We noted mid-Oct that the error to the consensus forecast for the US economy was a significant under-estimation of vigor, especially payrolls and related consumer spending, and especially spending on discretionary items. That is, the Wall St. forecasting crowd were all looking in the wrong direction.
We then reminded readers on Nov/9 - If we are right, discretionary spending will expand. Those whose income is linked to this sector may at this time purchase a case of medium-priced champagne, to be traded for the finer stuff perhaps once odds approach 85%.
Recent data has cooperated. Those who have found themselves gasping for oxygen past year, may now make the trade.
Look for economists to continue to revise their forecasts higher.
We will have Chain Store sales result for Nov., this Thursday (Dec/2), followed by the key employment report for Nov., on Friday (Dec/3). Look for these releases to cooperate, broaching expectations.
We also know now that retail activity for the Nov/26-30 period blew through forecasts. Thank you very much.
Business planners should not calculate for more of the same for H1, 2011. That warehouse, just too expensive, about to be sold? Don’t. Not yet. About to release another 20% of staff? Wait until after Christmas, then take a look.
Robert Craven
Monday, November 29, 2010
Saturday, November 20, 2010
US Economy - An Update
With Obama’s agenda behind us, or at least stalled, businesses and consumers alike are cheered.
From the Wash Times, “The economic outlook has brightened noticeably in recent days, with a splurge of car-buying by consumers unexpectedly lifting retail sales and businesses putting some of their nearly $2 trillion in stashed cash to work buying other companies with an eye toward growth.”
From Irwin Stelzer in the Weekly Standard, “Nationally, sales at retail shops increased for the fourth consecutive month, and recorded their sharpest gains in seven months. Mid-priced retailers, Macy’s, J.C. Penny, and Kohl’s, report that sales are beating expectations, giving reason to believe that the fears that have kept middle-income shoppers out of the malls are dissipating. New York City’s mid-priced restaurants report that non-rich consumers are once again dining out.”
Bernard Baumohl, an economist at the Economic Outlook Group, said the surge in auto sales is a telling sign for the economy, showing that consumers felt confident enough to take out loans, increase their debt loads and buy new cars for the first time this year.
“Consumers also have been shelling out cash to dine out more, as well as indulge in their favorite sports, hobbies and gambling - key discretionary spending areas that usually do well only as the economy improves,” he said.
Jeffrey Kleintop, chief market strategist at LPL Financial explains that businesses were put off by the sweeping legislative and regulatory reforms enacted by the Democrat-controlled Congress. "Businesses had been hesitant to make the capital commitments to growth" before the elections, he said. Now, "business leaders are more likely to make the commitments to growth that drive the economy, including additional hiring."
Agreed.
From the Wash Times, “The economic outlook has brightened noticeably in recent days, with a splurge of car-buying by consumers unexpectedly lifting retail sales and businesses putting some of their nearly $2 trillion in stashed cash to work buying other companies with an eye toward growth.”
From Irwin Stelzer in the Weekly Standard, “Nationally, sales at retail shops increased for the fourth consecutive month, and recorded their sharpest gains in seven months. Mid-priced retailers, Macy’s, J.C. Penny, and Kohl’s, report that sales are beating expectations, giving reason to believe that the fears that have kept middle-income shoppers out of the malls are dissipating. New York City’s mid-priced restaurants report that non-rich consumers are once again dining out.”
Bernard Baumohl, an economist at the Economic Outlook Group, said the surge in auto sales is a telling sign for the economy, showing that consumers felt confident enough to take out loans, increase their debt loads and buy new cars for the first time this year.
“Consumers also have been shelling out cash to dine out more, as well as indulge in their favorite sports, hobbies and gambling - key discretionary spending areas that usually do well only as the economy improves,” he said.
Jeffrey Kleintop, chief market strategist at LPL Financial explains that businesses were put off by the sweeping legislative and regulatory reforms enacted by the Democrat-controlled Congress. "Businesses had been hesitant to make the capital commitments to growth" before the elections, he said. Now, "business leaders are more likely to make the commitments to growth that drive the economy, including additional hiring."
Agreed.
Thursday, November 18, 2010
Wild Cards
We remain optimistic re US growth, believing that it will exceed expectations, especially employment numbers. But we noted earlier the existence of “wild cards,” events presently off radar.
The business of the future is to be dangerous. So let’s take a look at the odds of significant damage; that is, the odds of an event that has not been priced in and which would retard US growth.
A strike on Iranian nuclear facilities is such a wild card. This event would spike crude prices, at least by 50%. That’s a retardant folks. The Iranians would strike both Saudi oil fields and the Israelis, and attempt to blockade the Straits. Odds for such an event - 40%.
Another wild card is related to the present crisis of peripheral European credits. At the moment Ireland may soon loose her sovereignty; Portugal is in miserable shape, Spain not far behind. This turmoil has been partially priced in. The EU has an emergency fund but more prosperous credits like Germany aren’t anxious to contribute (attesting to the stupidity of the EU in the first place and the accuracy of Thatcher’s prediction). The wild card here is not that Ireland or Portugal become EU protectorates, like Greece, but is for contagion on a grander scale - an EU/Euro collapse and then the bank pandemonium that may follow. From Jeremy Warner in today’s Telegraph, “There must come a point where bailing out the fringe threatens the creditworthiness of the core. We are not there yet, but it's plainly not beyond the bounds of possibility.” Odds - 35%.
Another wild card is a sudden strike by the Chinese on US debt. Odds - 25%.
Another, with the same result, is a rapid blow back of inflation/weak $ tied to recent Fed antics, requiring a sharp contraction by the Fed and/or a full blown currency/trade war. We put this one at 25%. (This is not to say that the Fed’s recent actions are constructive in any way; they aren’t and they’re damaging to the integrity of the Fed to boot.)
Another, contributed to this piece by our friend Christian de Ryss, is traction by the way of muslim thuggery, perhaps a lucky strike at major infrastructure in the UK or Germany; perhaps even in the US and the paralysis that follows. We don’t dare print the odds, even if we had a clue.
No doubt THE key wild card is there, right now, beyond our grasp, waiting in the sidelines for a trigger.
Cross the fingers.
Robert Craven
The business of the future is to be dangerous. So let’s take a look at the odds of significant damage; that is, the odds of an event that has not been priced in and which would retard US growth.
A strike on Iranian nuclear facilities is such a wild card. This event would spike crude prices, at least by 50%. That’s a retardant folks. The Iranians would strike both Saudi oil fields and the Israelis, and attempt to blockade the Straits. Odds for such an event - 40%.
Another wild card is related to the present crisis of peripheral European credits. At the moment Ireland may soon loose her sovereignty; Portugal is in miserable shape, Spain not far behind. This turmoil has been partially priced in. The EU has an emergency fund but more prosperous credits like Germany aren’t anxious to contribute (attesting to the stupidity of the EU in the first place and the accuracy of Thatcher’s prediction). The wild card here is not that Ireland or Portugal become EU protectorates, like Greece, but is for contagion on a grander scale - an EU/Euro collapse and then the bank pandemonium that may follow. From Jeremy Warner in today’s Telegraph, “There must come a point where bailing out the fringe threatens the creditworthiness of the core. We are not there yet, but it's plainly not beyond the bounds of possibility.” Odds - 35%.
Another wild card is a sudden strike by the Chinese on US debt. Odds - 25%.
Another, with the same result, is a rapid blow back of inflation/weak $ tied to recent Fed antics, requiring a sharp contraction by the Fed and/or a full blown currency/trade war. We put this one at 25%. (This is not to say that the Fed’s recent actions are constructive in any way; they aren’t and they’re damaging to the integrity of the Fed to boot.)
Another, contributed to this piece by our friend Christian de Ryss, is traction by the way of muslim thuggery, perhaps a lucky strike at major infrastructure in the UK or Germany; perhaps even in the US and the paralysis that follows. We don’t dare print the odds, even if we had a clue.
No doubt THE key wild card is there, right now, beyond our grasp, waiting in the sidelines for a trigger.
Cross the fingers.
Robert Craven
Monday, November 15, 2010
Spending
In spite of Obama throwing every constraint imaginable at the employer, in spite of doing all he can to discourage the consumer, the economy continues to exceed expectations. Today’s key Oct Retail Sales release printed + 1.2% vs expectations of +0.7%. Plus the past two months were revised higher. Retail Sales are still 1.8% below their Nov/07 peak but are 7.3% above their year ago level. Not bad, and in spite of our friend BO. Consumers are spending; they are less cautious. This speaks well for discretionary spending ahead.
We predicted earlier that economic vigor will blow through expectations, H1 11, that economists will continue to change their predictions, to revise those higher, ongoing. We know they will do that before they do.
Our prediction was made prior to the Rep sweep of Nov/2. There is some risk that the new Congress, in their enthusiasm for belt tightening, may retard growth. Some observers in fact predict a double-dip as a result. Nope. That won’t happen. There may be some slight dampening to vigor, but, short of a wild card event, our anchor will hold.
Robert Craven
We predicted earlier that economic vigor will blow through expectations, H1 11, that economists will continue to change their predictions, to revise those higher, ongoing. We know they will do that before they do.
Our prediction was made prior to the Rep sweep of Nov/2. There is some risk that the new Congress, in their enthusiasm for belt tightening, may retard growth. Some observers in fact predict a double-dip as a result. Nope. That won’t happen. There may be some slight dampening to vigor, but, short of a wild card event, our anchor will hold.
Robert Craven
Tuesday, November 9, 2010
Reality Ahead
Let’s keep our eye on the ball. We have predicted more vigor than is expected for 2011 and given the reasons why. We can actually narrow that window to H1.
If we are right, discretionary spending will expand. Those whose income is linked to this sector may at this time purchase a case of medium priced champagne, to be traded for the finer stuff perhaps once odds approach 85%.
Samuelson once said that, “to be published is to be found out,” referring to economists’ terror of what most of us call a track record; you know, a plumber whose joints leak, a physicist who can’t get his measurements straight, a doc who tossed out the wrong organ. Most of us are held accountable. Not economists. We want to separate ourselves from this bunch, which is why we will regularly visit this topic, to see if we are right or wrong in our earlier prediction.
Let’s stay ahead of the crowd if we can; let’s close the pattern earlier than most. If we’re wrong, we’ll find out pretty quick and print the same in caps. For now, we reported that the last payroll report cooperated with our view. And the Inst. For Supply Management Oct reports for manuf and services were above expectations. And vehicle sales have blown through expectations. From Larry Kudlow, “According to Auto Nation CEO Mike Jackson, rising pickup sales show that small businesses and entrepreneurs are going to work.” Thank you very much.
Finally, we noted earlier that company earnings are surprising to the upside.
So we are set pretty well we think. We don’t know exactly what numbers the economy will print, and really don’t care. All we care is that results eclipse expectations, blow through conventional wisdom. This will cheer the consumer. So far so good.
Robert Craven
If we are right, discretionary spending will expand. Those whose income is linked to this sector may at this time purchase a case of medium priced champagne, to be traded for the finer stuff perhaps once odds approach 85%.
Samuelson once said that, “to be published is to be found out,” referring to economists’ terror of what most of us call a track record; you know, a plumber whose joints leak, a physicist who can’t get his measurements straight, a doc who tossed out the wrong organ. Most of us are held accountable. Not economists. We want to separate ourselves from this bunch, which is why we will regularly visit this topic, to see if we are right or wrong in our earlier prediction.
Let’s stay ahead of the crowd if we can; let’s close the pattern earlier than most. If we’re wrong, we’ll find out pretty quick and print the same in caps. For now, we reported that the last payroll report cooperated with our view. And the Inst. For Supply Management Oct reports for manuf and services were above expectations. And vehicle sales have blown through expectations. From Larry Kudlow, “According to Auto Nation CEO Mike Jackson, rising pickup sales show that small businesses and entrepreneurs are going to work.” Thank you very much.
Finally, we noted earlier that company earnings are surprising to the upside.
So we are set pretty well we think. We don’t know exactly what numbers the economy will print, and really don’t care. All we care is that results eclipse expectations, blow through conventional wisdom. This will cheer the consumer. So far so good.
Robert Craven
Friday, November 5, 2010
Today's Key Payroll Release
We noted earlier that the error to the consensus forecast, both for economic activity in general and for payrolls particularly, is to the weak side. That is, there will be more vigor ahead than expected. This will be the trend.
Today’s payroll release for Oct cooperated nicely. Payroll rose 161M vs expectations of +60M. Importantly, private sector jobs rose by 159M, the 10th straight monthly gain.
Also of note this am was that the average workweek (a leading indicator for new hiring) rose to 34.3 hours vs expectations of no change from 34.2. This is its highest level since Nov/08.
We’re no where near recovering all the lost jobs naturally; in fact, many will never be recovered. They’re history. But the economy is generating sustained, modest increases in employment folks, a near miracle considering the hindrances placed upon it by Obama and other levelers.
We need only to get past the lame duck Dem’s, many of whom will be up to no good.
Employers and consumers alike will be cheered by what they hear from the new Congress.
Robert Craven
Today’s payroll release for Oct cooperated nicely. Payroll rose 161M vs expectations of +60M. Importantly, private sector jobs rose by 159M, the 10th straight monthly gain.
Also of note this am was that the average workweek (a leading indicator for new hiring) rose to 34.3 hours vs expectations of no change from 34.2. This is its highest level since Nov/08.
We’re no where near recovering all the lost jobs naturally; in fact, many will never be recovered. They’re history. But the economy is generating sustained, modest increases in employment folks, a near miracle considering the hindrances placed upon it by Obama and other levelers.
We need only to get past the lame duck Dem’s, many of whom will be up to no good.
Employers and consumers alike will be cheered by what they hear from the new Congress.
Robert Craven
Monday, November 1, 2010
A Lesson From Abroad
If the masses were all fresh out of Econ 1-A, then Frank, Dodd, Clinton and Obama would have been hung by their thumbs for protecting the twins (Our Heart of Darkness), thus igniting a firestorm, one which came within an inch of consuming the world economy. If McCain could have made the point, he would have won.
But there is easier economic stuff that most of us now do understand; key among these - the massive spending to spark jobs; it was a flop.
Background: A few of us knew the stimulus would fail before the horse left the barn. Last year we called it a tragedy. These things don’t work; they can’t.
Recall that unemployment peaked at 9% two months after the Oct/29 crash, and then began to drift lower, down to 6.3% by June/30 when the first big federal intervention occurred. Within six months, the trend reversed and hit double digits in Dec/30. Hoover's interventions were followed by FDR's massive interventions and unemployment stayed in double digits for the rest of the decade.
BO got in the act and deja vu.
Most reasonable folk know the gov’t cannot and never has created jobs on net. We’ve explained just why in numerous past blogs. The left’s pandering helps out the unions big time, but not measured US unemployment.
However, others of the developed world are not so stupid, or in BO’s case, so cowardly. Chris Caldwell of the Weekly Standard notes that, “Germany has been scolded, even browbeaten, by Obama administration officials, from Treasury Secretary Timothy Geithner on down, for saving too much and spending too little. It has refused to stimulate its economy as the United States has done, on the grounds that the resulting budget deficits would not be sustainable and the policies themselves would not work.”
Germany got hit as bad or worse that we did, Q4' 08. But guess what? Germany is growing at roughly 9% / yr. It’s unemployment rate is 7.5%, the lowest in 18 years. Need we say more?
Kennedy had some idea, Reagan knew exactly - you inherit a recession, then cut taxes and stand back. Your job is to do what you know is right, to do your constitutional duty and to hell with the political consequences. As a leader, you’ve got to have courage to do this, to stand alone. BO didn’t.
Robert Craven
But there is easier economic stuff that most of us now do understand; key among these - the massive spending to spark jobs; it was a flop.
Background: A few of us knew the stimulus would fail before the horse left the barn. Last year we called it a tragedy. These things don’t work; they can’t.
Recall that unemployment peaked at 9% two months after the Oct/29 crash, and then began to drift lower, down to 6.3% by June/30 when the first big federal intervention occurred. Within six months, the trend reversed and hit double digits in Dec/30. Hoover's interventions were followed by FDR's massive interventions and unemployment stayed in double digits for the rest of the decade.
BO got in the act and deja vu.
Most reasonable folk know the gov’t cannot and never has created jobs on net. We’ve explained just why in numerous past blogs. The left’s pandering helps out the unions big time, but not measured US unemployment.
However, others of the developed world are not so stupid, or in BO’s case, so cowardly. Chris Caldwell of the Weekly Standard notes that, “Germany has been scolded, even browbeaten, by Obama administration officials, from Treasury Secretary Timothy Geithner on down, for saving too much and spending too little. It has refused to stimulate its economy as the United States has done, on the grounds that the resulting budget deficits would not be sustainable and the policies themselves would not work.”
Germany got hit as bad or worse that we did, Q4' 08. But guess what? Germany is growing at roughly 9% / yr. It’s unemployment rate is 7.5%, the lowest in 18 years. Need we say more?
Kennedy had some idea, Reagan knew exactly - you inherit a recession, then cut taxes and stand back. Your job is to do what you know is right, to do your constitutional duty and to hell with the political consequences. As a leader, you’ve got to have courage to do this, to stand alone. BO didn’t.
Robert Craven
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