Data Dump – Some Good News, but Mostly Not So Good News
Let’s start with the bad news today:
- The Chinese PMI was weak again. China’s economy is obviously slowing. I think the daily plunge in commodity prices is largely indicative of this. They’re a fairly good real-time indicator of Chinese growth. As the one strong leg of the global economy in the last 5 years, weakness in China is obviously an unwelcome development.
- Eurozone PMI was weak once again at 46. This is a 35 month low. The weakness is broad across Europe. Even Germany is showing signs of a slow-down, albeit from stall speeds.
(Source: Markit)
- The Philly Fed Manufacturing survey plunged from -5.5 to -16.6 in June. But the headline is a bit worse than the underlying. Employment actually picked up, prices are down and expectations of future growth remain fairly strong. Here’s a summary from the Philly Fed:
“The June Business Outlook Survey suggests that firms in the region’s manufacturing sector are experiencing declines in overall activity this month. Firms reported a notable falloff in new orders and shipments. Overall, employment remained steady, but average work hours were lower. Price pressures continued to recede this month, and more firms reported declines in prices for their own goods than reported increases. The outlook among the reporting firms, while not as optimistic as in the first quarter, suggests that firms believe that activity will rebound over the next six months.”
(Source: Philadelphia Fed)
- Jobless claims jumped to 387K versus expectations of 383K. Clearly, the labor market remains weak. No big surprises here.
There was a bit of good news as well this morning:
- The June flash PMI report came in at 52.9, which is below expectations, but still in an expansion phase. Ie, the US economy is not dipping into recession yet. Some highlights from Markit:”PMI lowest since July 2011, suggesting slower rate of manufacturing expansion.
Rate of output growth broadly unchanged.
New orders rise at weakest pace in four months.
Input costs fall for first time in three years.The average PMI reading for the second quarter as a whole was 54.3, and compares with average readings of 54.6 in the first quarter and 54.3 over 2011.”
So we see strong orders, growing employment, falling input prices, but contraction in export orders. It looks like the USA is trying to muddle through with meager growth and the rest of the world is dragging it down. Can the USA continue to decouple? For now, that appears to be the case.
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
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19 Comments
Cullen, I guess you are still slowly accumulating equities here since you have not told us otherwise. I’m holding 15% in very defensive, dividend-paying equities, but the remaining 85% is split between bonds and cash. I don’t see a good base for your optimism, other than that it is a contrarian position with perhaps too much pessimism. However, what if the right contrarian posture is that the majority are far too complacent about the triple threat of a slowing Asia, disintegrating Europe, and US fiscal cliff. Maybe what’s remarkable is how most investors are so optimistic that they are holding more in equities than they should in such an environment. Still reminds me of late 2007 or early 2008.
Your thoughts on complacency align with my own current concerns and are well stated. With all the talk about the fiscal cliff, an interesting question is at what point do US businesses start displaying extra caution, in case politicians don’t act quick enough? Some might argue this is already occurring, others might say not for a couple months. Either way, it may help answer the decoupling question.
Looks like the risk of the USA getting dragged down is increasing by the day.
Agree. Sorry, but i just do not see how US can stay decoupled if EU and China (Canada+Australia) go down. We will be the last to crash.
I’d be lying if I said I wasn’t increasingly concerned as well. I still don’t see data in the USA that is consistent with recession, but the global drag is enormous….
Let me correct you. The important stuff here is in no particular order;
1.Falling new orders and shipments
2.Falling input cost
3.Falling prices.
So much of the rest of the stuff is lagging and relatively worthless in depicting the future path. Running a business its’ those 3 above I’m interested in. Actually you “don’t see a recession” except over your shoulder which is why orders and shipments are top of the list ecause if they persist that’s when you start in cutting your employment numbers. First the hours worked and then the number employed. Anyway surely this is basic stuff to anyone whose run a company.
New orders came in at 54.1, down from 54.6. The slowing rate is a concern, but 54.1 is still a healthy level of expansion. The only real sign of recession in this data is in the export data, which to me, screams of the fact that the domestic US economy is still holding up OKAY, but the global economy is very weak.
Altho’ i don’t have numbers, its hard for me to imagine that with so many multinational companies here in the USA that rely on export markets and world economy, that the effects of a world wide slow down won’t catch up. I guess the question you pose is whether or not gov’t deficit spending can trump a worldwide slowdown? I think it can delay or ameliorate, but cannot stop the bigger picture.
The other model to use here is reversion to the mean. If the USA is part of the world trend and is above the mean, then the model would say at some point WE revert to the larger picture, and not that the larger picture reverts to us…..
rhp
I’d say the risk of a profits recession is substantially higher than an actual NBER recession. I am becoming extremely concerned about the corporate profits picture….
YES. This is exactly the problem for the stock market: forecasts for GDP growth have dropped, but forecasts for corporate earnings have not. IMHO, this is because US investors have paid so much attention to Europe ever since the 5/6 election that they’ve taken their eye off the domestic situation: the dominant narrative that the US is fine and our troubles are all due to EZ/China slowing ignores the fact that earnings estimates need a big reset.
(Disclosure, if you care: long SDS.)
“The Philly Fed of -16.6 is consistent with free falling manufacturing data…..Similar to the Chicago PMI data(9 of 11 signals in that data preceded a recession with 2 false signals(84-85..is this the great 80s bull market?)”
But when the philly fed cross below -15 after above more than 3 months the SPX is – out 1 month on average -3.14% out 2 months(4 up 8 down) -3.18% (4 up 8 down)and negative until you get out to 1 year.
The data looks terrible with the exception of 95.
None of the above is MY work- it’s all from my team.
2007/2008 all over again. Some people shouting about the subprime crisis dangers and others making fun of them.
Be careful man – just one day.
Every time somebody victory laps here the opposite happens the next day LOL…
Not saying you aren’t right, but we live in a manic depressive world.
Someone just gave the VIX a shot of viagra-
Oil at $79….Man I’m about to go by me a couple of Priuses for 75 cents on the dollar and then sell them when Iran vs. Isreal XIV occurs.
BTW- are you seeing what the unhedged airlines are doing today….Stronger currency- lower oil prices. Gold is not a safe haven…apparantly Airline stocks are.
Thanks. Also note that since my measured attempts to short the us equity market early in the year, I am not backing my macro views with a short position:-) I am more likely to go long at the right price.
If oil is any good at predicting equity direction, SPX is in for a good dive.
http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2012/06/20120621_Oilstocks.png
picture says a 1000 words. thanks for the link. it’s a rather striking graphic!
Definitely striking. The divergence is especially noticeable in CVX and XOM.
From my view in Singapore, I see a much different world than my “developed market” based friends. Traveling through asia and India, I see almost half the worlds population, young, hungry and willing to work for a higher living standard, not dependent on government largesse to achieve their goals.
Explain this, how is it logical that 15pct of the worlds population commands 50pct of the worlds economic output?? Yes, I’m speaking of europe and the US. To some degree it is a zero sum game, there are not enough resources now to meet the growing demands of the other 85pct of the world. Therefore, europe and the US have a long grinding adjustment process that will see stagnant or dropping standards of living, as the rest of the world catches up. This has been happening for 20 years, during which euros and americans borrowed excessively to maintain the illussion of ever increasing living standards. Clearly that chapter is coming to a close and now reality is setting in.
Who wins? Large well financed multinationals that derive half or more of revenues outside of their developed market homes. Buy global growth, its real even though it may not appear that way.