Monthly Bull/Bear Recap and Market Radar Update: September ’10

Instead of a “Bull/Bear Weekly Recap”, I will be writing a “Monthly Bull/Bear Recap” and syncing it with my “Market Radar”.  This will enable me consolidate both tasks into one in my push for more efficiency.  If reading economic recaps isn’t your thing, just scroll down to “Succinct Monthly Economic Status”, and changes to the “Market Radar” for a concise and simplified synopsis of what all the data meant in the grand scheme of things.  This post is designed as a coincident picture of the economy.
Monthly Bull/Bear Recap
Aug 30-Sept 3
  • Bullish
    • Jobs report surprises to the upside with a loss of 54K (private: +67K) while prior months were revised higher.  Unemployment rate held steady @ 9.6%, while hourly earnings continue to move higher.  Average workweek stayed flat.
    • ISM Manufacturing Survey surprises strongly to the upside.  Manufacturing continues strong.
    • Jobs report shows growth in private sector.
  • Bearish
    • ADP jobs report shows a contraction.
    • ISM Non-Manufacturing remains in expansion territory but barely and is less than expected.
    • Monster Employment Index mostly flat.  Demand for permanent labor remains slow in growth.
    • Factory Orders show slowing future growth as order growth is leveling off.

Sept 6-10

  • Bullish
    • Business Inventories rose more than expected and sales also show decent gains.
    • Retail Sales for August rise more than expected and shows stabilization in consumer spending.
    • Fed Beige Book confirms that the economy is slowing, but momentum to the downside is still a no-show.  A muddle-through seems to be the case, not a double-dip.
  • Bearish
    • Consumer Credit continues to decline as households shun credit.
    • Empire Manufacturing shows growth, but comes in less than expected.  The rate of growth in manufacturing in this region is slowing down.
    • Consumer Sentiment as per the UMich falls to 66.6 from 70 and is worse than expected.  The recovery is still not being seen on Main Street.

Sept 13-17

  • Bullish
    • Retail Sales come in better than expected and points towards August see continued growth in spending.
    • Business Inventories showed a pop for the month of Jul, while sales also showed renewed growth, while the prior month was revised higher.  Overall a good sign for potential manufacturing growth.
    • PPI shows that inflationary pressures are indeed building at the producer level as commodity prices remain elevated…
    • … this translated to a higher than expected CPI reading, which would have spooked bond markets if not for the core reading, which came in-line with expectations, YoY core readings remain under 1%.  This opens the door to more QE.
  • Bearish
    • NY Empire manufacturing comes in worse than expected and points to continued slowing in this sector, which has been very instrumental in the recovery.
    • Philly Fed Index declines for the second month in a row.  Manufacturing is weakening in this area as well.
    • Industrial Production comes in less than expected, while capacity utilization declines.  Manufacturing continues to slow, while excess capacity will play a role in capping inflation.
    • University of Michigan Consumer Sentiment fell hard as expectations fell.  Consumer outlooks are darkening and this will lead to continued flattening in consumption trends.

Sept 20-24 & Sept 27-Oct 1 (Combined)

  • Bullish
    • Housing Starts and Permits better than expected, construction activity has stabililized but at very low levels.
    • Durable Goods orders headline worse than expected, but all-important Core Durable Goods Orders pop 4%.  Overall very volatile 3 month stretch, but slowly rising.
    • Chicago PMI shines and refutes expectations that manufacturing will contract.  It will hum along instead.
    • Chinese PMIs rise thus further weakening the global double-dip thesis.
    • Jobless Claims: Overall claims remain on a downward path, but painstakingly slow.  The job market continues to recover, but the improvement is feeble.
    • American Association of Railroads:
    • Mortgage Applications: Spent most of the month on a slight uptrend.  It is being more and more obvious that we are seeing a stabilization in demand, which will translate to better housing reports.
  • Bearish
    • Existing Home sales rebound after a drubbing the prior month.  The rebound is still lower than before the tax break.  Home supply decreases.  Overall levels of activity remain low.  This mirrors the Wells Fargo NAHB Market Index which came in less than expected at 13.  The housing market remains in the doldrums.
    • New Home Sales remain flat are near the lowest on record, inventories are high, which all translates to housing prices resuming their decline.  FHFA House price index and Case/Schiller both come in negative.
    • Leading Indicators rise more than expected, but there has been a definite slowing from Q1 to Q2.
    • Conference Board’s Consumer Confidence index dips from 53.2 down to 48.8.  It is now at the lowest level since February and the second lowest level since July 2009.  Expectations component fell from 72 to 65.4 and is on a steady downtrend.
    • More signs of a manufacturing slowdown as the Richmond Survey comes in below expectations.  New Orders have been trending lower quickly, while backlogs have gone negative.
    • Spending Surveys: ICSC Goldman and Redbook Surveys pointed towards mostly a flat MoM reading.  ICSC had improved YoY readings due to favorable comparisons.  Overall the consumer is not substantially increasing his/her spending.

——————————-
Succinct Economic Status

  • Consumer Confidence:  Consumer confidence hasn’t rebounded much after the nasty dip in August.  Overall, there’s continues to be little confidence in the recovery and even more uncertainty is building towards the outlook.
  • Job Market: No sign of strong increases or a vastly improved job market yet.  Improvement continues but is palpably weak.  Confidence remains low as the hiring outlook dims a bit.
  • Inflation and Credit: Inflationary pressures are present at the producer level, but no pricing power means that margins my be in danger.  Core CPI shows little signs of inflation moving to consumers.  Meanwhile credit remains tight but continues to loosen at a slow rate.
  • Housing: Housing prices may be beginning a double-dip as pricing metrics are showing decreases once again.  Sales and construction activity seemed to have stablilized.
  • Consumption:  Favorable YoY comparisons were present as weekly consumption metrics posted better figures.  However on a MoM basis, we continue to see weakness.  The consumer is still not fully on its feet.
  • Manufacturing and Service Industries:  This sector continues to lead the economy, but some signs are pointing to some weakness in the months ahead.
  • Around the Globe: A sigh of relief as strong China manufacturing numbers are raising hopes that the communist country will undergo a soft landing.  Eurozone debt woes may be making a comeback though.  Overall a mixed picture but global recovery continues.

————————————-
Changes to the “Market Radar”

Feeding off my Monthly Bull/Bear Recap and Succinct Monthly Economic Status, here are the latest changes to the “Market Radar”

  • Headwinds
    • “China/US Currency Confrontation” moves up strongly from 4th to 1st place on recent legislation proposed to allow companies to take punitive action against China due to their artificially depressed currency.  This may result in protectionist acts and depress exporters earnings.
    • “State and Local Gov’t Budget Squeeze” drops 2 spots to 4th as China and Euro debt concerns are flaring up again.
    • “Stimulus Withdrawal” drops one spot to 2nd as signs of a stabilizing economy have surfaced. The economy seems to be holding its own.
    • New Order: I. China/US Currency Confrontation; II. Stimulus Withdrawal; III. Greece/PIIGS Sovereign Debt Contagion; IV. State and Local Gov’t Budget Squeeze; V. Iran/Israel
  • Tailwinds
    • Job Creation to move one spot higher to 3rd place due to improvement in jobless claims and “Consumer Strength” has weakening in the past couple of months, it moved down to 4th.
    • New Order: I. Business Investment; II. Manufacturing Strength; III. Job Creation; IV. Consumer Strength; V. Low Interest Rates
  • Events
    • No Changes
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