Tag Archives: Karim

Durable Goods Order/Claims

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Karim writes:

Durable Goods Order/Claims

  • Durables goods orders +1.9% headline; -1.5% ex-aircraft and defense (this is the measure used for the private sector capex component of GDP)
  • Defense up 23.2% m/m; here are the prior 3mths for defense orders in 2009 (-11%;+33%;-40%)
  • Shipments ex-defense -0.3%
  • Inventories -0.8% (unexpected as most felt inventory drawdown was over in Q1)

  • Initial claims fall to 623k from 636k (revised up from 631k)

  • Continuing claims up another 110k

  • Data shows economy still contracting; look for range of estimates for Q2 from -2% to -4%

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Claims/G20

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Factory orders rise in February

by Emily Kaiser

Apr 2 (Reuters) —The IMF was told its war chest will be boosted by $500 billion and it will receive another $250 billion in special drawing rights, the agency’s synthetic currency.

Multilateral development banks including the World Bank will be enabled to lend at least $100 billion more.

Thanks, IMF funding functions very much much like deficit spending.

Hearing talk of flat q2 GDP.

The great Mike Masters inventory liquidation that triggered the sudden negative growth ended late December.

The rising deficit spending and the new quarter seems to be bringing new buyers into equities and the rest of the credit structure.

The Obamaboom seems in progress- strong financial markets, rising energy costs, and painfully high unemployment.

Hardly the outcome they are shooting for.

Karim writes:

  • Initial claims up 12k to new high for the cycle (4wk avg moves from 650k to 657k)
  • Rise in continuing claims continues to astound-up another 161k this week to another all-time high-cumulative rise in past 4 weeks is 654k
  • May signify upside risk to consensus on unemployment rate tomorrow (consensus at 8.5% vs prior 8.1%)

Some early snippets out of G20:

  • Greater funding for IMF to be targeted at EM countries and trade finance has EM risk on fire in past 24hrs
  • Agreement that OECD will publish list of ‘tax havens’ and that Swiss will be on the black list has Chf quite a bit weaker
  • Russia proposal that IMF or G20 conduct a study on creating a new intl reserve currency generating headlines and some USD weakness; but IMF and OECE both state they see no change in USD status (1 interpretation that Russia went into meeting long Eur/Usd)

New orders received by U.S. factories rose in February, government data showed on Thursday, breaking a six-month streak of declines and bolstering hopes the economy may be beginning to crawl out of the depths of a recession.

The Commerce Department said factory orders rose 1.8 percent in February after a revised 3.5 percent drop in January, initially reported as a 1.9 percent decline.

Economists polled by Reuters had expected a February increase of 1.5 percent.

Orders for non-defense capital goods excluding aircraft, seen as a measure of business confidence, jumped 7.1 percent after a steep 12.3 percent drop in January.

Orders for durable goods rose 3.5 percent, revised from the previously published 3.4 percent increase, while orders for nondurable goods edged up 0.3 percent.

Inventories decreased 1.2 percent, down for a sixth consecutive month. That was the longest streak since March 2003-January 2004.


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Central banks trying to limit backup

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Karim writes:

ECB-Board Member Bini Smaghi was 4th board member since last week’s press conference to say that one 25bp hike was enough to return inflation back to the 2% target in 2yrs time (Trichet, Stark, Orphanides before him). Whether true or not, market reaction since last Thursday clearly in excess of that expected or desired. This French economist’s website probably works against him but you never know; www.stroptrichet.com

BOE-‘The framework is based on the recognition that the actual inflation rate will on occasions depart from its target as a result of shocks and disturbances.
Attempts to keep inflation at the inflation target in these circumstances may cause undesirable volatility in output”. The Committee believes that, if Bank Rate were set to bring inflation back to the target within the next 12 months, the result would be unnecessary volatility in output and employment.

    ÃƒÆ’ Classic Philips curve trade-off being described here as well as amount of time given to bring inflation back to target

FRB-5 stories since Sunday trying to dampen rate hike expectations seems like a coordinated plant: Page 1 of WSJ today, FT article today citing ‘senior officials’, Market News piece from Beckner from yesterday, Washington Post article yesterday from Novak, and Blinder editorial in New York times on Sunday. Also Lacker was unusually tame yesterday in his remarks on inflation expectations.

Yes, agreed.

In fact, it can be said that this entire cycle has witnessed subdued inflation responses from top CBs. There is probably no precedent for the Fed cutting aggressively into the food/fuel negative supply shocks.

‘SOME’ have suggested this is a baby boomer phenomena – short sighted aversion to ‘pain’ by a bunch of spoiled kids more than willing to eat their seed corn seems to crop up everywhere. Nothing gets addressed until it gets bad enough to be a major crisis. Energy, biofuels, environment, Iran, weak levies, etc. etc. and now inflation.

It does seem to explain a lot.


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ICSC Survey

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Karim writes:

The ICSC weekly chain store sales index was unchanged for the week ending May 24 compared with the prior week and rose by 1.5% from the same week of the prior year–steady with the prior week. The ABC News/Washington Post Consumer Comfort Survey for the period ending May 25 continued to show a record low buying climate evaluation by consumers (for two consecutive weeks) with 81% of respondents calling it a bad time to spend money.

ICSC Research’s statistical analysis (combined with the consumer survey result) suggests that the record high gasoline prices at the pump are dragging down chain-store sales demand by nearly 1 percentage point currently, while the lift so far from higher income, because of the federal tax rebate, is only offsetting that spending drag by about a quarter of percentage point. As such, the net effect (approximately -0.75 pp.) continues to be negative on store spending. April chain store sales on a year-over-year comparable-store basis rose by 3.5%, based on ICSC’s tally of retail chains. However, the April 2008 increase was exaggerated by the shift in the date of Easter compared with April 2007. Over the prior two months, the average monthly year-over-year pace was 1.5%.

Yes, the key is whether the oil producers ‘spend’ the funds here or ‘save’ them and build reserves as they did in the 1970’s.

So far the booming US exports and annecdotal evidence of massive infrastructure expenditures in the middle east indicate they have been spending their higher revenues and sustaining US GDP at muddling through levels.

This means employment and growth muddle through but real terms of trade and our standard of living declines

As of May 23, 43% of the $107 bn. personal federal tax rebate already has been distributed to taxpayers, which should begin to turn the consumer spending tide a bit. In a special consumer tracking survey taken between May 22 and 25, 12% of households reported spending most of the rebate already. Based on the latest tax rebate flow that would imply approximately $5 to $10 bn. of the rebate was spent already by the 51.7 million taxpayers receiving a rebate check so far.

According to an ICSC Research tax rebate survey, released on May 19, ultimately 22% of households expect to spend the rebate, which will potentially mean nearly $25 bn of spending power over the next several months. For the fiscal month of May, ICSC Research expects monthly sales will grow by between 1% and 2% on a year-over-year same-store basis.

My best guess is more will be spent with a relatively short lag of maybe 30 days after receiving the checks. This includes using the checks to make down payments on deferred purchases, such as small appliances and home improvements, which has a multiplier effect.


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Data Review

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thanks, a few quips below:

Karim writes:

  • Conference Board survey falls from 62.8 to 57.2 (lowest since 1992)

  • Both present situation and expectations decline

Labor conditions, plans to buy home and plans to buy auto all fall to new cycle lows

Tough living in an export economy.

  • 1yr inflation expectations jump from 6.8 to 7.7

Inflation rips as non-residents outbid us for your output, as all our funds are spent on food and fuel.

  • Case Shiller Home price index accelerates rate of decline, down 6.7% q/q and 14.1% y/y

Narrow index of 20 metro regions, with 4 or 5 biggest spec boom/bust regions doing most of the damage.

  • New home sales rise 3.3% in April; mths inventories fall from 11.1 to 10.6

Coming back from unsustainably low levels give the US population and income growth.

Actual homes in inventory fell to the lowest levels since July.

  • Jan-March sales data revised lower by cumulative 5.5%

Tough first quarter with record low consumer sediment :) behind us.

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Re: Bernanke/data

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(an interoffice email)

Yes, and he reaffirmed that he’s using the futures prices to predict where prices are going.  He pointed to crude being at $95 in the back months and stated that translates to a forecast for prices to come down from current levels.

Also indicated the lower dollar is useful for bringing down the trade deficit.  This ‘works’ for as long as US labor costs are ‘well anchored’.  Congress didn’t grasp this part, as it no doubt would have evoked quite an outcry if they had understood it.

Bernanke plainly stated he considered export growth a desired outcome versus domestic consumption.

Initial claims telling today.  Other numbers point to surprises on the upside.  This could be partially tempered by Q4 GDP being revised up.

FF futures already discounting cuts to below 2% over the next six months.

While crude inventories are up, markets are saying it’s ‘desired’ inventory as the term structure is still backwardated and WTI is still higher than Brent.

On Wed, Feb 27, 2008 at 12:32 PM, Karim wrote:
All you need to know about BB’s testimony courtesy of the Xinhua news agency:

WASHINGTON, Feb 27, 2008 (Xinhua via COMTEX) — Federal Reserve Chairman Ben

Bernanke told Congress on Wednesday the central bank will again lower interest

rates to boost U.S. economy.

 

Other highlights:

 

Commenting on new Fed forecasts from last week:

The risks to this outlook remain to the downside.  The risks include the possibilities that the housing market or labor market may deteriorate more than is currently anticipated and that credit conditions may tighten substantially further.

 

… financial markets continue to be under considerable stress

 

Important comment on the time frame over which policy should aim to attain objective inflation rates

The inflation projections submitted by FOMC participants for 2010–which ranged from 1.5 percent to 2.0 percent for overall PCE inflation–were importantly influenced by participants’ judgments about the measured rates of inflation consistent with the Federal Reserve’s dual mandate and about the time frame over which policy should aim to attain those rates.

 

Concluding comments highlight downside risks to growth and inflation pressures but when addressing ACTION, only mentions supporting growth and providing insurance against downside risks.

A critical task for the Federal Reserve over the course of this year will be to assess whether the stance of monetary policy is properly calibrated to foster our mandated objectives of maximum employment and price stability in an environment of downside risks to growth, stressed financial conditions, and inflation pressures.  In particular, the FOMC will need to judge whether the policy actions taken thus far are having their intended effects.  Monetary policy works with a lag.  Therefore, our policy stance must be determined in light of the medium-term forecast for real activity and inflation as well as the risks to that forecast.  Although the FOMC participants’ economic projections envision an improving economic picture, it is important to recognize that downside risks to growth remain.  The FOMC will be carefully evaluating incoming information bearing on the economic outlook and will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks.

 

Data-wise, more of the same:

  • Durable goods orders down 5.3% after 4.4% rise last month. Core component down 1.4% after 5.2% rise. Capex too small a part of economy and potential rates of change too little to have much bearing on end growth at this stage.
  • New home sales down another 2.8% in January and mths supply makes a new high, rising from 9.5 to 9.9; Y/Y median price drops to -15.1% from -7.8%
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