Rosenberg Daily - Economy Loosing Momentum

As was the case in 2010, the odds are very high that this quarter’s growth rate will prove to be the high-water mark of the year.

The difference is that GDP expanded at a 3.7% annual rate in the first quarter of 2010; however, this time, we are looking at something that is likely closer to 2.5%. The market’s ability to shrug adverse economic news is going to be receiving a very critical test in coming months.

• Housing activity in the U.S. is taking a new and rather significant leg down; sales, prices and starts.  
• Real average weekly earnings have contracted in each of the past four months as wage growth lags the surge in food and fuel prices. According to various surveys, three-quarters of U.S. consumers say they are about to radically cut the discretionary segment of the family budget. Perhaps the 4.6% drop in Best Buy’s same-store sales that was just reported is an early signpost of what’s happening to the “nonessential” part of the family budget. 
• The Architectural Billings Index is flagging a renewed decline in commercial construction.  State and local government spending on goods and services are being sliced at an unprecedented rate. For a sign of how social contracts (a.k.a. union concessions) are being rewritten even in the most “liberal” of jurisdictions, have a look at Los Angeles, Unions Reach Deal on page A2 of today’s WSJ. 
• Federal government stimulus is about to morph into restraint beginning next quarter.  
• Sadly, last year’s lynchpin, capital spending, is turning back down. At some point, the ISM manufacturing index will reflect this downturn (it is a survey, while orders and shipments are actual dollars and cents).   

---today