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Notes to myself, possibly of interest to others.
-- Bill Northlich

Friday, October 15, 2010

Rosenberg Daily - Synopsis

Despite the lingering listless labour market and a continued contraction in bank credit, the U.S. consumer still managed to find a way to keep chugging along in September. Retail sales rose an above-expected 0.6% MoM with upward revisions to the back-data, which now suggest that real GDP inched up to something just a shade below 2% at an annual rate in the third quarter...

In contrast to last week’s employment report, today’s sales data were just as solid beneath the surface as they were at the headline level. The gains were broad based even if autos did the bulk of the heavy lifting — electronics, furniture, building materials, sporting goods, health and restaurants all enjoyed decent gains to varying degrees. Only department stores and clothing sales lagged behind with declines. The “core” measure of sales (excludes autos, building materials and food) that feeds into the consumer spending portion of GDP advanced 0.4% MoM in September on top of an upwardly revised 0.7% print in August and this now paints a near-2.5% growth picture for the consumer, as far as the third quarter is concerned.

Tack on the New York Fed Empire Index, which is a pretty decent gauge of tech activity, and today’s dual economic reports certainly did come in better than virtually everyone expected. The headline jumped to a four-month high of 15.73 in October from 4.14 in September and was led by gains in orders, shipments and even employment. Both prices-paid and prices-received bounced notably.

To be sure, the economy did not come even remotely close to double-dipping in the third quarter, but it does not mean that it is not on shaky ground and susceptible to contraction even in the near-term...

The headline rate of inflation, despite everything that has been thrown at it in terms of unprecedented monetary, fiscal and bailout stimulus, sits at 1.1% today. The core rate, proven to be the key driver for bond yields, which is why it is a focal point, is now running at a mere 0.8% year-over-year rate... [See graphic in next post]

The U.S. trade deficit numbers have been quite volatile of late but what is key is that most economists were expecting an improvement in August and instead got a deterioration. The deficit widened 8.8% to $46.3 billion and in real, or volume terms, it expanded 8.2%, which wipes out most of the improvement posted in July and suggests that net exports will not be adding to Q3 real GDP growth after the huge subtraction seen in Q2. '

At best, it looks like real GDP growth will come in somewhere around a 1.5% annual rate in Q3, and we would be expecting an even sharper slowdown and perhaps a contraction in the current quarter...

The growth bulls took it on the chin yesterday with the news that the two-week improvement in jobless claims stalled out during the week ending October 9 — coming in at 462k from an upwardly revised 449k for the October 2 reporting week
[Bill - note the highlights.  Our forgetful authors, as The New Yorker likes to say]
(whoops - ibid)

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