Wednesday, July 29, 2015

Is US Economy Getting Soft Again? (excerpt)

The US economy skidded on an ice patch at the start of the year. It seemed to be stuck in a soft patch during the early spring. However, May retail sales blew that notion away: It increased 1.2% following upwardly revised increases of 0.2% (from 0.0%) in April and 1.5% (from 1.1%) in March. Where are we now? On the soft side, again. Consider the following:

(1) Retail sales. The soft patch was back when June’s report showed retail sales fell 0.3%, while there were downward revisions to both May (from 1.2% to 1.0%) and April (0.2% to 0.0%).

(2) Consumer confidence. Yesterday, we learned that the Consumer Confidence Index (CCI) fell sharply during July to the lowest level since last September. Oddly, there was a huge 22-point drop in the index for consumers under 35 years old during July. Millennials may finally be moving out of their parents’ basements and renting their own apartments. They might be depressed that Mom isn’t there to cook dinner for them and do their laundry.

(3) Job openings. Given that initial unemployment claims are the lowest since November 1973 and that job openings are the highest on record, it’s hard to worry about the job market, though Fed Chair Janet Yellen always seems to find something troubling there. Jobs remain relatively plentiful, according to the CCI survey. However, the widening gap between job openings and the perception that jobs are plentiful may reflect the skills mismatch problem.

(4) Durable goods. The financial press mostly put a positive spin on yesterday’s report of a 3.4% increase in durable goods orders. I wasn’t as impressed. It was boosted by a big jump in the volatile civilian aircraft category. Excluding transportation, orders advanced for only the second time in nine months by just 0.8%.

Nondefense capital goods orders excluding aircraft (a proxy for future business investment) rose 0.9% in June after declines of 0.4% and 0.7% the prior two months, and are down 4.0% ytd. These orders contracted 5.4% (saar) in the three months through June (based on three-month average).

Today's Morning Briefing: Room To Grow? (1) Curbing enthusiasm on revenues growth. (2) The dollar remains strong, and oil remains weak. (3) Industry analysts still cutting 2015 and 2016 revenue estimates. (4) Weak growth rates. (5) Forward earnings rebounding and diverging from stalling forward revenues. (6) Forward profit margin at record high. (7) Mixed sector picture. (8) On the soft side, again. (9) Odd decline in consumer confidence. (10) Widening gap between job openings and perception of plentiful jobs reflects skills mismatch. (11) Durable goods orders not so durable. (12) Regional surveys lack luster. (13) Focus on major global MSCI stock indexes. (More for subscribers.)

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