US results this week were mildly supportive of desk anchors; nothing spectacular.
All we can do for a client is provide a better view of economic reality ahead than that provided by street “consensus.” That is, isolate the flaw often generated by group decision making. In such a way the client can capture price change. For example, if we know that jobs-related activity will flatten estimates, the exact print doesn’t matter, simply the direction of miss. We work in the reverse of most strategists and it generally has proven effective, past years. But the sweet spot can prove elusive; one is not always in ownership of good insight; it cannot be forced. Let’s take a look.
Our key desk anchor, Q1, has been jobs creation. This has held perfectly past many weeks, yet Thursday’s Claims print was not quite as low as expected. A trend? No. Ongoing look for more strength from this key sector.
This leads us to today’s Feb Personal Income and Outlays data. Income was up modestly but spending blew through estimates, putting consumption for Q1 at about a 2% increase. How can this be? The mystery plaguing most economist has been why the disconnect? Jobs creation had flattened their forecasts yet incomes have lagged and so they have under-estimated consumer activity.
Key is attitude. Models don’t account for it. The US consumer is sick of hearing of the antics of the clowns in the E-Z or the China “hard landing” just around the next corner. This stuff used to register; no longer. But signs of domestic employment vigor have a very positive impact on attitude, for both the employed and of course, those on the hunt (and a mild winter hasn’t hurt either).
This explained the strong Feb Retail Sales print (Mar/13) and it explains today’s Outlays print. Recall that for Feb Sales, energy prices were not the whole story; there was plenty of spending elsewhere and not just for vehicles, and, in spite of higher gasoline. Without the recent spike in gasoline prices we would have seen Core Retail Sales ex-gasoline at perhaps +0.9% instead of the +0.6% print.
Barring much higher crude, US consumers will remain the world’s #1 engine right through 2012. Until earned income catches up, they will borrow the difference.
Not all is rosy however. We saw the Feb Durables read on Wednesday; it was an improvement from Jan but nothing robust. And that key component – Nondefense capital goods shipments – the proxy for capital spending, is little changed from Q4 levels.
And today’s Chicago ISM, a good leading indicator, was not quite as strong as expected. We instructed in the Week Ahead that this read carries good leading hrsp, especially new orders and employment. New orders declined a tad, yet at the present level still suggest a growing demand for factory products. Backlogs actually increased, suggesting that factory activity will continue to grow over the intermediate term; just nothing spectacular. Finally, employment declined a tad, but then again, that was from its highest level since April 1984. So not bad. We had removed manufacturing as an anchor; we knew it would continue to grow, just nothing not already priced in. Today’s data fit that view.
Robert Craven
All we can do for a client is provide a better view of economic reality ahead than that provided by street “consensus.” That is, isolate the flaw often generated by group decision making. In such a way the client can capture price change. For example, if we know that jobs-related activity will flatten estimates, the exact print doesn’t matter, simply the direction of miss. We work in the reverse of most strategists and it generally has proven effective, past years. But the sweet spot can prove elusive; one is not always in ownership of good insight; it cannot be forced. Let’s take a look.
Our key desk anchor, Q1, has been jobs creation. This has held perfectly past many weeks, yet Thursday’s Claims print was not quite as low as expected. A trend? No. Ongoing look for more strength from this key sector.
This leads us to today’s Feb Personal Income and Outlays data. Income was up modestly but spending blew through estimates, putting consumption for Q1 at about a 2% increase. How can this be? The mystery plaguing most economist has been why the disconnect? Jobs creation had flattened their forecasts yet incomes have lagged and so they have under-estimated consumer activity.
Key is attitude. Models don’t account for it. The US consumer is sick of hearing of the antics of the clowns in the E-Z or the China “hard landing” just around the next corner. This stuff used to register; no longer. But signs of domestic employment vigor have a very positive impact on attitude, for both the employed and of course, those on the hunt (and a mild winter hasn’t hurt either).
This explained the strong Feb Retail Sales print (Mar/13) and it explains today’s Outlays print. Recall that for Feb Sales, energy prices were not the whole story; there was plenty of spending elsewhere and not just for vehicles, and, in spite of higher gasoline. Without the recent spike in gasoline prices we would have seen Core Retail Sales ex-gasoline at perhaps +0.9% instead of the +0.6% print.
Barring much higher crude, US consumers will remain the world’s #1 engine right through 2012. Until earned income catches up, they will borrow the difference.
Not all is rosy however. We saw the Feb Durables read on Wednesday; it was an improvement from Jan but nothing robust. And that key component – Nondefense capital goods shipments – the proxy for capital spending, is little changed from Q4 levels.
And today’s Chicago ISM, a good leading indicator, was not quite as strong as expected. We instructed in the Week Ahead that this read carries good leading hrsp, especially new orders and employment. New orders declined a tad, yet at the present level still suggest a growing demand for factory products. Backlogs actually increased, suggesting that factory activity will continue to grow over the intermediate term; just nothing spectacular. Finally, employment declined a tad, but then again, that was from its highest level since April 1984. So not bad. We had removed manufacturing as an anchor; we knew it would continue to grow, just nothing not already priced in. Today’s data fit that view.
Robert Craven
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