Consumer Confidence: How Low Will It Go?
A level of 80 or better suggests a healthy economy. We currently stand at 50.4, down two months in a row from a year-to-date peak of 62.7 in May.
Last month's drop was characterized by Lynn Franco, director of the research center that compiles the index, as largely a matter of gloomy perceptions of the job market.
Consumer confidence faded further in July as consumers continue to grow increasingly more pessimistic about the short-term outlook. Concerns about business conditions and the labor market are casting a dark cloud over consumers that is not likely to lift until the job market improves. Given consumers’ heightened level of anxiety, along with their pessimistic income outlook and lackluster job growth, retailers are very likely to face a challenging back-to-school season.
Given that new jobless claims were a daunting 7-8% higher during the August sampling period than they were in July, I'm not holding my breath for a confidence bounce.
Also of note since the July reading... stocks fell further, home sales cratered, and people's appetite for big ticket items continued to wane.
The number will be released at 10 am. Analysts expect a statistically insignificant deterioration from 50.4 to 50.0. I'm going to reach into thin air and yank out a prediction of 45.5.
Update: I was way off. The index jumped to 53.5 from a revised 51.0. Go figure.
Consumer confidence posted a modest gain in August, the result of an improvement in consumers’ short-term outlook. Consumers’ assessment of current conditions, however, was less favorable as employment concerns continue to weigh heavily on consumers’ attitudes. Expectations about future business and labor market conditions have brightened somewhat, but overall, consumers remain apprehensive about the future. All in all, consumers are about as confident today as they were a year ago (Aug. 2009, 54.5).
Markets Relieved GDP Revision Only Shows Swift Deceleration In Economic Growth
Stock futures popped a bit on the news, but on more than one economic-data-driven trading day this week, the market has reversed its sentiment mid-session, so don't be surprised if this confirmation of swift slowdown by the king of economic data points doesn't yield some investor nausea by the end of the day.
Looks like we get a day's reprieve from the onslaught of disheartening economic data. Not that today's weekly jobless claims number was pretty by any means, but it was somewhat less ugly than expected, so let's focus on that.
In the week ending Aug. 21, the advance figure for seasonally adjusted initial claims was 473,000, a decrease of 31,000 from the previous week's revised figure of 504,000.
Analysts were looking for 485,000, so this moderate outperformance was a refreshing departure from the near daily negative surprises among the economic data in recent weeks.
The bad news: last week's eye-popping 500,000 was revised higher still to 504,000. And the less volatile 4-week moving average continued higher this week to 486,750, marking the fourth consecutive weekly increase and a new year-to-date high.
Initial Claims (blue) and 4-week Average (red)
While this size decline (even if sustained) is nowhere near enough to indicate even stability in the real employment rate, much less improvement, this is likely to be about as encouraging a day as we'll see all week.
Gird your loins for tomorrow's Q2 GDP revision.
Let's Make It Official: Double Dip Is Coming (If Not Here Already)
I identified myself as a double-dipper on Strategy Room last week and the tenor of my posts over the last few weeks have perhaps left the matter in little doubt, but with today's abysmal durable goods data, I'd like to formally acknowledge my submission to the dark side.
The drum beat of rotten economic data - first suggesting a deceleration in the pace of recovery earlier this year, then a stall as we cruised into Recover Summer - now paints a picture (using ominously lagging indicators) of an economy whose growth has screeched to a halt. With growth rates not only slowing, but slowing faster, we seem to have both a second and third derivative problem that suggests outright contraction is imminent, if not already with us.
Today's morsel of malaise:
New orders for manufactured durable goods in July increased $0.6 billion or 0.3 percent to $193.0 billion, the U.S. Census Bureau announced today. This increase followed two consecutive monthly decreases including a 0.1 percent June decrease. Excluding transportation, new orders decreased 3.8 percent.
That's one tenth the growth rate analysts had expected. And as noted, orders tanked ex-transportation.
Until now (perhaps even now), Congress and the Obama administration have had one magic bullet remaining that might've salvaged their Keynesian plunge into an unnecessary bonus recession - take the many automatic 2011 tax hikes off the table, particularly the growth-quashing increases on investment income. And do it immediately and unequivocally, so investors and businesses can act on that information right now, putting capital to work, hiring new employees, building new production capacity, and engaging in those other matters of commerce that just aren't feasible when you can't forecast your future cost structure.
At the risk of being overly gloomy, I'd say they have just under 48 hours to do so. On Friday morning, we'll get the revised Q2 GDP growth estimate. Already showing shrinkage to an unimpressive 2.4%, expectations are that it will dwindle to as little as 1.0% once revised trade data are incorporated.
As economic perceptions can become economic reality (or rather, in this case, as sudden recognition of an unexpected economic reality can exacerbate that reality), if we see a bad number on Friday, and assuming tax ambiguity remains, expect to see "double dip" rocket up the Google Trends charts.
Update: At the open, stocks are understandably losing more ground, following yesterday's selloff in the wake of dreadful data on existing home sales. At 10 am, we'll have to suffer the release of new home sales figures, which could give investors yet another reason to jeer.
While we're in prognosticating mode, I'll repeat my secondary prediction from last week's show, namely that Obama's approval rating will dip into the 30's, once the double dip begins to come into focus. Currently hovering in the mid-40's, I give it until mid-September, a week or so following the release of the August employment report.
Update: Gah. There it is. New home sales were 276,000, versus consensus expectations of 334,000. That's a 12.4% decline, instead of the small increase analysts forecasted.
On an annual basis, July showed the slowest new home sales rate on record.
Someone Left Out a Zero
With the better part of a trillion dollars flying out the door and less than nothing to show for it, $300 billion would've been a good start.
This, on the other hand, underwhelms.
Obama administration targeting ineffective contracts in an effort to trim costs
The Obama administration said Monday that it plans to review 26 government information-technology projects worth a total of $30 billion as part of an effort to trim back or cancel contracts that aren't meeting goals.
(HT: The Corner)
Despite the anemic nature of the targeted cuts, expect the administration to tout the fact that the potential savings are twice the size of January's ostensible spending freeze.
Dow Loses 10,000 On Cruddy Housing Data
The market expected to see weakness in July's home sales, and stocks were already bleeding in early trading. But it didn't expect this.
Sales of U.S. previously owned homes slumped more than forecast in July and the number of unsold houses swelled, evidence the market is depressed by foreclosures and limited job growth.
Purchases of existing homes plunged 27.2 percent to a 3.83 million annual rate, figures from the National Association of Realtors showed today in Washington. The pace compares with the median forecast of a 4.65 million rate, according to a Bloomberg News survey.
A tax credit of up to $8,000 boosted sales earlier in the year, pulling forward demand and indicating additional advances will prove difficult.
On the news, the Dow Jones Industrial Average fell as much as 1.8% to 9,991, while the other major market indices did even worse.
Since the dawn of Recovery Summer, the Dow is off 4%, while the S&P 500 and Nasdaq have lost 6% and 8%, respectively.
“President Obama should ask for – and accept – the resignations of the remaining members of his economic team, starting with Secretary Geithner and Larry Summers, the head of the National Economic Council,” Boehner says in the prepared remarks, which are scheduled for delivery at the City Club of Cleveland shortly after 8 a.m. The mass dismissal, he adds, “is no substitute for a referendum on the president’s job-killing agenda. That question will be put before the American people in due time. But we do not have the luxury of waiting months for the president to pick scapegoats for his failing ‘stimulus’ policies."
Quote Of the Day
CNBC's Rick Santelli on the implications of the CBO's new estimate that the federal deficit will clock in at 9.1% of GDP for 2010:
If you give a six-year-old a diet of cigarettes, bacon, fried chicken, and sugar water, they'll probably be healthy for a number of years. But at some point, the overall health will be affected. That's the way we need to hink. We're poisoning our country's balance sheet. And even though we can't see the franchise damage now, we all know that down the road, if we don't alter our deficit behavior, we will see the effects.
For comparison, Bush's biggest deficit was shy of 3.5% of GDP (to the likely surprise of the "inherited Bush deficit" brigade). Under Reagan, as we skyrocketed back to prosperity from the Carter-era doldrums, we peaked at 5.9%.
Obama's 2010 will be the budget-bustin'est year since 1945 (with the exception of Obama's first year on the job, of course, which was higher still at 9.9%).
And if GDP growth continues to wane throughout the year, the deficit as a percentage thereof could come in even worse than the CBO fears.
Sing along if you know the words: Another week, another round of crummy jobless data.
While the market expected initial unemployment claims to fall to 475,000 from last week's 484,000, they instead jumped to an even 500,000. And last week's number was revised upward to 488,000.
That leaves both the weekly jobless level (in blue) and the 4-week average (in red) at year-to-date highs.
Initial Unemployment Claims
This latest glimpse at the malaise-infused splendors of Recovery Summer has once again bummed out a stock market that had planned on a cheerier day on news of Intel's planned acquisition of McAfee.
Update: Undaunted by reality, the President has "never been more confident that our nation is headed in the right direction.”
Dude, Seriously?Hillary as SecDef?
Clinton may seem an unlikely choice to head the Pentagon, but she has won praise for her performance at State and forged a strong relationship with [retiring Secretary of Defense Robert] Gates. Many supporters argue she has the most credibility with the military of any Democrat and would be a logical choice to take Gates’s place at the Pentagon.
“The military loves her. They love her,” said Leslie Gelb, a former president of the Council on Foreign Relations. Gelb floated the possibility of a Foggy Bottom-to-Pentagon move for Clinton in a Wall Street Journal op-ed earlier this year.
Let's remember that Secretary Clinton was among the 25-strong minority of Senators who voted against condemning MoveOn.org's "General Petraeus/Betray Us" ad in 2007.
For reference, that put her to the left of CIC Obama, who, in keeping with tradition, was unable to bring himself to cast a vote.
Strategy Room 3-4
I'll be on Strategy Room at FoxNews.com today from 3-4 pm.
Obama Administration Solves Thorny Problem Of Inherent Costliness Of Medical Treatment
Critics claimed the math of ObamaCare was necessarily out of whack - that there was no way to bring tens of millions of people onto the healthcare dole without adding crippling sums to the public financial burden. Even if you blindly ignore a rudimentary dynamic analysis that leads inevitably to the conclusion that removing financial incentives for both suppliers and consumers tends to yield lower market-clearing volumes at higher prices (i.e. less care at higher prices) in the long run, even a static analysis (if conducted without benefit of creative Congressional accounting that applies 10 years of revenues to 7 years of expenditures) led faithless critics to scratch their heads over the administration's assertion that it could "bend the cost curve" and create net healthcare prosperity by washing dollars through government hands.
To their credit, however, the President's men have indeed found a way to make healthcare cheaper by mere government fiat. All you need to do is outlaw any pesky life-saving products and procedures that are too costly.
We're not talking about applying price controls to artificially lower the sticker price. This is a far simpler approach. Just ban the product outright. Pretend that a proven-safe and effective treatment is unsafe and take it out of the equation.
This approach, if mapped across the healthcare industry, would absolutely lower the real cost of treatment. So powerful is this strategy that it could literally be used to lower the cost to $0, simply by banning the practice of medicine in its entirety (including, of course, the greedy enterprise of pharmaceutical research). We'll all live miserable, sickly lives and die young, but never again will one American have access to higher quality care than another.
The FDA is not supposed to consider costs of treatment. Their mandate is to determine if a drug is "safe and effective," period. If it's safe and effective, it gets approved. Period. That's their job. Officials there recently re-iterated that cost considerations are not part of their mandate.
And now there is the anti-breast-cancer drug Avastin. Like Provenge, it has already been approved by the FDA. But that creates a political problem -- how can Obama control costs and reassure the public that he's not, as maintained by his critics, denying useful and effective drugs to seniors in order to free up money for ObamaCare?
Oh -- here's a great idea! We'll just get the FDA to rescind its previous approval of the drug so that Medicare and Medicaid don't even have to consider reimbursing for it, thus sparing Obama a political headache, and merely at the cost of taking off the market, from anyone suffering from breast cancer, a drug already deemed "safe and effective" by the FDA.Federal regulators are considering taking the highly unusual step of rescinding approval of a drug that patients with advanced breast cancer turn to as a last-ditch hope.
The debate over Avastin, prescribed to about 17,500 women with breast cancer a year, has become entangled in the politically explosive struggle over medical spending and effectiveness that flared during the battle over health-care reform: How should the government balance protecting patients and controlling costs without restricting access to cutting-edge, and often costly, treatments? …
The FDA is not supposed to consider costs in its decisions, but if the agency rescinds approval, insurers are likely to stop paying for treatment.
Gipper Offers Wisdom From the Grave
At Least Carter Recognized Malaise When He Saw ItLess so, this delusional poms squad.
With pesky midterms fast approaching, Congress should just pass a law canceling Thursdays. Call it something suitably misleading like the Restoring Calendar Transparency and Accountability Act.
In the week ending Aug. 7, the advance figure for seasonally adjusted initial claims was 484,000, an increase of 2,000 from the previous week's revised figure of 482,000. The 4-week moving average was 473,500, an increase of 14,250 from the previous week's revised average of 459,250.
Last week's number was revised upward by 3,000. The market had expected a decline this week to 465,000. Alas.
With the early July dip rolling out of the 4-week average, joblessness by that measure is at a fresh high for 2010.
Initial Unemployment Claims (Blue) and 4-Week Average (Red)
The market, um... doesn't like it.
Gulp: Double Dip Already Here?
According to the official scorekeepers at NBER, the last recession began at the tail end of the fourth quarter of 2007, despite GDP growth clocking in at a deceptively decent 2.9% in that quarter's final revision.
Our stalled recovery from that recession has seen growth ease from 5.0% to 3.7% to 2.4% over the last three quarters. If a new look at trade data is any indication, though, the looming revision to the latest quarter's number could reveal an accelerating deceleration.
June’s trade deficit swelled 18.8% to $49.9 billion, the highest since October 2008. That was much worse than Wall Street predicted — or what the Commerce Department estimated in the recent Q2 GDP report. The new report, along with recent inventory data, suggest Commerce will revise down Q2 economic growth from the already-sluggish 2.4% annual rate to about 1%, according to Action Economics. Action Economics is looking for stronger retail inventory figures later this week that would imply a 1.4% GDP pace.
Such a revision (below, in red) would have us plunging fast toward the center line.
Real GDP Growth
Politico: More Bloggers Throwing Hats In RingThis story is so 2006.
Why Hire New Employees When You Can Set Fire To Piles Of Money Directly?
When you add it all up, it costs $74,000 to put $44,000 in Sally's pocket and to give her $12,000 in benefits.
Because my company has been conscripted by the government and forced to serve as a tax collector, we have lost control of a big chunk of our cost structure. Tax increases, whether cloaked as changes in unemployment or disability insurance, Medicare increases or in any other form can dramatically alter our financial situation. With government spending and deficits growing as fast as they have been, you know that more tax increases are coming—for my company, and even for Sally too.
To offset tax increases and steepening rises in health-insurance premiums, my company needs sustainably higher profits and sales—something unlikely in this "summer of recovery." We can't pass the additional costs onto our customers, because the market is too tight and we'd lose sales. Only governments can raise prices repeatedly and pretend there will be no consequences.
And even if the economic outlook were more encouraging, increasing revenues is always uncertain and expensive. As much as I might want to hire new salespeople, engineers and marketing staff in an effort to grow, I would be increasing my company's vulnerability to government decisions to raise taxes, to policies that make health insurance more expensive, and to the difficulties of this economic environment.
A life in business is filled with uncertainties, but I can be quite sure that every time I hire someone my obligations to the government go up. From where I sit, the government's message is unmistakable: Creating a new job carries a punishing price.
Worse, according to a survey out today, the sentiment among business leaders is trending the wrong way.
If Obama is such a skilled economic "driver" (per his new favorite metaphor), why does the private sector that he begrudgingly acknowledges to be the real driver of prosperity so consistently identify uncertainty about government intervention as their primary obstacle to creating jobs and deploying capital?
A survey of U.S. chief executives conducted by the Young Presidents’ Organization found declining confidence over the outlook for sales and employment levels as well as the overall business climate compared to the group’s previous survey, released in April.
The overall index slipped to 57.5 in July, from 61 in April. Any reading over 50 indicates optimism. The survey showed companies remain extremely reluctant to hire workers: nearly 62% said they didn’t expect their headcounts to have changed a year from now, while nearly 8.5% expected to cut more than 10% of their workers in that time.
The percentage who expected to increase their staff by 10% or more, meanwhile, declined to 30% from 36% three months ago.
“There’s just a gigantic expectation that they’re not hiring anybody,” says Dave Maney, chairman of investment bank Headwaters MB in Denver and a member of the YPO.
The survey, based on responses from 1,700 YPO members, showed companies are also pulling back on fixed investment plans: The percentage of respondents who expect their spending to be about the same or lower over the next 12 months increased to 66% in July, from 60% in April.
Employers Yet To Get In Spirit Of Recovery Summer
July was barely better than (downwardly revised) June, with miniscule private payroll growth not nearly offsetting the massive layoffs of the census workers whose jobs had pretended at meaningful employment growth earlier in the year.
The numbers were plenty worse than analsyts expected.
Nonfarm payrolls fell by 131,000 last month as the rise in private-sector employment was not enough to make up for the government jobs lost, the U.S. Labor Department said Friday. Only 71,000 private-sector jobs were added last month while 143,000 temporary workers on the 2010 census were let go.
Economists polled by Dow Jones Newswires were expecting total nonfarm payrolls to drop by a smaller 60,000 in July.
The June data were revised down significantly. Payrolls fell 221,000 that month, more than the 125,000 drop previously reported, as only 31,000 jobs were added in the private sector.
Unemployment held at 9.5%, but the fact that it's not rising (with payrolls growing less than the keeping-up-with-population-growth rate of about 125,000 per month) is deceptively somber news, as it necessarily means disheartened would-be workers are continuing to drop out of the labor force.
Since December, unemplyoment has dropped from 10.0% to 9.5%, yet we've averaged less than 100,000 new jobs per month year-to-date, so that drop out factor is a troublingly enduring facet of this "recovery."
Hedge Funds Weigh Relative Merits Of Free Crab Cakes, $50 Million Tax Hike
Hold on loosely, Governor Paterson, but don't let go. If you cling too tightly...
The governor of Connecticut is putting the hard sell on hedge funds…with crab cakes and filet mignon. The governor, M. Jodi Rell, treated hedge-funds firms to a lavish dinner Monday, as part of her continued pitch to woo New York fund managers to move across the border for tax reasons.
Rell is responding to a New York State proposal to tack on a new $50 million tax for fund managers who commute from other states. The proposal, which faced opposition from New York Mayor Michael Bloomberg and others, has been stripped down recently, taking some of the wind out of Rell’s pitch. Still, the governor’s offer to help fund managers find new office space, new homes and new schools for their children seems to have a certain appeal.
“It’s nice to be wanted,” Brett Cohen of Madison Avenue firm JGB Capital told the New York Post as he exited the dinner Monday, at a steakhouse in Darien called the Water’s Edge at Giovanni’s II.
Dismal Stimulus Statistics (And the Politicians Who Love Them)
The Obama administration is celebrating the news that stimulus spending has generated a whopping $340 billion in economic activity, at the bargain price of $391 billion.
Meanwhile, Senators McCain and Coburn have combed through some of the mystical accounting that tracks jobs created or saved by virtue of churning money through government hands and uncovers similar bargains.
The $1.9 million spent to photograph ants in foreign countries has created two jobs created so far. That's better than other ant research stimulus projects: $451,000 has created one job, $276,000 spent on another created six one-hundredths of a job, and the $800,000 spent on a different one created no jobs.
The $144,000 spent to study the behavior of monkeys on cocaine created four-tenths of a job.