Consumer Confidence Posts Surprise Drop
The Conference Board Consumer Confidence Index®, which had improved in April, decreased in May. The Index now stands at 60.8 (1985=100), down from 66.0 in April. The Present Situation Index decreased to 39.3 from 40.2. The Expectations Index declined to 75.2 from 83.2 last month.
The market was looking for a slight improvement to 66.3.
The twin disappointments mark an inauspicious start to a week packed with economic data.
Economic Activity Decelerates More Than Expected In May
The Institute for Supply Management reports grim news on the pace of business activity.
The Chicago Purchasing Managers reported the CHICAGO BUSINESS BAROMETER dropped toward neutral, indicating decelerating expanding economic activity, but posted a twentieth month of growth.
- NEW ORDERS and PRODUCTION posted their largest declines in several years, but remained positive;
- INVENTORIES accelerated buildup;
- Breadth of EMPLOYMENT expansion softened but remained strong.
According to the report, the Chicago Purchasing Managers Index (PMI) fell for a third consecutive month, from 67.6 to 56.6 (readings below 50 indicate economic contraction). Economists expected a gentler decline to 62.5
FoxNews.com Live 1-2
I'll be on FoxNews.com Live this afternoon from 1-2.
Topics to include Obama's political strength, Palin's magical mystery tour, and tonight's debt ceiling vote.
If you miss it live, the show will be available at the link until 5 pm (dial the tape back to 4:00:00).
Pending Home Sales Plunge
Snapping a two (!) month uptrend, pending home sales cratered in April, according to the National Association of Realtors.
Pending home sales fell in April with regional variations following increases in February and March, with unusual weather and economic softness adding to ongoing problems that are hobbling a recovery, according to the National Association of Realtors®.
The Pending Home Sales Index,* a forward-looking indicator based on contract signings, dropped 11.6 percent to 81.9 in April from a downwardly revised 92.6 in March. The index is 26.5 percent below a cyclical peak of 111.5 in April 2010 when buyers were rushing to beat the contract deadline for the home buyer tax credit.
Economists were expecting a decline of just 1.4%.
The index suffered its steepest monthly decline since the expiration of the tax credit and, as a leading indicator, gives little confidence in a near-term housing recovery.
“This terrible report should shock all of those optimists in the housing market back into being realists,” writes David Semmens of Standard Chartered. “Falling prices should be tempting buyers slowly back into the market, but while the price declines appear to be entrenched, consumers will continue to hold off from signing contracts.”
Disposable Income Flat (Again) In April
Adjusting for inflation, personal disposable income (personal income after current taxes) was unchanged in April.
As it was in March.
Technically, it declined slightly in April, just not enough to move the one-decimal needle.
Personal income increased $46.1 billion, or 0.4 percent, and disposable personal income (DPI) increased $35.1 billion, or 0.3 percent, in April, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $41.5 billion, or 0.4 percent. In March, personal income increased $54.6 billion, or 0.4 percent, DPI increased $46.3 billion, or 0.4 percent, and PCE increased $54.8 billion, or 0.5 percent, based on revised estimates.
Real DPI decreased less than 0.1 percent in April, in contrast to an increase of less than 0.1 percent in March.
On the bright side, the two stagnant months are an improvement over the more measurable decline seen in February.
And if it's any consolation, personal income before taxes increased in March and April - by roughly 0.7% (or $19 billion). So smile - it's not that you're not managing to make (a little) more; it's just that your government needs to hang onto about 103 cents of each additional dollar you manage to earn.
Update: With no disposable income, nobody's buying homes.
Jobless Thursday (With GDP Kicker)
Labor market bulls were hoping the spike in initial unemployment claims seen during the second half of April would prove fleeting and the last two weeks of data gave them reason for cautious optimism, with claims swiftly falling from their recent peak of 478,000 to 409,000. Another couple weeks of steep declines and we'd be back into a range that might even suggest a bit of net job creation.
In the week ending May 21, the advance figure for seasonally adjusted initial claims was 424,000, an increase of 10,000 from the previous week's revised figure of 414,000. The 4-week moving average was 438,500, a decrease of 1,750 from the previous week's revised average of 440,250.
The prior week's upward revision and this week's surprise reversal of the downward trend have thrown cold water on hopes that this lonely data point would continue to enable doubts about a second quarter slowdown.
Instead, it's becoming harder to avert one's eyes from the weakening trend on display since late February.
Initial Unempoyment Clais (blue) and 4-week Average (orange)
In other disappointing news, the Commerce Department's second estimate of first quarter GDP growth was unchanged at 1.8%. That's down from an already underwhelming 3.1% in the fourth quarter of 2010. Economists were expecting to see the most recent quarter revised upward to 2.2%.
Goldman Sachs and JPMorgan both cut their estimates for second quarter growth earlier this week, to 3.0% and 2.5%, respectively. Even that's beginning to sound awfully aggressive. MarketBeat says to watch for additional revisions today.
After-tax corporate profits fell at a rate of 0.9 percent, the Commerce Department said, after rising at a 3.3 percent rate in the fourth quarter. The drop in profits, the first since the fourth quarter of 2008, likely reflected a slowdown in productivity growth as businesses stepped up hiring. Economists had expected corporate profits to grow at a 2.3 percent pace.
For market watchers, this is slightly dreadful. The generally positive quarterly earnings reported this season have thus far helped investors turn a blind eye to the worsening economic data.
That fig leaf may have just fallen off.
Durable Goods Data: Atrocious
Further filling out the picture of just how much the economy has deteriorated over the last couple months, April's durable goods orders are out this morning. Bear in mind the market was already expecting not only a slowown, but a swing from growth to contraction (consensus forecasts called for a reading of -2%, down from better than 4% in March).
Even so, they failed to capture the wretchedness.
New orders for manufactured durable goods in April decreased $7.1 billion or 3.6 percent to $189.9 billion, the U.S. Census Bureau announced today. This decrease, down two of the last three months, followed a 4.4 percent March increase. Excluding transportation, new orders decreased 1.5 percent.
It was the steepest decline in more than two years.
Orders for transportation equipment (which fell 9.5%) helped worsen the headline number, but economists expected positive growth of 0.5% ex-transportation, rather than 1.5% shrinkage. Out of 81 economists surveyed by Bloomberg, none called for worse than a 1.2% decline.
Update: WSJ MarketBeat weighs in on the 8-point swing in the growth rate, acknowledging it lends support to those who see another slowdown taking shape.
This is one more piece of evidence lining up on the side of those seeing a slowdown in the second quarter (and maybe beyond). The upward revisions to March’s numbers do ease the sting a touch, but this could bring down some second-quarter GDP forecasts.
"Slowdown" would be generous nomenclature if we tip back into negative output growth.
Update: Lots more at Hot Air.
China Solves Our Debt Crisis For Us
China has now made it official: an attack on Pakistan (terrorist hunting) is now to be taken as an attack on China.
They have extended their own security zone to the terrorist state of Pakistan, which means China is now officially a terrorist sponsor.
It also means they're threatening to attack us if we attack a terrorist.
So, lucky us. We just found a trillion and a half dollars we thought we were in the hole for, but now we're not.
FoxNews.com Live 11-12
I'll be on FoxNews.com Live this morning from 11-12.
Topics to include the 2012 GOP horse race and the fallout from Obama's mideast speech.
If you miss it live, the show will be available at the link until 5 pm (dial the tape back to 2:00:00).
Update: Here's a clip.
Yet More Miserable Data
The market's too pie-eyed on IPO nectar to notice much, but the stream of disheartening economic news isn't trickling off today.
The latest woeful nuggets:
- Existing home sales declined in April, reversing a 6-month uptrend and tripping up economists, who'd expected to see a 3% increase.
- The Philadelphia Fed index of current activity also slipped. Economists were expecting a mild decline from 18.5 to 18.0. What we got was a somewhat more staggering plunge to 3.9.
Readings below zero typically correspond with economic recessions (gray area below represents 07-09 recession). Notably, we spent two months slightly below zero during the worst of 2010's "Recovery Summer." With the latest reading of current economic activity showing us careening back toward negative territory, I'm becomingly increasingly convinced that the triple-dip scenario I outlined on Tuesday is in play (with the current dip having the potential to be far less fleeting, and more straight-up-contractionary than we might like).
Philadelphia Fed Current Activity Index
In this morning's joblessness post, I suggested the slightly-less-miserable claims data might indicate we're not sprinting, but merely jogging toward economic decrepitude. In light of the Philly Fed data, it feels more like a scamper.
Jobless Thursday: Down, But Still Above 400,000; 4-Week Average Edges Higher
409,000 is still pretty malaisey (and it will of course be revised upward next week), but despite the grain of salt mandated by the weekly volatility, lower is lower I suppose.
In the week ending May 14, the advance figure for seasonally adjusted initial claims was 409,000, a decrease of 29,000 from the previous week's revised figure of 438,000. The 4-week moving average was 439,000, an increase of 1,250 from the previous week's revised average of 437,750.
The dreadful (blue) spike we saw in late April is helping to keep the 4-week average (orange) elevated. Assuming we don't pop back up to such levels in the next week or two, the trend should indicate we haven't sprinted back to mid-2010 doldrums as quickly as recent data suggested, but are merely briskly jogging our way back.
Initial Unemployment Claims (blue) and 4-week Average (orange)
Nice Takedown Of NYT Editor/Caveman Bill Keller's Platitude-Drenched Yearnings For a Less Connected, Less Real-Time (and Presumably Less Media-Decentralized) World
Gizmodo's Mat Honan undertakes the righteous fisking.
A taste (emphasis mine)...
The crux of Keller's argument lies in a single paragraph:
Basically, we are outsourcing our brains to the cloud. The upside is that this frees a lot of gray matter for important pursuits like FarmVille and "Real Housewives." But my inner worrywart wonders whether the new technologies overtaking us may be eroding characteristics that are essentially human: our ability to reflect, our pursuit of meaning, genuine empathy, a sense of community connected by something deeper than snark or political affinity.
Keller makes the same mistake in dismissing Twitter and Facebook and, well, modernity, that critics ten to twelve years ago made in dismissing blogging: he confuses medium with message. Twitter, and any technology, is what you make of it. If you choose to do superficial things there, you will have superficial experiences. If you use it to communicate with others on a deeper level, you can have more meaningful experiences that make you smarter, build lasting relationships, and generally enhance your life.
Instead he focuses on the short form, and its rapid fire nature. He bemoans what it does to memory and genuine interaction. His criticism echoes what previous generations said about television, about newspapers about pamphlets and even about the written word itself. In fact, it's strikingly similar to the argument Socrates leveled against writing (which presumably Keller is in favor of):
[F]or [the use of letters] will create forgetfulness in the learners' souls, because they will not use their memories; they will trust to the external written characters and not remember of themselves. The specific which you have discovered is an aid not to memory, but to reminiscence, and you give your disciples not truth, but only the semblance of truth; they will be hearers of many things and will have learned nothing; they will appear to be omniscient and will generally know nothing; they will be tiresome company, having the show of wisdom without the reality.
Check out the rest.
With Recoveries Like These...
The housing market continues to decline sharply, according to the latest figures on new housing starts and residential building permits. The Census Bureau reported today that the annualized rate of new residential starts dropped over 10 points from March to April, and that single-family starts dropped 5.1%. Permit applications also declined by 4%, which indicates that no one sees much hope for renewed demand in the market:Privately-owned housing units authorized by building permits in April were at a seasonally adjusted annual rate of 551,000. This is 4.0 percent (±1.1%) below the revised March rate of 574,000 and is 12.8 percent (±1.2%) below the revised April 2010 estimate of 632,000.
Privately-owned housing starts in April were at a seasonally adjusted annual rate of 523,000. This is 10.6 percent (±13.0%)* below the revised March estimate of 585,000 and is 23.9 percent (±7.0%) below the revised April 2010 rate of 687,000.
The market expected permits and starts of 590,000 and 563,000, respectively, so these were legitimate whiffs.
Industrial production was unchanged in April after having increased 0.7 percent in March. Output in February is now estimated to have declined 0.3 percent; previously it was reported to have edged up 0.1 percent.
The market expected an increase of 0.5%.
In April, manufacturing production fell 0.4 percent after rising for nine consecutive months.
As I've noted (more than once) over the last couple weeks (and as the manufacturing falloff reaffirms), the recent data suggests the economy has succumbed to levels of malaise not seen since late summer 2010 - the trough of what amounted to a mild double-dip, marring the already woefully anemic recovery we've been enjoying since mid-2009. Mild in the sense that we didin't fall back into recession (negative output growth), at least not for any measurable stretch of time, but the recovery did all but stall.
If the trend outlined by the continuing stream of ugly data doesn't reverse quickly, the paltry 1.8% growth we saw in the first quarter may well give way to a formal double-dip (triple-dip?), with economic activity sliding back into the red before the end of 2011.
The mid-2010 dip saw growth plunge from its (embarrassingly moderate) post-recession high of 5.0% to 1.7% in just two quarters. Growth crested again at just 3.1% in the fourth quarter of last year. If the current dip were to see the same pace of deceleration, we'd be on pace for a negative GDP print (of -0.2%) in the current quarter.
Belated: FoxNews.com Live 9-10
I was on FoxNews.com Live this morning, talking about Huckabee, Pakistan, and the economy.
You can catch the replay here until 5 pm (roll the tape back to 00:06:30).
Unemployment: Just a Public Sector Mirage
“The reason the unemployment rate is still as high as it is, in part, is because there have been huge layoffs of government workers at the federal level, at the state level, at the local level,” he said. “Teachers, police officers, firefighters, social workers– they have really taken it in the chin over the last several months. And so, what we’re trying to do is to see if we can stabilize the budget.”
Recent peak of private sector employment, June 2007: 116,603,000.
Total private sector employment in the month Obama became president, January 2009: 109,084,000.
Recent low of private sector employment, January 2010: 104,933,000.
Total private sector employment, April 2011: 108,862,000.
So note, we are about 8 million away from the most recent peak in private sector employment.
Now, let’s look at total government employment (at all levels) for those four months:
June 2007: 22,176,000.
January 2009: 22,471,000.
January 2010: 22,376,000.
April 2011: 22,594,000 (preliminary).
As you can see, in terms of total number of Americans employed in government, there has been no real discernible recession. In fact, the number has increased slightly.
Good news, millions of allegedly unemployed private sector workers - you do have jobs. Now get back to work! If your erstwhile bosses look at you funny and insist you really were laid off, just hand them a copy of the President's statement to the contrary.
Senate Majority Mulling $2 Trillion Tax Hike
Sen. Kent Conrad (D-N.D.) on Tuesday presented a budget proposal to Senate Democrats that calls for an even balance — 50 percent to 50 percent — of spending cuts and tax increases to reduce the deficit.
The emerging consensus on Capitol Hill is there should be at least $4 trillion in deficit reduction over the next 10 years. To meet that goal, Congress would have to increase tax revenues by $2 trillion over the next decade with an equal amount of spending cuts.
In a speech last month, Obama suggested a 3-1 ratio between spending cuts and tax increases in laying out his vision for reducing deficits.
Conrad has moved his budget proposal to the left in order togain the support of Sen. Bernie Sanders (I-Vt.), an outspoken progressive on the budget panel.
Romney Grabs Albatross By the Horns
On Thursday, he'll give a speech on health care reform, laying out his plan for repeal-and-replace.
Halperin's Take: This is smart. Romney won't back off his past statements on his Massachusetts health care law Thursday. The plan he is releasing is an updated version of the one he ran on in 2008.
Romney's rivals believe health care makes him unnominatable. Romney has failed so far in convincing the media and others that he can explain his record on this issue. By putting out a detailed plan well before any of his opponents, Romney has his best chance to move the conversation from the past to the future. Hillary Clinton tried to do the same thing on Iraq in 2008 and almost succeeded; and/but right now Romney doesn't have anyone standing in his way for the nomination who is as politically formidable as Barack Obama was four years ago.
FoxNews.com Live 11-12
I'll be on FoxNews.com Live this morning from 11-12.
Topics to include bin Laden, the Taliban, and Obama "checking under the cushions" for spending cuts.
The show will be available at the link until 5 pm (dial the tape back to 2:00:00).
Unemployment Reclaims 9-Handle Despite Swifter Job Creation; Update: 25% McJobs
Employment actually rose more swiftly than expected in April, but the headline jobless rate jumped from 8.8% to 9.0%.
Nonfarm payroll employment rose by 244,000 in April, and the unemployment rate edged up to 9.0 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in several service-providing industries, manufacturing, and mining.
Economists were expecting gains of 185,000. Private sector payrolls grew by 268,000, better than the consensus estimate of 200,000.
The unempoyment rate had been expected to remain unchanged.
The acceleration in job growth suggests the labor market may have resumed its stalled improvement, but at 244k/month, we're still not going to see unemployment come down in any meaningful way.
The economy has recovered only a fraction of the more than 8 million jobs lost in the 2007-2009 recession. Job growth of between 250,000 and 300,000 a month is needed to make significant strides in reducing unemployment.
Not to worry - in April, the Vice President assured us that the administration's "good planning" will soon carry us back into the 250-500k/month range.
Update: So this makes a little more sense.
An unusually vivid example occurred on April 19, which McDonald’s declared National Hiring Day, encouraging people across the country to apply for a job.
The world’s biggest restaurant chain reported that it received one million applicants for open positions, which resulted in 62,000 people gaining employment. Another 900,000 plus were turned down.
If you back out McDonald's one-time hiring spree, you're left with 182,000 jobs created in April (206,000 in the private sector), more in line with the doldrums witnessed in recent months.
Important Congressional Business
While there may be some legitimate questions about the operation that so deftly converted Osama into fish leavings (or, rather, questions about the nature of the intelligence that enabled the operation and of which programs enabled collection of that intelligence, not to mention the role to which bowing to perceived potential inflammation of enemy sensitivities played into the decision not to release the physical evidence of the operation's success), one detail we probably don't need to spend too much time probing is the operation's codename.
The Senate Indian Affairs committee will hold a hearing Thursday on racist Native American stereotypes, a hearing that will now also address the Osama bin Laden mission and the code-name Geronimo.
While the hearing was scheduled before the mission, a committee aide today said the linking of the name Geronimo with the world’s most wanted man is “inappropriate” and can have a “devastating” impact on kids.
No word yet from the office of committee chairman and native Hawaiian Senator Daniel Akaka on whether the hearing will address Dreamworks' upcoming exploitation film Cowboys and Aliens, and its damnable inference that Indians are undocumented, other-worldly beings.
Jobless Thursday: Hoo Boy
In the week ending April 30, the advance figure for seasonally adjusted initial claims was 474,000, an increase of 43,000 from the previous week's revised figure of 431,000. The 4-week moving average was 431,250, an increase of 22,250 from the previous week's revised average of 409,000.
Claims had been creeping back up in recent weeks, but few foresaw such a spike.
Economists forecast 410,000 claims, according to the median estimate in a Bloomberg News survey. Forecasts ranged from 395,000 to 450,000 in the survey of 46 economists.
Weekly initial claims saw their highest level since August, while even the less volatile 4-week average reached a pace not seen since November.
Initial unemployment claims (blue) and 4-week average (orange)
Excuses from the Labor Department (all of which had presumably made their way into the surveyed economists' predictions) included:
A spring break holiday in New York, a new emergency benefits program in Oregon and auto shutdowns caused by the disaster in Japan were the main reasons for the surge, a Labor Department spokesman said as the data was released to the press.
The chart is ominously similar to the one presented yesterday, showing non-manufacturing business activity swiftly cratering to levels not seen since late summer, when Recovery SummerTM was wreaking the worst of its malaise upon the economy.
Even with the selloff that pre-market stock futures are pointing to, equities are still trading 20% above their late-summer doldrums. With concerns over Q2 GDP growth mounting (not to mention Q1 clocking in at an anemic 1.8%), can anyone explain to me how we're not looking wildly overbought?
Forecast for tomorrow's monthly labor report: Ugly, with a chance of holy s#!&.
Elsewhere: WSJ MarketBeat sees the report as less Hoo Boy, and more Uff Da!
Market Turns Decidedly Lower On Back-to-Back Economic Disappointments
Market fallout from this morning's underwhelming ADP employment report had been mostly offset by fresh M&A news, but at 10:00, we got smacked with a far-worse-than-expected report on the pace of business activity in April.
The Institute for Supply Management’s index of non-manufacturing companies slumped to 52.8 in April, the lowest since August, from 57.3 a month earlier.
The median forecast of 73 economists surveyed by Bloomberg News was 57.5. Readings greater than 50 signal growth for about 90 percent of the economy. Estimates ranged from 54.5 to 59.
The Tempe, Arizona-based group’s index of the industry, which accounts for about 90 percent of the economy, averaged 56.1 in the five years to December 2007, when the last recession began.
A mixed start for stocks promptly turned into a decisive sell-off.
True, the number is no worse than it was in August, but recall that we were then mired in the worst of our "recovery summer" malaise at that point. And August only tied the current report's lackluster. To find a worse reading, you need to go back to the beginning of 2010, when we'd only just pulled out of recession.
As ADP Enjoys Alleged Renaissance of Relevance, April Report Bodes Crummily For Friday's Jobs Data
I haven't traditionally put much stock in the monthly private employment survey from ADP, given its highly checkered record at predicting the government's monthly employment report that follows two days later.
But earlier this morning, I received the news that last month's accurate prediction has renewed economists' faith in the report.
Economists expect ADP to report 200,000 jobs were added to private-sector payrolls last month, similar to its reading in March. Expectations for Friday’s are for 185,000 net jobs to be added, with governments slashing 14,000 gigs.
The ADP report went through a period of irrelevance over the winter, but its number was on the mark last month, resurrecting its predictive viability. Economists think some sort of winter-related anomaly is futzing with the ADP numbers, but they are confident in the spring-season readings.
Recall though, as noted last month, that the ADP predictior in recent months hasn't been bad, just highly inconsistent. About half the time, they're pretty much spot on; the other half, they whiff huge.
So last month's spot-on prediction doesn't seem like much of a break in the error pattern. It also doesn't give me tremendous confidence that there's a much better than even-odds chance that this month's prediction won't be way off.
That said, here's the number:
Employment in the nonfarm private business sector rose 179,000 from March to April on a seasonally adjusted basis, according to the latest ADP National Employment Report® released today. The estimated change of employment from February 2011 to March 2011 was revised up to 207,000 from the previously reported increase of 201,000.
As noted in the first quote, economists were expecting 200,000 new private sector jobs, so this is a 10% underwhelm.
Yes, yes, we can still hope that this is one of those 50% of months when ADP is off the mark. Problem is, in those whiffy months (at least recently), ADP doesn't tend to undercount; it massively overcounts. By a wide enough margin that the government's number could now easily come in under 100,000, if ADP's having an off month.
So maybe we'd better hope this is one of those months when ADP is close to the mark...
FoxNews.com Live 10-11
I'll be on FoxNews.com Live this morning from 10-11.
The topic (it's probably safe to assume) will be Bin Laden's return to room temperature.
The show will be available at the link until 5 pm (dial the tape back to 1:00:00).
Update: Here's a clip.