30 June 2009

From green shoot to brown shoot?

Tuesday's numbers in the US were nothing to rejoice:

The biggest downward surprise was the slide in the Conference Board consumer confidence measure to 49.3 in June from 54.9 in May and well short of the 55.3 consensus. The decline was spread out between both "expectations" (to 65.5 from 71.5), which does a decent job in predicting the near-term trend in consumer spending, and the "present situation" (to 24.8 from 29.7). Confidence is still well above the historic 25.3 low posted in February but is still very much consistent with an economy knee-deep in recession. For example, when the economy was moving out of recession in November 2001, the index was 84.9; at the end of the 1991 recession it was 81.1; when the 1982 recession came to a halt, the confidence survey was sitting at 57.4. Never before has a recession ended with confidence as low as it is today.

Inflation expectations jumped 3 tenths in the month to 5.9 percent fed by a roughly 5 percent rise in pump prices during the month. There's no indication that concern over monetary inflation is at play in inflation expectations.

The gap between this survey and the University of Michigan sentiment index, which ticked up to 70.8 from 68.7, is that the former has more of an "employment" orientation to it — and the labour market still looks very soft. The "jobs hard to get" series went from 43.9 to 44.8; and the "jobs are plentiful" component slumped to 4.5 from 5.8. The labour market gap (the spread between these two series) rose to 40.3 from 38.1 in May, which portends yet another month of rising unemployment when Thursday's data roll out.

In terms of spending intentions, housing is still getting very little traction as home buying plans edged down to 2.7% from 2.8%; plans to buy a major appliance slipped to 26.5% from 29.2%; and even with all the excitement over 'cash for clunkers', auto purchase intentions rolled over big-time to 4.6% from 5.7% in May in what was the second lowest print of the year (and suggests that the expected 10 million unit auto sales for June is a blip in an otherwise fundamental downtrend in consumer discretionary spending).

Case-Shiller's 20-index fell 0.6 percent in April, down from a long run of minus 2 percent readings, while the year-on-year rate improved to minus 18.1 percent, thus moving in the right direction. Whilst the second derivative is improving, don't forget that there is still at least 10 months supply of unsold inventory in both the new and existing residential market. Let's see what data the 2-3 forthcoming months will produce.

Next data on the housing front will be Wednesday's MBA report. Also the important ISM manufacturing report will also be released Wednesday to see whether it confirms Tuesday's data.


Bloomberg: June 30, 2009

Gluskin Sheff: June 30, 2009
Market and data musings - David A. Rosenberg