Mish's Global Economic Trend Analysis

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• Durable Goods Decline Second Month; Key Take-Aways
• El-Erian: "Europe Is One or Two Rounds of Sanctions From Recession"; El-Erian Far Too Optimistic
• Most Expensive Housing Markets in US are Liberal: Correlation or Cause?

Durable Goods Decline Second Month; Key Take-Aways Posted: 28 Oct 2014 01:25 PM PDT Inquiring minds are digging into the Census Bureau Advance Report on Durable Goods Manufacturers' Shipments, Inventories and Orders for September 2014 for hints at 4th quarter GDP. The headline data shows new orders for manufactured durable goods in September decreased $3.2 billion or 1.3 percent. This follows an 18.3 percent decline in August. However, transportation (especially commercial and military plane orders) are so large and volatile, the overall results are nearly useless. For  example: In June, new orders were up 22.5% with transportation orders up 73.3%. Nondefense aircraft and parts orders were up a whopping 315.6%. Last month, nondefense aircraft and parts was down 74% and this month another 16%. Key Components Instead of focusing on the headline numbers, let's dive into the report to isolate key components. The report itemizes all the categories, but it's not easy to scroll through. This table I put together should help. Item Sep Aug Jul Aug-Sep %Chg Jul-Aug % Chg Jun-Jul % Chg Total New Orders 241,633 244,864 299,862 -1.3 -18.3 22.5 Ex-Transportation Orders 168,186 168,603 167,491 -0.2 0.7 -0.6 Ex-Defense Orders 230,654 234,273 289,442 -1.5 -19.1 24.9 Transportation Orders 73,447 76,261 132,271 -3.7 -42.4 73.3 Capital Goods Orders 91,353 95,345 144,635 -4.2 -34.1 52.5 Non-Defense Capital Goods Orders 81,985 86,625 136,323 -5.4 -36.5 60.9 Defense Capital Goods Orders 9,368 8,720 8,312 7.4 4.9 -17.9 Core Capital Goods Orders 71,824 73,078 72,836 -1.7 0.3 -0.1 Core Capital Goods Shipments 70,238 70,390 70,307 -0.2 0.1 2.0 Line items (except the last line which shows shipments) are new orders, in millions of dollars, seasonally adjusted. Key Take-Aways The last two lines are the ones to watch. Core Capital Goods are non-defense capital goods excluding aircraft. It's a measure of business investment and business sentiment. The 1.7% decline in orders is the largest since January. Shipments factor into GDP estimates. Core capital goods shipments were down 0.2% this month. Core capital shipments and orders suggest that 4th quarter GDP is not off to a flying start.  Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

El-Erian: "Europe Is One or Two Rounds of Sanctions From Recession"; El-Erian Far Too Optimistic Posted: 28 Oct 2014 10:51 AM PDT In a speech on BRICs at the Peterson International Institute of Economics former PIMCO co-head El-Erian made the claim Europe Is One or Two Rounds of Sanctions From Recession. The West, and Europe in particular, is one or two rounds of sanctions and counter-sanctions away from entering into a new recession, chairman of President Barack Obama's Global Development Council Mohamed El-Erian stated Monday. "We are one or two rounds of sanctions and counter-sanctions away from the European politics over the Ukraine tipping Europe into a recession," El-Erian said in a speech on the BRICS economies at the Peterson International Institute of Economics. He noted that the impact of level three sectoral sanctions against Russia is "taking the West into a recession through sanctions to the energy sector." Arguing against the notion that Western economies are managing to keep pace after the crisis and despite the sanctions against Russia, El-Erian stated, "It may be chugging along in the United States, but Europe is looking at flat growth." According to Obama's global development adviser, Ukraine continues to be a problem. El-Erian concluded, "The current state of play in Ukraine is lose, lose, lose" for Ukraine, Russia, and the West. El-Erian Far Too Optimistic It is not going to take another round or two of sanctions to tip Europe into recession. France, Italy, and Spain are already there by any realistic set of measures, and Germany is in serious decline. Unless one uses the strict definition of two consecutive quarters of declining growth, Europe is arguably in recession right now. Greece, Spain, and Italy are actually in economic depressions. El-Erian is far behind the curve, especially if he thought he was making a dramatic statement. But yes, sanctions are inane and they will make matters worse. And no, the US will not decouple from the global economy. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Most Expensive Housing Markets in US are Liberal: Correlation or Cause? Posted: 28 Oct 2014 12:47 AM PDT Here's an interesting article thanks to Jed Kolko, Chief Economist at Trulia Trends via Washington Post Wonkblog: The most expensive housing markets in the U.S. are also the most liberal. The relationship between housing affordability and politics in the US is startlingly strong as these charts by Jed Kolko shows. Median asking price in dollars per square foot is on the vertical axis. Margin for Obama over Romney in the 2012 election is on the horizontal axis. With the exception of Orange County California, all of the high priced counties voted for Obama. The Washington Post notes .... Nine of the 10 bluest markets had median home asking prices above $130 per square foot. All of the 10 reddest markets had prices below that. In the dark blue markets, housing cost almost twice as much ($227 per square foot) as in the red ones ($119). In metro Washington — this is not just the District — the average home asking price was about $177. Trulia notes ... Households in blue markets tend to have higher incomes. But those higher incomes are not enough to offset higher home prices. Our middle-class affordability measure, which reflects the share of homes for sale within reach of a median-income household, is significantly lower in bluer markets. Furthermore, blue markets have lower homeownership and greater income inequality than red markets. Sorted Data Trulia made the data available. I sorted by price per square foot high to low. Here are the results. U.S. Metro Vote margin: Obama vs Romney, 2012 (positive #s = blue markets; negative #s = red markets) Price decline in housing bust, peak to trough (FHFA) Year-over-year price change, Sept. 2014 (Trulia) Median asking price per square foot, $, Oct. 2014 (Trulia) San Francisco, CA 58% -23% 9.9% 613 Honolulu, HI 39% -11% 4.1% 439 San Jose, CA 42% -26% 8.6% 430 Orange County, CA -6% -33% 4.8% 363 Long Island, NY 6% -20% 2.9% 350 Oakland, CA 50% -39% 11.9% 342 Los Angeles, CA 42% -35% 6.9% 334 New York, NY-NJ 49% -18% 4.3% 320 Ventura County, CA 7% -39% 12.4% 305 San Diego, CA 8% -35% 1.8% 296 Fairfield County, CT 11% -21% -0.5% 237 Middlesex County, MA 27% -13% 7.8% 236 Boston, MA 25% -17% 4.5% 229 Peabody, MA 16% -18% 4.0% 212 Seattle, WA 35% -26% 8.9% 197 Bethesda-Rockville-Frederick, MD 34% -22% 2.6% 189 Sacramento, CA 9% -48% 10.1% 188 Edison-New Brunswick, NJ 3% -22% 6.2% 180 Miami, FL 24% -47% 14.0% 180 Washington, DC-VA-MD-WV 37% -25% 3.2% 177 Riverside-San Bernardino, CA 4% -50% 10.6% 164 Providence, RI-MA 25% -26% 2.8% 162 Baltimore, MD 18% -22% -1.1% 161 Portland, OR-WA 23% -25% 7.5% 157 Denver, CO 13% -8% 9.4% 152 North Port-Bradenton-Sarasota, FL -10% -50% 9.6% 150 New Haven, CT 22% -21% -0.6% 146 Worcester, MA 9% -23% 4.9% 146 Philadelphia, PA 31% -11% 4.3% 146 Fort Lauderdale, FL 35% -48% 6.9% 143 Hartford, CT 23% -14% -0.4% 143 West Palm Beach, FL 17% -49% 11.7% 138 Springfield, MA 32% -14% 2.5% 137 Albany, NY 16% -6% -0.7% 135 Tacoma, WA 11% -32% 7.5% 134 Charleston, SC -5% -21% 7.7% 134 Cape Coral-Fort Myers, FL -17% -56% 9.8% 133 Newark, NJ-PA 21% -20% 1.9% 133 Fresno, CA 2% -49% 8.5% 133 Austin, TX 7% -4% 9.9% 130 Lake County-Kenosha County, IL-WI 9% -27% 11.3% 130 Chicago, IL 32% -28% 10.0% 129 Salt Lake City, UT -21% -22% 4.7% 129 Virginia Beach-Norfolk, VA-NC 11% -19% 4.4% 129 Bakersfield, CA -17% -52% 8.2% 126 Minneapolis-St. Paul, MN-WI 12% -26% 10.0% 125 Phoenix, AZ -11% -51% 3.8% 123 Wilmington, DE-MD-NJ 24% -20% 3.8% 123 Warren-Troy-Farmington Hills, MI 3% -37% 7.8% 117 Camden, NJ 24% -23% 0.6% 116 Richmond, VA 5% -20% 2.7% 116 Milwaukee, WI 5% -15% 5.8% 116 Pittsburgh, PA -1% -2% 6.9% 116 Allentown, PA-NJ 2% -21% 2.6% 114 Las Vegas, NV 15% -61% 9.0% 113 Raleigh, NC 6% -9% 4.2% 113 Dallas, TX -10% -6% 7.7% 112 Tucson, AZ 7% -38% 1.4% 111 Orlando, FL 8% -48% 7.7% 110 Albuquerque, NM 13% -17% 0.6% 110 Nashville, TN -16% -9% 5.6% 109 Jacksonville, FL -19% -38% 7.0% 109 Colorado Springs, CO -21% -12% 4.0% 107 San Antonio, TX -8% -4% 4.5% 107 Tampa-St. Petersburg, FL 3% -43% 5.0% 106 Houston, TX -12% -4% 10.7% 106 New Orleans, LA 0% -11% 7.5% 102 Palm Bay-Melbourne-Titusville, FL -13% -50% 13.1% 100 Cincinnati, OH-KY-IN -16% -10% 9.0% 100 Baton Rouge, LA -12% -3% 1.3% 100 Charlotte, NC-SC 2% -16% 7.0% 99 Oklahoma City, OK -27% -3% 4.0% 98 St. Louis, MO-IL 7% -12% 4.3% 98 Knoxville, TN -34% -8% 2.1% 98 Birmingham, AL -20% -13% 11.5% 96 Buffalo, NY 14% -2% 3.1% 96 Atlanta, GA 1% -26% 11.1% 95 Louisville, KY-IN -3% -6% 11.0% 94 Fort Worth, TX -23% -6% 6.4% 94 Columbus, OH 7% -10% 6.5% 94 Omaha, NE-IA -10% -5% 5.4% 93 Greenville, SC -30% -8% 5.9% 92 Kansas City, MO-KS -3% -12% 6.6% 92 Lakeland-Winter Haven, FL -7% -46% 11.1% 92 Gary, IN 21% -11% 6.8% 91 Little Rock, AR -11% -4% -6.0% 90 Tulsa, OK -32% -4% 7.3% 90 Syracuse, NY 17% -3% 4.1% 90 Memphis, TN-MS-AR 12% -14% 4.6% 89 Greensboro, NC 1% -10% 2.6% 89 El Paso, TX 32% -8% -0.9% 88 Rochester, NY 11% -2% 2.0% 87 Grand Rapids, MI -9% -22% 9.1% 87 Cleveland, OH 24% -18% 4.1% 86 Akron, OH 13% -16% 6.9% 84 Columbia, SC 2% -11% -0.9% 83 Toledo, OH 21% -20% 12.5% 81 Indianapolis, IN -8% -7% 7.8% 80 Detroit, MI 47% -40% 11.4% 75 Dayton, OH -7% -13% 8.8% 74 Congratulations to California California has seven of the top-ten least-affordable metro areas. New York managed two top-ten least affordable spots. Massachusetts garnered three top-fifteen slots.  Congratulations (of sorts) go to California. Top 10 Cities by Population in 2013 City Rank City Population Cost per Sq Foot Cost Ranking 1 New York, New York 8,405,837 320 8 2 Los Angeles, California 3,884,307 334 7 3 Chicago, Illinois 2,718,782 129 42 4 Houston, Texas 2,195,914 106 66 5 Philadelphia, Pennsylvania 1,553,165 146 29 6 Phoenix, Arizona 1,513,367 123 47 7 San Antonio, Texas 1,409,019 107 64 8 San Diego, California 1,355,896 296 10 9 Dallas, Texas 1,257,676 112 57 10 San Jose, California 998,537 430 3 I created the above table by combining City Size  data with Trulia data. Top 10 Red vs. Blue Of the 10 largest Metro Areas in the US, five voted for Obama and five for Romney. Note: The above table shows city population not metro area. The Texas Metro Areas (Houston, San Antonio, Dallas) and the Arizona Metro Areas (Phoenix and San Antonio) voted for Romney. The highest ranking red Metro Area in the list was Phoenix. It placed 47 out of 100 in cost, with a median cost per square foot of  $123 vs. San Jose, California with a median cost of $430 per square foot. Correlation or cause? Union work rules, land availability, and building restrictions (or lack thereof) are all likely in play. Correction I stated 5 of the top 10 cities voted for Romney. The Trulia data is for Metro Areas. The above paragraphs modified accordingly. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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