“Succinct Economic Status” and Monthly Bull/Bear Recap: October ’10

Instead of a “Bull/Bear Weekly Recap”, I am now maintaining a “Monthly Bull/Bear Recap” and condensing it into a “Succinct Economic Status” report.  These two reports are then used to update the “Market Radar” (on the right).  These reports are designed to provide coincident picture of the economy.

Succinct Economic Status (October’10)

  • Consumer Confidence: Consumer Confidence has increased marginally (possibly due to the start of seasonal hiring) but remains mired in recessionary territory.
  • Job Market: Mixed signals dominated the indicators this month.  Overall it seems that that job growth will continue, but at the same sluggish rate that has characterized this  recovery, not enough to bring down the unemployment rate.
  • Inflation and Credit: Inflation is present at the producer level, however, firms remain unable to pass these costs over to consumers.
  • Housing: Various reports are out that the housing market is beginning its double-dip.  Existing and New home sales showed some stability in the market.  “Faux-closure” may be beginning to dampen sentiment.
  • Consumption: …is growing but at a tepid rate.  Initial forecasts for Christmas spending come in subdued.
  • Manufacturing and Service Industries: Growth continues to decelerate although we have seen recent signs of improvement.  Numerous transportation companies have raised outlooks as well.  Business spending is beginning to show some weakness. A weakening dollar has been helping performance in these sectors.
  • Around the Globe: Inflationary problems are spreading among the main emerging market economies.  Recent GDP reports point to deceleration, while inflation is picking up.  Germany however has been a bright spot recently.  Recent G-20 meeting of finance officials yielded no concrete action towards resolving the “currency war” issues.

Monthly Bull/Bear Recap (October’10) –My Notes

Consumer Confidence:

  • (Bull): Gallup Poll of consumer Confidence has been trending up lately coming up from -33 to -29.  However, the level is still slightly worse than it was 1 year ago.
  • (Bull): Conference Board of Consumer Confidence for October came in better than expected at 50.2 vs. 48.6 the month prior.  The gain was mostly concentrated in the “Expectations” category while the “Present Situation” rose slighly.
  • (Bear): ABC Consumer Confidence: -47; Positive Economy 9%; 26% for buying climate; and 44% personal finances
  • (Bear):The first reading in the UMich consumer sentiment for October index dropped versus expectations of a rise.  The outlook portion increased while the current conditions fell.  Present conditions are in clear downtrend and reflects the recent slowdown in activity, however, it is not mirroring recent encouraging reports that the economy is improving.
  • (Bear): ABC Consumer Confidence: down to -47 from -46; Positive Economy down to 8% from 9%; down to 25% from 26% for buying climate; and up to 47% from 44% personal finances.

Job Market:

  • (Bull): Monster Employment Index moves higher to 138 offsetting last months loss.  While the index has been flat for the prior 3 months, at least it is not showing regression.
  • (Bull): Gallup Poll of Underemployment is showing a decrease and may be due to seasonal hiring.  One thing is certain, this is a bullish sign that job growth may be coming back.
  • (Bull): Jobless Claims fall to a 3 month low coming in at 445 vs. an upwardly revised 456K.  The pace of firing is decreasing.
  • (Bull): Jobless Claims rise unexpectedly to 462,000 from upwardly revised 449,000.
  • (Bull): Jobless Claims fall again to 434,000 from an upwardly revised (again) 455,000.  The pace of firings is decreasing according to this metric.  However, it remains to high and suggests a weak job market, though improving.
  • (Bear): Employment Trends Index measured by the Conference Board and a leading indicator of job growth showed another decline and is clearly showing a flattening trend.  Job growth may underperform market expectations in the months ahead.
  • (Bear): In the Conference Board Report: Employment (‘plentiful’-’hard to get’) indicator worsened slightly and points to continued sluggishness in the labor market.
  • (Bear): BLS Jobs report showed additional to private payrolls which was less than expected.  Temp workers showed a renewed pop which is bullish.
  • (Bear): ADP Jobs report shows a loss of 39,000 vs expectations of a gain of 18,000.  This follows a loss of 10,000 from the month before.
  • (Bear): Employment sub-index of the Service ISM still points to weak job growth from this important sector, while backlogs show that orders are shrinking.
  • (Bear): Jobless Claims fell down to 452K, which is a bullish development, however it has become a habit that the prior month is revised sharply higher which happened to be the case rising from 462K to 475K.  Overall the job market remains rather weak.

Inflation and Credit:

  • (Bear): The Deleveraging process continues as consumer credit falls another $3.3 million on top of an upwardly revised -$4.1 million.
  • (Bear): PPI measures come in mostly as expected.  While YoY headline inflation is roughly at 4%, the core measure remains quite low at under 2%.  Inflation is present at the producer level.
  • (Neutral): CPI readings, both headline and core, come in soft and sets the stage for continued easing from the Fed.  On the bearish side though, we see that companies have no pricing power.


  • (Bull): Pending Home sales showed a better than expected gain of 4.3% and was more than the 1.0% gain expected by economists.  This shows that home sales have stabilized.
  • (Bull):NAHB Housing Market Index was better than expected coming in at 16.  While the indicator is still very deep in contraction territory, it shows that there is some life.
  • (Bull): Existing Home Sales pop 10% up to a 4.53 Mil rate, which is much better than expected.  This shows that the housing market is beginning to stabilize.  However, inventory remains very high at 10.3 months.
  • (Bull): New Home Sales increased 6.6% and was better than expected.  The housing market seems to be stabilizing, albeit at a very low level.
  • (Bull):Housing Starts point to stabilized construction activity in the couple of months ahead as they came in higher than expected at 610K vs. 608K the prior month.
  • (Neutral): Mortgage Applications showed stabilization, however, the recent “Faux-closure” crisis is beginning to affect demand.  We may see a renewed weakening come mid-November/December.
  • (Bear): Case Schiller Index for August fell after a long string of monthly increases.  The reading was worse than expected.  Worse, the drop comes smack in the middle of the seasonally strongest period of the year.
  • (Bear): Building Permits, a leading indicator of construction activity showed a much larger than expected drop in permits to the lowest levels in at least 5 months.  This may point to weakness in construction activity late Q4/early Q1.
  • (Bear): CoreLogic House prices declined 1.2% in August, the first drop this year


  • (Bull): Retail Sales come in better than expected with both the headline and ex-autos posting 0.6% and 0.4% growth respectively.  Last months was also revised higher.  Core retail sales also posted steady spending results.  I see a clear divergence with this report from the Gallup Poll, and Weekly consumption metrics.
  • (Bull): Overall Redbook and ISCS consumption metrics are showing a tepid consumer.  However, Redbook is forecasting a gain for the month for the ex-auto/ex-gas category of the upcoming monthly sales report.  Consumer metrics is showing a weakening but choppy trend so overall, neutral to slightly bearish.
  • (Bear): International Council of Shopping Centers (ICSC) cuts its September forecast in a sign that consumer spending remains weak. For week ending 10/2, WoW -0.8%, while YoY come in +2.4%.
  • ICSC and Redbook metrics continue to show tepid YoY growth
  • (Bear) ISCS and Redbook store metrics show continued struggles in consumer spending due to continued weak readings in consumer confidence as per the ABC Consumer Confidence and Gallup Poll.
  • (Bear): Preliminary forecasts for Christmas spending as per the Gallup Poll continue to show a cautious consumer as this year they plan to spend slightly less than last year.

Manufacturing and Service Industries:

  • (Bull): Numerous transportation companies post good earnings and bullish outlooks.  On the corporate level, things are hanging in there quite nicely.
  • (Bull): Business Spending continues to show steady growth with New Orders for Capital Goods excluding aircraft showing a 3 month average growth rate of +1.1, or an annualized growth rate of +4.4%.
  • (Bull): Service ISM comes in better than expected with New Orders pointing towards better business conditions ahead.
  • (Bull): Imports continue to surge as per the International trade numbers.  This points to continued capital investments from US companies.
  • (Bull): Empire Manufacturing comes in much better than expected at 15.7 from 4.14.  New orders also rose to 12.9 from 4.33.  A weaker dollar has improved prospects for our strongest export segment, technology companies.
  • (Bull): Richmond Fed Manufacturing Index comes in at 5 vs. -2 in September.  Backlogs are negative, while employment and shipments are responsible for the recent strength.
  • (Bear): Industrial Production shows an unexpected dip for the first time in 6 months in continued confirmation that the manufacturing sector is slowing down.  Capacity Utilization shows a drop points to excess capacity keeping a lid on inflationary pressures.
  • (Bear): A leading indicator of Manufacturing, the Ceridian-UCLA Pulse of Commerce Index, showed a decline for the second month in a row.  It is the first time the index has experienced consecutive declines since January 2009.
  • (Bear): Factory Orders came in worse than expected at -0.5%.  Inventory to Shipments Ratio ticked up to 1.27 signaling an increase in inventories not being matched by an increase in sales, which may lead to overproduction.  Overall we are seeing a slower rate of growth.
  • (Bear): I/S Ratio for Retailers and Wholesalers are showing an increasing inventory build, while manufacturers still show that demand is keeping pace with production.  Manufacturing is still set to continue expansion, while retailers and wholesalers may be finding it more prudent to shrink order books.
  • (Bear): While the Philly Fed manufacturing gauge showed expansion for the first time in 3 months, the details under the hood are not much to cheer about.  New Orders remained in negative territory, while unfilled orders contracted.  The employment indicator did rise a little higher to 2.4 from 1.8.  Shipments also went into positive territory.  Overall is shows a sector that remains cautious and not ready to explode into expansion.
  • (Neutral): Dallas Fed manufacturing survey showed expansion for the 2nd consecutive month, however the internals of the report were weak as New Orders, employment, and shipments were negative.
  • (Neutral): ATA Truck Tonnage rises 1.7% after falling 2.8%.  “This is a reflection of an economy that is barely growing” says ATA Economist.
  • (Neutral): The headline number on the durable-goods report came in quite strong, however, stripping out transporation yields a much weaker number.  Core durable-good orders, a measure of business spending, declined as well.  The three month view shows that growth in business spending is showing weakness.

Around the Globe:

  • (Bull): Japan institutes QE, while Ben Bernanke reiterates that additional QE will help ease economic difficulty.  The Fed is pledging to buy assets to put a floor under the markets.
  • (Bull): Japan Machinery Orders come in much better than expected at 10.1%.
  • (Bull): Germany revises its GDP forecast higher for 2010 from 1.4 to 3.4 on stronger than expected global growth.
  • (Bear): Japan cuts its growth forecast.
  • (Bear): Eurozone sovereign woes are beginning to creep back into the news.
  • (Neutral): The trade balance isn’t helping to produce stronger GDP numbers as it comes in higher than expected at the 2nd highest on record at -46.3 billion.  This will likely lead to downward revisions in GDP if another sector of GDP doesn’t offset it.


  • (Bull): ECRI leading indicator growth rate continues to improve rising to -7.0% and points to stabilization in the months ahead after this recent soft patch.
  • (Bull): Leading indicators rose 0.3% and was in-line with consensus.  While the pace of economic growth has clearly slowed, it is expected to remain positive in the months ahead.
  • (Bull): Thus far, most earnings are coming in higher than analysts estimates and solidifies the fact that the main engine of stock market returns, corporate earnings, are in good shape.
  • (Bull): Architecture Billings rose above the 50 market for the first time since early 2008.  Commercial Real Estate may finally be stabilizing in the months ahead.
  • (Bear):NFIB Small Business Index continues to show recessionary readings, worse, plans to hire are dipping even more.
  • (Neutral): The Beige Book report shows the economic recovery continues, albeit at a modest pace.  This is improved language from the previous report, so it seems that the economy continues to expand but at a very slow pace.  Manufacturing was cited as the best performing industries with new orders rising among all districts (weaker dollar?).  Housing markets remain weak but prices suggest stability.  Commercial real estate was weak and is expected to remain so.  Prices for inputs continue to rise, but they are not being passed on to consumers.
  • (Bear): Financial Markets may be tested as recent announcements of MBS putbacks by the NY Fed, Blackrock, and PIMCO to BofA.  Financial stocks have not been participating in the rally.
  • (Bear): CFNAI-MA3 index ticked down to -0.33 in September from -0.32 in August.  This indicator suggests that growth in national economic activity is below historical trend.  The declines were led by production-related indicators.  3 of the 4 broad categories of indicators that make up the index slightly improved.  Sales, orders, and inventories made positive contributions to the index.  45/85 indicators made positive contributions

—> What’s my forecast you ask?  See here.

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