Thursday, September 27, 2012

Not Too Many Bright Spots in Today's Economic News ...

Initial Jobless Claims
Let's start with the good news - initial jobless claims came in significantly below expectations.  Annualized initial claims of 359K were much lower than the 376K consensus.  Of course, the prior week's number was revised higher by 3K to 385K.  We note that even with such a positive surprise, the average initial claims for September remain above what we saw in August.  This week's initial claims could be the difference maker in terms of whether September NFP will come in higher than August's.
KC Fed Manufacturing Survey (September)
Now the bad news, and we will start with September manufacturing survey conducted by the Federal Reserve Bank of Kansas City.  The composite index for that survey was 2.0, lower than the 5.0 consensus and a significant decline from 8.0 in August.  Not much looked encouraging in this report.  Production, shipment, new orders, and backlog sub-indexes all moved into negative territory from the prior month.  While the number of employees sub-index remained positive, it dipped to a mere 1.0 in September from 2.0 in August.  Continuing decline in the average workweek sub-index indicates even less hiring or some layoffs coming up in October.  Workweek declined to -13.0 from -5.0!  The forward-looking part of the survey was also not very encouraging.  In fact, new orders are expected to increase only slightly, while capex is expected to decline.  Also, those surveyed do not expect much of an increase in hiring during the next six months.
Durable Goods (August)
Durable goods orders for August, although disappointing, did have a few bright spots. 
Let's start with the bad durable goods numbers.  Change in new orders from July came in at -13.2% compared with the -5.0% consensus.  Excluding transportation, new orders were even more disappointing, coming in at -1.6%, lower than the Street's expectation of a 0.2% growth.  Orders for transportation equipment took a dump with a 34.9% decline. 
Excluding defense goods, new orders dipped 12.4% from July.  Orders for defense capital goods declined 40.1%.  We note that given the upcoming UN speech by Netanyahu, this figure could get bumped back up for the rest of the year, and maybe many more years, as politicians continue to market their pitch of attacking Iran and starting a potentially very costly war. 
Now, let's move to a couple of bright spots within the durable goods report.  New orders for non-defense capital goods went up 1.1% from the prior month.  We believe this represents mostly construction related capital goods such as machinery as we did see a better than expected uptick in homes being built in late Summer.  The other good news was the little growth, 0.6%, in total inventories.  Although we do not see that figure improve significantly for September, we do expect it to increase more as we get closer to the elections followed by a significant growth or a significant drop post elections, depending on who gets elected.
Pending Home Sales (August)
While homes continue to be built as we believe some data in durable goods orders showed, recovery in the housing market may not be as great as the market expected.  August pending home sales index was very disappointing as it declined 2.6% from the prior month level, significantly below the +0.3% consensus.  In fact, it was even worse than the lowest estimate out there (-1.5%).  Although this index is for existing homes, it is viewed as a leading indicator for the housing industry.  Some may use a supply shortage to justify such a miss.  However, such supply shortage is due to increased hesitancy in going after homes in foreclosure.  This also pushes up prices artificially.  Basically, once more foreclosed homes hit the market, combined with the uber-bullishness of homebuilders, supply shortage will end followed by too much supply, which we believe will create pressure on prices, which wil not be good news.
Given our pessimism the last six months, not many expected economic data to come in even below our estimates, but this was the case this morning with respect to the Q2 annualized real GDP growth.  We have stuck with our initial estimate of 1.6%, while the Street was expecting 1.7%.  The official figure came in at a mere 1.3%.  Personal consumption, residential and nonresidential investments were all disappointing.  Although this data is for Q2, we note that we have not seen much improvement in the Q3 economic indicators. 
As a reminder, August personal income & spending, along with University of Michigan's consumer sentiment survey results for September, will be released tomorrow.  After declining nearly 2% from last week's close, S&P 500 is up 0.4%.

No comments:

Post a Comment