Tuesday, August 17, 2010

Some thoughts on today's numbers

Housing starts of 546K came in lower than expected, with decline in single-family houses partially offset by increase in multi-family homes. We note that today's number, although slightly lower than expectations, was higher than the previous month. However, such growth appears to be due mainly to the usual and significant revisions that we keep seeing more of. June's numbers were revised down to 537K from 549K. Not surprisingly, permits did decline in July compared to the original and revised June figures. Overall, as mentioned earlier this week, a decline in these housing figures is positive as it limits inventory growth. Such decline combined with a slowdown in foreclosures, which we have not yet seen, could actually create a tiny light at the end of the dark housing market tunnel.

Industrial production and capacity utilization for July were better than expected, which was surprising to us.

Capacity utilization of 74.8% was slightly higher than the 74.6% consensus. We note that this figure has slowly but surely declined since the 1970's. We do not expect it to reach 85.0%+, which means that employment recovery will take longer than many think.

Industrial production grew 1% from June. All components of this indicator showed growth, with manufacturing, mining and utilities, growing at 1.1%, 0.9% and 0.1%, respectively. Manufacturing growth was mainly driven by a 9.9% increase in motor vehicles and parts, which is not likely to continue. In our opinion, this is not an indication of expected strong auto sales going forward. We believe such growth is also driven by auto parts due to the upcoming maintenance season of the government-driven increase in motor vehicles sales earlier this year. In addition, historically, growth in motor vehicles and parts manufacturing has been between -5.0% and 5.0%.

Although inventory replenishment is close to end, we fear that many companies may have begun their fall and 2011 stock-piling too aggressively.

Lastly, ICSC (International Council of Shopping Centers) released its weekly chain store sales index. It declined 1.3% from the prior week. This was the third consecutive decline. The index was up 3.3% from the prior year, but then again, given last year's bad numbers, even a winter jacket retailer should show annual growth during the summer in California.  Maybe not, as WMT reported a decline in Y/Y same store sales in the U.S.  In addition, HD lowered its revenue guidance for the year.  We must say that both companies beat expectations on the bottom-line.  There is still no sign of strong and stable revenue growth and we are in the third quarter of the so-called recovery.  We are seeing minimal growth in non-government-aided consumption.  But let the stock market go higher.  The government has basically eliminated all other options for investors, except the one with a potentailly high reward and certainly much higher risk ... the stock market. 

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