic.

I think Ebola can be kept under control in the U.S., but without some very un-PC quarantine rules it's going to require blanket travel bans, school closures, etc. I'm on a couple of high-priority projects right now, and we've done a little contingency planning in case air travel becomes impractical.
A century ago, before antibiotics, public health officials tended to be proactive about quarantining because it was the only tool they had. The heyday of antibiotics encouraged us to value civil liberties over public health.

When modern medicine meets something it can't treat, it falls on its face due to the atrophy of public health procedures and moral courage.

Those days are ending - just look at the rise of antibiotic resistant strains. We are going to have to relearn some harsh lessons, and that is going to probably take a substantial number of deaths to achieve - because some people won't agree until they've had their noses rubbed in the consequences.
Maybe the radar station fire in Chicago was a back-door way to reduce the possibility of Ebola in the area. /sarc

The good news is my house will be paid off in the next few months. The bad news is the next crash will probably set off a boom in property taxes in the next 10 years and my monthly expenses will hardly change.
The property taxes never end. You just rent it, never really own it.
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