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

Monday, October 17, 2011

Rosenberg Quashes our Recent Enthusiasm

Maybe it would be useful to try to answer the perplexing question of how a 0.1% MoM increase in nonfarm payrolls can manage to co-exist with a pickup in retail sales that is more than 10 times as strong. How is it possible that the consumer is returning to its free-wheeling days in the face of eroding purchasing power and wealth, and not just in equities, but in residential real estate? The ratio of national home prices to rents, at 11.3, is well below the bubble peak of 18.5, but still well above the historical average of 10....

Well, for one thing, the raw retail sales data actually showed a 5.0% sales decline for the month. What then translated that performance into a giddy 1.1% “pop” was the most generous seasonal adjustment boost for September in the past five years. Roughly half of the “pop” can be explained right there and the other half came from autos and gasoline sales.

Moreover, when you take a look at the fact that so many areas either saw growth cool off or contract outright — electronics, building materials, drugs, groceries, e-tailing and sporting goods — we wonder what all the excitement is all about. Besides even if the data can be taken at face value, all September did is recoup a fraction of the volume declines posted in both July (-0.2%) and August (-0.3%) — the largest two month decline since October 2009.

Update: We saw on Friday, again to very little fanfare, the growth rate for the ECRI leading index fell for the tenth week in a row, to -9.57% from -8.73%. It was there in April 2001 and February 2008...

The Ports of L.A. and Long Beach represent 40% of inbound cargo to the U.S. and strikingly, at a time of year when they traditionally rise to annual peaks, shipment volumes have fallen (and likely in September at a double-digit annual rate — the YoY trend is already negative). This has not happened since the 2009 recession and prior to that, never before at this time of year.

Update 2: Just remember the last cycle — the big tightening in financial conditions was in July and August and the recession began in December 2007. Who cares if GDP was +3.0% in Q3 and +1.7% in Q4 of that year. By the time the lags kicked in, the economy was contracting at a 1.8% annual rate by Q1 2008...If the lags work again, then the fun is going to be evident between December and February of 2012.

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