Monday, July 16, 2012

Ok Empire State Manufacturing; Disappointing June Retail Sales

We had good news and bad news this morning.  However, overall, such a combination is bad news for the ones that are begging Bernanke to intervene once again and push up the equity market further. 

The good news was that the July Empire State manufacturing survey came in at 7.39, significantly above the 4.50 consensus and an increase from June's 2.29.  However, some bad news accommodated the better than expected headline number.  The survey results indicated that new orders actually declined in July.  Shipments increased, while unfilled orders declined significantly; a bad combination, in our opinion.  Another not so positive combination is the decline in new orders and an increase in inventories.  Increase in the number of employees initially appeared to be positive; however we also noticed that growth in average employee workweek is slowing.

In addition, although according to the report, respondents appeared more optimistic regarding 2012 when answering some extra questions, results of the forward looking indexes told a different story.  The number of respondents believing that business conditions would improve during the next six months declined in July when compared to the June survey results.  The same can be said about number of employees and capex.  More businesses expect average employee workweek to decline during the next six months.  In June, those businesses were expecting an increase in the following six months.  And although more shipments are expected in the future, growth of new orders is expected to slow.  The headline figure for Empire State manufacturing survey was good, but many of its components continue to raise questions about the health of the economy.

On the bad side, which QE3 gamblers may consider good, June retail sales figures were disappointing.  Total retail sales declined 0.5% in June from May, significantly lower than the 0.2% growth that was expected by economists.  Excluding auto sales, that figure came in at -0.4%, again worse than the +0.1% estimates.  Excluding gas, along with auto sales, the m/m change was -0.2%, again much worse than consensus.  When oil and gas were highly priced (due to guesstimates of a solid economic growth and possible invasion of Iran), at least the headline retail sales figures made many smile.  Unfortunately, that is no longer the case.  At least for now, lower gas prices have not yet resulted in more non-gasoline consumer spending.  As we have said before, the state of employment and stagnant wages explain a lot of this.

Lastly, we ran through some numbers and did come up with estimates for June industrial production and capacity utilization, which will be released tomorrow morning.  We expect production to be very disappointing, 96.0, significantly below the 97.6 consensus.  In addition, we see capacity utilization remaining flat m/m at 79%; slightly below the 79.2% consensus.  As a reminder, we have a m/m change of -0.8% for June CPI which also will be released tomorrow.

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