First, to spending. Last week we saw that consumer spending for Q4 ‘10 gained 4.4% (the most since Q1 ‘06 ) following a 2.4% increase Q3. We did not know at the beginning of Q4 that spending would print 4.4%, only that it would flatten St estimates. This was the result.
Look for any surprises over the near term to be to the side of more, not less vigor than forecast. This is the course-of-least-resistance for the US economy and it is especially true for discretionary spending. Thus planners in those businesses linked to such activity are to embrace the reality of more demand for their product, H2, not less.
Background: Most analysts missed recent vigor because they 1) did not fold results of Nov/2 and traction obtained into their models, 2) gave imbalances in housing and the mess in states’ finances too much weight and 3) took consumer confidence reports to heart.
Of course, there are always wild cards - those cataclysmic events which carry the hrsp to retard US growth. A closure of the Suez Canal is one. This brings to mind the current crisis.
We followed the Mid Eastern situation (including the Brotherhood from ‘06) in a separate blog. http://bobcraven.blogspot.com/
Better, see the recent article by Vic Hansen for a primer http://pajamasmedia.com/victordavishanson/whats-the-matter-with-egypt/.
After that exercise readers will understand the failure of Mid Eastern society, and, the West as the appointed scapegoat. Along comes the internet and anyone under 40 got jealous. Dictators stand in the way. Here is the cause of recent violence. The trigger however was food prices.
Some Western observers have blamed the Fed for the recent chaos and even deaths; they argue the US is an exporter of inflation expressed in the very commodity prices which triggered this deal. Let’s see what this is all about.
Sure enough, inflation in milk and flour prices triggered protests in Algeria that left 3 people dead. Then a food vendor in Tunisia set himself alight. Now Egypt is ablaze. Egyptians suffer for example because cereal grains are up 39% in the last year, oils and fat, up 55%. Going after the nearest bad-guy target - Mubarak - is understandable.
But is Bernanke also one of the bad guys? In the sense that he conducts US monetary policy without the interests of the developing world folded in, he is. But it takes two to tango and the complainer, the developing country must make the decision to import inflation to get things going!
Higher commodity prices are not just a monetary phenomena of course - witness the worst drought in Russia and the Black Sea region for 130 years, late rains in Canada, Nina disruptions in Argentina, and a series of acreage downgrades in the US. But what about money?
We know the Fed is flooding the world with $’s; the more of them the less they’re worth. And we know that an Egypt, or a China, or an Algeria or any other developing country must buy their food in $’s. But these guys are mostly exporters. What happens if the $ cheapens relative to their currency? Right, this dampens their exports (one $ buys less), their life blood. So what do their central banks do? They print their currency out of thin air and buy dollars. Why? To keep dollars expensive to the local currency. Thus, just like China is doing these countries make a choice or decision to import inflation. That is the core to their problem. At the expense of their own savers they flood their own mkt with their own currency. That’s about all there is to it.
An Egypt or China which may want to insulate itself from this food inflation has to appreciate its currency significantly. But then its exports would tank. No way they’ll do that. Or, they have to subsidize food prices - price controls. These measures always fail. Absent these two drastic measures, countries have to live with the implication of US monetary policy.
Robert Craven
Monday, January 31, 2011
Sunday, January 23, 2011
Week Ahead
This week we’ll see a moderate flow of gov’t and private data related to consumer attitude (two surveys, both to be ignored as there is very little correlation between consumer response and spending activity ahead, our view), orders for so-called durable items or factory hard goods, unemployment claims, data on both new and pending home sales, and finally, the advance look at Q4 GDP. There will also be a two-day FOMC meeting ending Jan/26.
When the week is finished and the dust settles there will be further evidence to support our anchor - consumer activity will have exceeded expectations. Not robust, but certainly much stronger than practically anyone predicted end of Q3.
We should remain constructive on spending. Some of our clients are held hostage to consumer discretionary activity, something which evaporated ‘09. We predicted early Q4 for a resumption of this activity; that was the result. We can now expect a gathering of momentum for this sector. For example, HI vacation property sales, once moribund, will accelerate through H1 into H2.
On the whole any surprises over the intermediate term for the US economy will be to the side of more vigor, not less. We can say this despite still huge imbalances in housing, despite the well-publicized mess in states’ finances, despite surging commodity prices.
Background: Never during our time in this business have politics and economic reality ahead been so intertwined. Obama inherited a bad situation (in which he had a hand in creating) and then make it a lot worse.
Yet despite that and the housing mess, consumption began to recover into 2010. But it was the Nov/2/10 election results which fired employers and consumers, extending hope that individual tax cuts might be maintained, that corporate tax cuts might be initiated and that Obama’s smothering legislation might be overturned.
Now we see that Obama has suddenly switched from gov’t planner to pretended free-mkt maven. As a result employers have become even more optimistic.
Obama will never be a Reagan or even a JFK but with his re-election in mind he’s at least saying the right words, some of them. Immelt’s appointment leads one to question his actions, but at least Obama’s no longer an outright hindrance to the recovery.
Robert Craven
When the week is finished and the dust settles there will be further evidence to support our anchor - consumer activity will have exceeded expectations. Not robust, but certainly much stronger than practically anyone predicted end of Q3.
We should remain constructive on spending. Some of our clients are held hostage to consumer discretionary activity, something which evaporated ‘09. We predicted early Q4 for a resumption of this activity; that was the result. We can now expect a gathering of momentum for this sector. For example, HI vacation property sales, once moribund, will accelerate through H1 into H2.
On the whole any surprises over the intermediate term for the US economy will be to the side of more vigor, not less. We can say this despite still huge imbalances in housing, despite the well-publicized mess in states’ finances, despite surging commodity prices.
Background: Never during our time in this business have politics and economic reality ahead been so intertwined. Obama inherited a bad situation (in which he had a hand in creating) and then make it a lot worse.
Yet despite that and the housing mess, consumption began to recover into 2010. But it was the Nov/2/10 election results which fired employers and consumers, extending hope that individual tax cuts might be maintained, that corporate tax cuts might be initiated and that Obama’s smothering legislation might be overturned.
Now we see that Obama has suddenly switched from gov’t planner to pretended free-mkt maven. As a result employers have become even more optimistic.
Obama will never be a Reagan or even a JFK but with his re-election in mind he’s at least saying the right words, some of them. Immelt’s appointment leads one to question his actions, but at least Obama’s no longer an outright hindrance to the recovery.
Robert Craven
Wednesday, January 19, 2011
Update
Of the few economic releases this week none carry much mkt-moving potential. So perhaps best to reflect on other events, center stage, which may impact US growth.
Key among these is Obama’s sudden conversion from gov’t planner to free-market maven. “It’s amazing how far he has moved off his campaign promises to the left, and moved over to the center-right,” noted one St observer. Of course we and future generations have paid his tuition; the cost - outrageous. We know he is looking to the election but at least he’s become practical, perhaps even useful.
This has not been lost on major employers. For example, manufacturers have become more optimistic. These were already cheered by results of Nov/2; they are now all the more buoyant given the new business-friendly attitude in the WH. Intel’s Paul Otellini noted the other day, “In 2011, everything gets better. The economy is forecast to improve.” Otellini like so many others had been a critic of Obama’s past fetish for throwing encumbrances on employers.
There are other reasons to be constructive. Well-advertised, higher commodity prices (food, metal, oil, etc) reflect stronger demand, US and abroad. This is a good thing. The other side is the inflation threat but as Zach Pandl with Nomura notes today, “U.S. companies in aggregate aren’t as affected by the rising commodity prices because they spend far more on wages and worker benefits than they do on commodities.” Maybe. Certainly the Fed agrees. The Fed of course “ex’s out” these price pressures, preferring the core CPI measure which excludes food and energy, as their guide.
Background: Major world commodities are priced in dollars. Countries earn these dollars through trade with the US. We run a trade deficit with most of these countries so they have plenty of dollars, more than ever nowadays given the Fed’s expansionary policies. These countries - many now expanding rapidly - buy food, metals and oil with these dollars, bidding up the price. So loose policy here (core CPI as the excuse) translates to commodity inflation in countries abroad.
This leads the discussion to China. China has more of these dollars than anyone; to keep this hoard safe a good chunk is in US treasuries. So much in fact that China has a lever over US policy - if they sell, up go US yields. This is why the Chinese have in the past gotten away with linking their yuan to the dollar. This keeps Chinese exports cheap but fuels Chinese domestic inflation, and by contagion eventually that in the US, biting into household pockets. This is one reason the US has warned China to speed the appreciation of the yuan to the dollar. This too will be a major part of this week’s discussion with Chinese president Hu.
Robert Craven
Key among these is Obama’s sudden conversion from gov’t planner to free-market maven. “It’s amazing how far he has moved off his campaign promises to the left, and moved over to the center-right,” noted one St observer. Of course we and future generations have paid his tuition; the cost - outrageous. We know he is looking to the election but at least he’s become practical, perhaps even useful.
This has not been lost on major employers. For example, manufacturers have become more optimistic. These were already cheered by results of Nov/2; they are now all the more buoyant given the new business-friendly attitude in the WH. Intel’s Paul Otellini noted the other day, “In 2011, everything gets better. The economy is forecast to improve.” Otellini like so many others had been a critic of Obama’s past fetish for throwing encumbrances on employers.
There are other reasons to be constructive. Well-advertised, higher commodity prices (food, metal, oil, etc) reflect stronger demand, US and abroad. This is a good thing. The other side is the inflation threat but as Zach Pandl with Nomura notes today, “U.S. companies in aggregate aren’t as affected by the rising commodity prices because they spend far more on wages and worker benefits than they do on commodities.” Maybe. Certainly the Fed agrees. The Fed of course “ex’s out” these price pressures, preferring the core CPI measure which excludes food and energy, as their guide.
Background: Major world commodities are priced in dollars. Countries earn these dollars through trade with the US. We run a trade deficit with most of these countries so they have plenty of dollars, more than ever nowadays given the Fed’s expansionary policies. These countries - many now expanding rapidly - buy food, metals and oil with these dollars, bidding up the price. So loose policy here (core CPI as the excuse) translates to commodity inflation in countries abroad.
This leads the discussion to China. China has more of these dollars than anyone; to keep this hoard safe a good chunk is in US treasuries. So much in fact that China has a lever over US policy - if they sell, up go US yields. This is why the Chinese have in the past gotten away with linking their yuan to the dollar. This keeps Chinese exports cheap but fuels Chinese domestic inflation, and by contagion eventually that in the US, biting into household pockets. This is one reason the US has warned China to speed the appreciation of the yuan to the dollar. This too will be a major part of this week’s discussion with Chinese president Hu.
Robert Craven
Friday, January 14, 2011
Update
Today’s Dec Retail Sales print (+0.6%) was just inside of expectations. Still, much more there from the consumer than hardly anyone expected for this period, back a few months ago.
We also saw Dec CPI; it was non-threatening, the core up 0.1%. The headline number was up 0.5%, mainly due to energy prices. Still, the headline is now only 1.4% above the year ago level. Core prices are only 0.8% above their year ago level. As Steven Wood reminds us, this is one of the slowest paces in the 52 years of data collection.
Today’s data throws some slack to the Fed. We don’t need the liquidity but they’re intent on providing it, so fine. With tame price numbers, longer-term yields will allow them get away with it for a little longer.
We also saw Dec CPI; it was non-threatening, the core up 0.1%. The headline number was up 0.5%, mainly due to energy prices. Still, the headline is now only 1.4% above the year ago level. Core prices are only 0.8% above their year ago level. As Steven Wood reminds us, this is one of the slowest paces in the 52 years of data collection.
Today’s data throws some slack to the Fed. We don’t need the liquidity but they’re intent on providing it, so fine. With tame price numbers, longer-term yields will allow them get away with it for a little longer.
Thursday, January 13, 2011
Mark Twain on The Consensus
In navigating the investment world we find it useful to be the master of the consensus rather than slave to the same.
Here’s a real life example. Early Q4 we predicted vigor in the economy. Most forecaster were looking the other direction. They got caught with their pants down. Now they have swung in the extreme, most predicting results for H1 that even we find excessive.
Fascinating stuff this crowd behavior is it not? Let’s return to Mark Twain’s Dr. Loeb’s Incredible Discovery for some fun. Twain begins: “...in the drift of the years I by and by found out that a consensus examines a new thing with its feeling rather oftener than with its mind. You know, yourself, that this is so. Do those people examine with feelings that are friendly to evidence? You know they don’t. They do the examining by the light of their prejudices – now isn’t that true?”
He continues, “..you wonder that the consensuses do not go out of business. Do you know of a case where a consensus won a game? You can go back as far as you want to and you ...will find...for your guidance and profit: Whatever new thing a consensus coppers (colloquial for ‘bets against’) bet your money on that very card and do not be afraid.”
Indeed, Twain reminds us, “There was a primitive steam engine – ages back: a consensus made fun of it. There was the Marquis of Worcester’s steam engine, 250 years ago: a consensus made fun of it. There was Fulton’s steamboat of a century ago: a French consensus...made fun of it. While a consensus was proving, by statistics and things, that a steamship could not cross the Atlantic, a steamship did it. There was Priestley, with his oxygen: a consensus scoffed at him, mobbed him, burned him out, banishing him. A consensus consisting of all the medical experts of Great Britian made fun of Jenner and inoculation.”
“This is warm work,” Twain complains.. ‘It puts my temperature up to 106 and raises my pulse to the limit. It always works just so when the red rag of consensus jumps my fence and starts across my pasture. I’ve been a consensus more than once myself, and I know the business...”
Twain had a second career in the making.
Robert Craven
Here’s a real life example. Early Q4 we predicted vigor in the economy. Most forecaster were looking the other direction. They got caught with their pants down. Now they have swung in the extreme, most predicting results for H1 that even we find excessive.
Fascinating stuff this crowd behavior is it not? Let’s return to Mark Twain’s Dr. Loeb’s Incredible Discovery for some fun. Twain begins: “...in the drift of the years I by and by found out that a consensus examines a new thing with its feeling rather oftener than with its mind. You know, yourself, that this is so. Do those people examine with feelings that are friendly to evidence? You know they don’t. They do the examining by the light of their prejudices – now isn’t that true?”
He continues, “..you wonder that the consensuses do not go out of business. Do you know of a case where a consensus won a game? You can go back as far as you want to and you ...will find...for your guidance and profit: Whatever new thing a consensus coppers (colloquial for ‘bets against’) bet your money on that very card and do not be afraid.”
Indeed, Twain reminds us, “There was a primitive steam engine – ages back: a consensus made fun of it. There was the Marquis of Worcester’s steam engine, 250 years ago: a consensus made fun of it. There was Fulton’s steamboat of a century ago: a French consensus...made fun of it. While a consensus was proving, by statistics and things, that a steamship could not cross the Atlantic, a steamship did it. There was Priestley, with his oxygen: a consensus scoffed at him, mobbed him, burned him out, banishing him. A consensus consisting of all the medical experts of Great Britian made fun of Jenner and inoculation.”
“This is warm work,” Twain complains.. ‘It puts my temperature up to 106 and raises my pulse to the limit. It always works just so when the red rag of consensus jumps my fence and starts across my pasture. I’ve been a consensus more than once myself, and I know the business...”
Twain had a second career in the making.
Robert Craven
Tuesday, January 11, 2011
Update
Let’s take a look at the balance of the week.
We’ll see the Fed’s Beige Book tomorrow (1/12). This will reflect Bernanke’s recent commentary that improvement is noted here and there.
Thur (1/13) we’ll see the PPI for Dec, then CPI on Fri (1/14). Both of these numbers have acquired market-moving potential because of the Fed’s aggressive expansion of the money supply. If either or both are to print numbers say double expectations, the world mkt will assume the Fed’s got itself in a tight spot and yields will spike. The odds for such a print are low, but this does accurately reflect the tension in the marketplace.
Also Fri (1/14) we will have Dec Retail Sales. Estimates have been shaved a tad due to extreme weather, the end of the reporting period. Still, past few months we have predicted that consumer activity would surprise to the side of vigor. This has been the result, especially for discretionary purchases. We look for more of the same, ongoing.
Finally, the media is saturated with news of distress, EU credits. What’s this mean for the US? Not much.
There will be a nick in US exports given the recent weakness of the Euro to the $(a Euro buys fewer $’s). But major contagion? No. Our banks have very little exposure to the EU periphery credits. The real wild card as we noted earlier is a collapse of the currency. That’s something else.
Background: Nothing good can come from paranoia. But that is just what birthed the EU - the dread of US competitiveness. Sovereignty was ditched throughout Europe. There was a great leveling. Terrified, all rushed together, the weak and the strong, to row one boat. Weaker members inevitably slack on the oars. The ship is now off course and perhaps, bound to run aground.
Solutions to the current crisis were being delivered piecemeal, without recognition for example that Greece, Ireland and Portugal are insolvent. The stubborn ECB had refused to do much. But today Japan eclipsed the ECB and offered to buy a good hunk of the bonds being readied to support EU periphery credits. That helped. So did China’s promise to buy Spanish debt. And so did rumors today of increased ECB purchases of Portugese debt.
The lesser credits of Europe the poor devils got themselves in a trap - borrowing heavily, pre-crisis, in hopes of a continuum. US Democrats, always made out to be darlings in the European press were trusted by this bunch - those same Democrats who sowed the seeds to tank the world markets. Now we’re alright, or getting there, but these credits never recovered. Investors are selling their bonds as they can’t seem to pay their bills. And as investors do that, these credits’ debt bills soar even more as interest rates climb.
World creditors now demand 7% to loan the Portugese 10 year money (actually 7.24% at one point yesterday, triggering ECB purchases which put the rate back down closer to 7%), vs the already high 5.5% that Greece and Ireland are paying the EU emergency fund, vs 3.51% for the UK Gilt 10yr and 3.35% for the US. And if Portugal goes, and she may as she’s not growing fast enough to service her debt, then Spain is right behind, or such is the perception. Makes sense - Spanish banks are one of the largest holders of Portugese debt.
These folks should have listened to Thatcher.
Robert Craven
We’ll see the Fed’s Beige Book tomorrow (1/12). This will reflect Bernanke’s recent commentary that improvement is noted here and there.
Thur (1/13) we’ll see the PPI for Dec, then CPI on Fri (1/14). Both of these numbers have acquired market-moving potential because of the Fed’s aggressive expansion of the money supply. If either or both are to print numbers say double expectations, the world mkt will assume the Fed’s got itself in a tight spot and yields will spike. The odds for such a print are low, but this does accurately reflect the tension in the marketplace.
Also Fri (1/14) we will have Dec Retail Sales. Estimates have been shaved a tad due to extreme weather, the end of the reporting period. Still, past few months we have predicted that consumer activity would surprise to the side of vigor. This has been the result, especially for discretionary purchases. We look for more of the same, ongoing.
Finally, the media is saturated with news of distress, EU credits. What’s this mean for the US? Not much.
There will be a nick in US exports given the recent weakness of the Euro to the $(a Euro buys fewer $’s). But major contagion? No. Our banks have very little exposure to the EU periphery credits. The real wild card as we noted earlier is a collapse of the currency. That’s something else.
Background: Nothing good can come from paranoia. But that is just what birthed the EU - the dread of US competitiveness. Sovereignty was ditched throughout Europe. There was a great leveling. Terrified, all rushed together, the weak and the strong, to row one boat. Weaker members inevitably slack on the oars. The ship is now off course and perhaps, bound to run aground.
Solutions to the current crisis were being delivered piecemeal, without recognition for example that Greece, Ireland and Portugal are insolvent. The stubborn ECB had refused to do much. But today Japan eclipsed the ECB and offered to buy a good hunk of the bonds being readied to support EU periphery credits. That helped. So did China’s promise to buy Spanish debt. And so did rumors today of increased ECB purchases of Portugese debt.
The lesser credits of Europe the poor devils got themselves in a trap - borrowing heavily, pre-crisis, in hopes of a continuum. US Democrats, always made out to be darlings in the European press were trusted by this bunch - those same Democrats who sowed the seeds to tank the world markets. Now we’re alright, or getting there, but these credits never recovered. Investors are selling their bonds as they can’t seem to pay their bills. And as investors do that, these credits’ debt bills soar even more as interest rates climb.
World creditors now demand 7% to loan the Portugese 10 year money (actually 7.24% at one point yesterday, triggering ECB purchases which put the rate back down closer to 7%), vs the already high 5.5% that Greece and Ireland are paying the EU emergency fund, vs 3.51% for the UK Gilt 10yr and 3.35% for the US. And if Portugal goes, and she may as she’s not growing fast enough to service her debt, then Spain is right behind, or such is the perception. Makes sense - Spanish banks are one of the largest holders of Portugese debt.
These folks should have listened to Thatcher.
Robert Craven
Friday, January 7, 2011
Review
A quick review is in order. Let’s not get lost for the trees.
Without central bank cooperation late Q4 ‘08 we would have witnessed a meltdown in world commercial activity. This is too scary to even contemplate yet we were within a whisker.
Why the crisis? World investment banks fed lamprey-style on the leavings of Fannie and Freddie. Whiz kids screwed up in structuring products around this lousy mortgage paper. These products imploded. But the feast was presented by Sen Obama, Sen Clinton, Rep Frank, Sen Dodd and other Dem’s who, in order to buy black votes protected the twins from repeated efforts by Bush to reform their shoddy practices.
Enter president Obama. Having inherited a bad situation (in which he played a central role) BO made it much worse by throwing up impediments to corporate risk taking; he thus personally hindered the recovery. From our blog of Dec/09: Dan DiMicco, CEO of steelmaker Nucor Corp, told the WSJ that, "‘Companies large and small are saying, ‘I am not going to do anything until these things - health care, climate legislation - go away or are resolved.’" We also hear from Porta-King CEO Steve Schulte who told USA Today that his company is not investing because, "proposals in Congress to tackle climate change and overhaul health care would raise costs." We have dozens of such testimonials. These guys naturally put hiring on hold.
Consumers were discouraged and shocked most of ‘09 then began a slow recovery in spending H1, ‘10. Slow because job insecurity was still high, exacerbated by the press. And even those with money looked forward to higher taxes beginning Jan/11.
That takes us through ‘09 and half of ‘10. From our blog of Aug/10: Not only are private-sector employers worried about new burdens, they are worried about anemic growth in general, looming deficits and tax hikes never ending. In the larger sense, private enterprise does no relish a future for the US as a social democracy, in the fashion of an economically stagnant Europe. Yet the perception by private enterprise is that this is where Obama is taking us.
Then, Nov/2 changed everything. We all know the details. Voters 1) stopped the damage and 2) ordered repairs to be made. Employers have taken note; consumers have been greatly cheered. Foreign investors will once again discover the US to be a place of safe and sound investment.
Finally, let’s return to our anchor. The last two payroll reports have been less-than-thrilling. We have had slippage on this front, yet expect this to be more pause then trend. Why? Exactly because of Nov/2 and employers’ reaction to that result. Levelers are no longer planning our economy and will no longer be allowed to kill us with debt and regulation. Burdens both perceived and real have been lifted.
Consumer activity has adhered well, blasting through Street estimates (with the exception of the most recent Chain Store sales results, dampened by extreme weather).
Stay tuned.
Robert Craven
Without central bank cooperation late Q4 ‘08 we would have witnessed a meltdown in world commercial activity. This is too scary to even contemplate yet we were within a whisker.
Why the crisis? World investment banks fed lamprey-style on the leavings of Fannie and Freddie. Whiz kids screwed up in structuring products around this lousy mortgage paper. These products imploded. But the feast was presented by Sen Obama, Sen Clinton, Rep Frank, Sen Dodd and other Dem’s who, in order to buy black votes protected the twins from repeated efforts by Bush to reform their shoddy practices.
Enter president Obama. Having inherited a bad situation (in which he played a central role) BO made it much worse by throwing up impediments to corporate risk taking; he thus personally hindered the recovery. From our blog of Dec/09: Dan DiMicco, CEO of steelmaker Nucor Corp, told the WSJ that, "‘Companies large and small are saying, ‘I am not going to do anything until these things - health care, climate legislation - go away or are resolved.’" We also hear from Porta-King CEO Steve Schulte who told USA Today that his company is not investing because, "proposals in Congress to tackle climate change and overhaul health care would raise costs." We have dozens of such testimonials. These guys naturally put hiring on hold.
Consumers were discouraged and shocked most of ‘09 then began a slow recovery in spending H1, ‘10. Slow because job insecurity was still high, exacerbated by the press. And even those with money looked forward to higher taxes beginning Jan/11.
That takes us through ‘09 and half of ‘10. From our blog of Aug/10: Not only are private-sector employers worried about new burdens, they are worried about anemic growth in general, looming deficits and tax hikes never ending. In the larger sense, private enterprise does no relish a future for the US as a social democracy, in the fashion of an economically stagnant Europe. Yet the perception by private enterprise is that this is where Obama is taking us.
Then, Nov/2 changed everything. We all know the details. Voters 1) stopped the damage and 2) ordered repairs to be made. Employers have taken note; consumers have been greatly cheered. Foreign investors will once again discover the US to be a place of safe and sound investment.
Finally, let’s return to our anchor. The last two payroll reports have been less-than-thrilling. We have had slippage on this front, yet expect this to be more pause then trend. Why? Exactly because of Nov/2 and employers’ reaction to that result. Levelers are no longer planning our economy and will no longer be allowed to kill us with debt and regulation. Burdens both perceived and real have been lifted.
Consumer activity has adhered well, blasting through Street estimates (with the exception of the most recent Chain Store sales results, dampened by extreme weather).
Stay tuned.
Robert Craven
Dec Payroll
Today’s key BLS Dec Payroll report did not fit the pattern we had predicted earlier; that is, vigor did not roll through establishment forecasts. We particularly expected more from the private sector.
Private sector jobs rose only 113M while gov’t jobs fell by 10M. There were however small upward revisions (70M) to the prior 2 months headline numbers. This is the 6th straight month of year-on-year increases following 26 straight months of year-on-year declines.
The av workweek remained at 34.3 hours, the highest level since Nov/08, but hourly earnings rose a meager 0.1%, and weekly earnings rose 0.1% due to the flat workweek.
The unemployment rate plunged to 9.4% from 9.8%. Today’s decline was due to a sharp decline in the labor force (-260M) combined with a large increase in household employment (+297MK), leading to a plunge in the number of unemployed (-556M).
Bottom line: As a result of today’s numbers forecasters will now look for less spending activity ahead, many shaving their forecasts as we write. Instead, we expect spending activity, especially discretionary activity to broach these forecasts for Q1 and H1. Returning to our much earlier comment, this vigor is tied to something most forecasting models have missed - that spark provided through the voting booth and quick action on consumer relief by the new Congress.
Robert Craven
Private sector jobs rose only 113M while gov’t jobs fell by 10M. There were however small upward revisions (70M) to the prior 2 months headline numbers. This is the 6th straight month of year-on-year increases following 26 straight months of year-on-year declines.
The av workweek remained at 34.3 hours, the highest level since Nov/08, but hourly earnings rose a meager 0.1%, and weekly earnings rose 0.1% due to the flat workweek.
The unemployment rate plunged to 9.4% from 9.8%. Today’s decline was due to a sharp decline in the labor force (-260M) combined with a large increase in household employment (+297MK), leading to a plunge in the number of unemployed (-556M).
Bottom line: As a result of today’s numbers forecasters will now look for less spending activity ahead, many shaving their forecasts as we write. Instead, we expect spending activity, especially discretionary activity to broach these forecasts for Q1 and H1. Returning to our much earlier comment, this vigor is tied to something most forecasting models have missed - that spark provided through the voting booth and quick action on consumer relief by the new Congress.
Robert Craven
Wednesday, January 5, 2011
Update
Even now, forecasters continue to under-estimate vigor in payrolls, and thus spending.
Driving forward with one’s eyes in the rear-view mirror is rarely productive.
Today’s ADP (Auto. Data Processing Inc.) private payroll survey for Dec rose 297M vs a consensus expectation for 100M. Although private sector employment is still 7.515MM below its Jan/08 peak, it is now 765M above the Jan/10 low, something which has baffled forecasters but fits our anchor very nicely.
Friday (Jan/7) we will have the Dec BLS payroll report. Since this report includes public workers, many of whom were cut at local and state levels, the headline number will not be as buoyant but private sector growth should be strong. The following Friday we will see Dec Retail Sales. We can expect this result to also adhere to our anchor, that is, broaching expectations.
Robert Craven
Driving forward with one’s eyes in the rear-view mirror is rarely productive.
Today’s ADP (Auto. Data Processing Inc.) private payroll survey for Dec rose 297M vs a consensus expectation for 100M. Although private sector employment is still 7.515MM below its Jan/08 peak, it is now 765M above the Jan/10 low, something which has baffled forecasters but fits our anchor very nicely.
Friday (Jan/7) we will have the Dec BLS payroll report. Since this report includes public workers, many of whom were cut at local and state levels, the headline number will not be as buoyant but private sector growth should be strong. The following Friday we will see Dec Retail Sales. We can expect this result to also adhere to our anchor, that is, broaching expectations.
Robert Craven
Saturday, January 1, 2011
Update
We predicted early Q4 that economic reality ahead would broach expectations, especially payroll and discretionary consumer activity. That has been the result.
Some recent signals have appeared to contradict our view: 1) The last Payroll number was not especially buoyant. 2) A recent consumer confidence report (Conference Board) was lower. 3) Home prices fell again. This information is useful perhaps to set a better price or exploit crowd behavior but not useful as a guide.
Thus, clients are to remain anchored: 1) The last payroll result will very likely be revised higher. 2) The correlation between what consumers tell pollsters, and what they are about to do, is poor. We know from experience that consumers will tell the Conference Board that the world is about to end while on their way to buy a new b b’cue or maybe even a new car! 3) Lower home prices won’t hinder a recovery. Most economists exaggerate the importance of housing to overall wealth, and to spending. Anyway, GDP growth depends on new production. In November, housing starts were up 3.9% and new homes sales were up 5.5%.
Recent unemployment claims fell by 34M for the week ended Dec/25, vs expectations for no change; this is the lowest level of layoffs since July/08. This result is in line with our prediction that analysts have underestimated employment, and by extension, consumer activity.
Overlooked by many is that manufacturing activity has expanded for 17 consecutive months as of Dec following 18 consecutive months of decline. Why? Part we know is due to exports but - key - a growing share past two quarters is tied to domestic demand. The latest survey for the Chicago region blew through expectations, the fastest pace since July/88. The demand for manuf goods indicates that customers are buying again. Due to lean inventories production has improved with demand, as will hiring, as will income, then spending.
Indeed, retailers are reporting the best demand since before the recession began (Dec/2007). Even luxury retailers such as Neiman Marcus, Saks and Nordstrom have seen a surge in traffic and sales (aided by the reality of another two years of Bush tax cuts).
Clients dependent on discretionary spending are to plan for an expansion of that activity on the order of 20% by mid-year, 2011. Business planners are best advised to account for this reality.
Robert Craven
Some recent signals have appeared to contradict our view: 1) The last Payroll number was not especially buoyant. 2) A recent consumer confidence report (Conference Board) was lower. 3) Home prices fell again. This information is useful perhaps to set a better price or exploit crowd behavior but not useful as a guide.
Thus, clients are to remain anchored: 1) The last payroll result will very likely be revised higher. 2) The correlation between what consumers tell pollsters, and what they are about to do, is poor. We know from experience that consumers will tell the Conference Board that the world is about to end while on their way to buy a new b b’cue or maybe even a new car! 3) Lower home prices won’t hinder a recovery. Most economists exaggerate the importance of housing to overall wealth, and to spending. Anyway, GDP growth depends on new production. In November, housing starts were up 3.9% and new homes sales were up 5.5%.
Recent unemployment claims fell by 34M for the week ended Dec/25, vs expectations for no change; this is the lowest level of layoffs since July/08. This result is in line with our prediction that analysts have underestimated employment, and by extension, consumer activity.
Overlooked by many is that manufacturing activity has expanded for 17 consecutive months as of Dec following 18 consecutive months of decline. Why? Part we know is due to exports but - key - a growing share past two quarters is tied to domestic demand. The latest survey for the Chicago region blew through expectations, the fastest pace since July/88. The demand for manuf goods indicates that customers are buying again. Due to lean inventories production has improved with demand, as will hiring, as will income, then spending.
Indeed, retailers are reporting the best demand since before the recession began (Dec/2007). Even luxury retailers such as Neiman Marcus, Saks and Nordstrom have seen a surge in traffic and sales (aided by the reality of another two years of Bush tax cuts).
Clients dependent on discretionary spending are to plan for an expansion of that activity on the order of 20% by mid-year, 2011. Business planners are best advised to account for this reality.
Robert Craven
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