Citi Economic Surprise Index Falls Sharply Following Data Misses

By Walter Kurtz, Sober Look

A massive monthly decline in US durable goods orders in August once again demonstrated the vulnerability of the US manufacturing sector. The 13% MoM drop is only rivaled by declines during the 08-09 crisis. Granted, a large portion of this was driven by aircraft orders, but it is worrying nevertheless.

US Durable Goods New Orders Industries MoM SA

This release, combined with other poor economic numbers from today have sent the Citi Economic Surprise Index sharply lower.

Citi Economic Surprise Index

Here is a good recap of today’s data. One surprise came from lower than expected GDP, which was in part caused by the North American drought.

SFGate/AP: -

— Companies cut orders for long-lasting goods by 13.2 percent in August, the Commerce Department said. That was the biggest drop in more than three years but it was largely influenced by a 102 percent decline in volatile aircraft orders. Excluding transportation equipment, orders fell only 1.6 percent. And in a positive sign, orders in a category that reflect business investment plans rose 1.1 percent, the first increase since May.

— The overall economy grew at a 1.3 percent annual rate in the April-June quarter, much lower than the 1.7 percent the government previously estimated. About half of the downward revision stemmed from the severe drought in the Midwest, which cut overall farm output. But growth also fell because exports and consumer spending expanded at a slower pace.

— The number of Americans who signed contracts to buy previously occupied homes fell in August from a two-year high in July. The National Association of Realtors said its index of sales agreements declined 2.6 percent to 99.2. That’s just below the reading of 100 that is considered healthy. Still, the index is 10.7 percent higher than a year ago.

… Weekly applications for unemployment benefits plunged 26,000 to a seasonally adjusted 359,000, the lowest level in two months, the Labor Department said. The four-week average, a less volatile measure, fell to 374,000.


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Sober Look

Sober Look

Sober Look was founded by Walter Kurtz, a New York based hedge fund manager and credit markets specialist.

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  • Alberto

    CR you’re pragmatic, that is when data change, your view changes also. This is a reasonable attitude but people don’t want to listen, they don’t want to change their views and the so called leaders are blind and short minded because our civilization is essence short minded. I don’t see how this could end well. We need a radical rethinking of our lifestyle before nature itself will decide for us. Using a 2000 kg car to travel for 30 miles/day at 25 miles/h is not good economy, is not better quality of life it’s just insanity and sooner than later the cinema show will end.

  • Boston Larry

    It appears that Spain’s unrealistic budget is the reason that equity futures are down this morning. However, it can’t be helping Europe’s attempt to turn around when both the US and global economies are slowing. A bet on equities is a bet on maintaining economic growth, even if only at about 2% in US. This surprise index and other data point to the possibility that US growth is heading toward stall speed. Fiscal cliff doesn’t help matters.

  • Anonymous

    Hedge accordingly as the “Bernanke Put” is dead. By now we should have seen this market rip….. as retail and hedge funds chase the market higher. That has not materialize. The next major move could be a real ripper to the downside as realities reset on Europe, the Fiscal Cliff, the terrorist uprisings in the Middle East and the math behind how insignificant QE3 will be to the economy.

    What must be determined is how much of the rally from the 2008 low is attributable to Dr. Bernanke? What allocations pension/institutional funds have allocated to “risk on” because of the zero bound……

  • BHB

    Well said Alberto. I am not going to add anything because you summed it up better than I can.

  • Matt

    I think the Bernanke Put is now the Bernanke Covered Call. You got paid a small premium for staying long, but you risk all of the downside.

  • Johnny Evers

    I drive 50 miles a day to see my customers. Most of us live and work in separate places. Often, one partners works in one place and the other in a different place. Other times you buy a house close to your job and then a job in a different place. Or you work in an industrial area and want to live in a residential area. Or you work in the city and want your kids to go to decent schools.
    It’s easy to decry the situation. What the heck is your solution?

  • Johnny Evers

    The Bernanke Par Guarantee. If you lend money and it looks like you won’t get paid back, Bernanke will buy the loan at par.

  • Octavio Richetta

    Throw I the Chicago PMI numbers this morning and the picture gets even bleaker. Looks like ECRI’s LA will keep his job after all:-)

  • LRM

    Will you continue with your + 1% monthly allocation to equities if things get ugly, increase to 2% or stop allocating and wait?
    I would appreciate your thinking here.
    James Kostohryz, who you recommended a while back if IRC, feels that the Q4 will surprise to the upside. He is still negative long term but seems to have capitulated on the CB ability to hold the market in the short term.

  • Mr. P

    Does anyone here agree that this market has a ‘very strange feel’ to it?

    Is there a chance for a ‘Minsky Moment’ in the next few weeks/months?

  • Octavio Richetta

    The right thing to do is to stay the course even though it is extremely difficult. The only thing I play around with is the day of the month I make the purchase. With October, I will wait and see towards the end of the month. See if market keeps sliding….

  • Mr. P

    May I ask, what is your current asset allocation?

  • Tom

    Actually thus far QE3 is following QE2 to a tee – they both had an immediate sugar high which was sold off back to the break out point of the sugar high. That’s as far as we’ve gotten with QE3. Of course with QE2 the market went on a rampage thereafter but it also came as a program introduced at market lows not highs. So we’ll see, but thus far it’s too early to say anything.

    As a cynic I would think it would be interesting to see a bad market month ahead of an election.