15.5.15

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis


Consumer Confidence Plunges Below Any Economist's Estimate; Consumers Shock Economists

Posted: 15 May 2015 10:04 AM PDT

Consumer confidence is the third miss by economists in a single day. Please consider the Bloomberg Consensus Estimate for Consumer Confidence.


Consumer confidence has fallen back noticeably this month, down more than 6 points to a much lower-than-expected 95.2. This compares very poorly with the Econoday consensus for 103.0 and is even far below the Econoday low estimate of 100.5. The weakness, ominously, is the result of falling assessments of the jobs market, both the current jobs market and expectations for the future jobs market. The second quarter, which is expected to be much stronger than the weather-depressed first quarter, isn't likely to get off to a fast start, at least as far as this report goes.

The most striking weakness in April is the assessment of future conditions with the expectations component down 8.5 points to 87.5 for the weakest reading going all the way back to September. And the most striking weakness among the sub-components is employment, where fewer see more jobs opening up 6 months from now and more see fewer jobs available. This spills over into income where fewer see an increase ahead and more see a decrease.

But also weak is the present situation component which is down more than 2-1/2 points to 106.8 for its weakest reading since December. Here the most closely watched sub-component is the jobs-hard-to-get reading which is up nearly 1 full percentage point to 26.4 percent. This reading will hold back expectations at least to some degree for a big bounce back in the April employment report from a very weak March.

Inflation expectations are down sharply this month, 4 tenths lower to 4.8 percent which is one of the lowest readings of the recovery. Gas prices have been edging higher but are still low, the latter no doubt a major factor behind the latest reading.

Buying plans are mixed with automobile and vacation plans down but not home plans which are up. But home buying won't be a featured activity for consumers if their expectations for employment are weak. Today's report, showing weakness in the jobs assessment and in inflation expectations, won't be pulling forward expectations for the Federal Reserve's first rate hike.
Missing the Boat

Not only was the consensus outside the range of reading predictions, economists did not even get the leading sign correct. Economists expected an improvement from 101.3 to 103.0 but instead the index plunged 7.6%.

For more details let's turn to the actual University of Michigan Survey.

University of Michigan Preliminary Results May 2015



Comments by U of M Chief Economist Richard Curtin
Confidence fell in early May as consumers became increasingly convinced that there would be no quick and robust rebound following the dismal 1st quarter (even if the under performance was exaggerated by inadequate seasonal adjustments). The decline was widespread among all age and income subgroups as well as across all regions of the country. In contrast to last year's rapid 2nd quarter revival, this year the economy faces reduced production and employment from lower oil prices, falling exports, and rising imports from a stronger dollar. Although this was not the first time in recent years consumers have abandoned expectations for a faster recovery, the data nonetheless suggest that consumers have remained optimistic about their future personal finances and have maintained their buying plans at reasonably high levels. Overall, at this time the data are still consistent with a 3% growth rate in real personal consumption expenditures during 2015.
Confidence Nonsense

I believe that statement by Curtin is complete nonsense. Consumers have not maintained their buying plans, at least according to Fed surveys.

Household Spending

But what about household spending? Please check out my May 12 report Household Spending Growth Expectations Plunge; Recession Already Started?

Household Spending Expectations




click on chart for sharper image

I created the above chart with data from Fed does a Survey of Consumer Expectations

Spending Analysis

In spite of rising earnings and income estimates, "median household spending growth expectations retreated significantly from the last month" in the Fed's words.

Recession Likely Underway

I commented on sales in Dismal Retail Sales Numbers Suggest Recession Likely Underway.

Economists were surprised by the dismal retail sales report this morning. That's not surprising because economists are nearly always surprised.

The Bloomberg Consensus retail sales estimate was a rise of 0.2%, but sales came in at 0.0% and the details were ugly.

Estimated Retail Sales

The Census Department offers this Table of Retail Sales.



click on chart for sharper image

Note the huge patch of negative numbers this month. At least people are still eating out and drinking more.

Also note the negative numbers in the November 2014 through January 2015 column.

Economists expected the decline in gasoline sales (down 7.2%) to translate into increased sales elsewhere. It didn't.

I am scratching my head over Bloomberg's statement "consumer confidence may be strong ...". What the heck is Bloomberg talking about?

Does Bloomberg even read its own numbers? Here is a snip from the Bloomberg Consumer Confidence Level Report for April 2015, released on 4/28/2015.
Consumer confidence has fallen back noticeably this month, down more than 6 points to a much lower-than-expected 95.2. This compares very poorly with the Econoday consensus for 103.0 and is even far below the Econoday low estimate of 100.5. The weakness, ominously, is the result of falling assessments of the jobs market, both the current jobs market and expectations for the future jobs market. The second quarter, which is expected to be much stronger than the weather-depressed first quarter, isn't likely to get off to a fast start, at least as far as this report goes.

The most striking weakness in April is the assessment of future conditions with the expectations component down 8.5 points to 87.5 for the weakest reading going all the way back to September. And the most striking weakness among the sub-components is employment, where fewer see more jobs opening up 6 months from now and more see fewer jobs available. This spills over into income where fewer see an increase ahead and more see a decrease.

But also weak is the present situation component which is down more than 2-1/2 points to 106.8 for its weakest reading since December.
The Fed is not looking at those numbers either. In the latest FOMC report the Fed specifically stated "consumer sentiment remains high".

Autos Only Reason YoY Sales Are Positive



Autos are now the only thing keeping retail sales positive year-over-year. And auto sales are driven by subprime loans. How long is this party going to last?

Who wants a car, needs a car, can afford a car, and can get a car loan?

Retail Sales Flashbacks


Consumers Did What They Said

In a huge shock to economists, consumers actually did what consumers said they would do rather than what economists models predicted.

And economists still don't believe it. They are looking for 3% growth this year, whereas I think the US is in recession.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com 

Empire State Manufacturing Weaker Than Economists' Expectations

Posted: 15 May 2015 08:38 AM PDT

The Empire State Manufacturing survey came in today weaker than the Bloomberg Consensus Estimate, but at least the economists got the leading +- sign correct.
The first indication on May conditions in the manufacturing sector is soft, as indications have been all year. The Empire State index came in at 3.09, below what were already weak Econoday expectations for 5.00. Shipments look respectable at 14.94 but are way ahead of new orders, at only 3.85, and even further ahead of backlog orders which are in deep contraction at minus 11.46. Employment growth is down as is the 6-month outlook, both pointing to a lack of optimism.

Price readings in this report stand out, pointing to even less pressure than in April with input cost inflation very subdued, down nearly 10 points to 9.38, and with virtually no price traction at all for finished goods, at only 1.04.

The manufacturing sector, hurt in part by weak exports, looks to be more and more of a drag at a time when economic growth is supposed to be on a springtime rebound.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Industrial Production, Down 5th Month, Weaker Than Economist Expectations

Posted: 15 May 2015 08:12 AM PDT

Industrial production came in at -0.3%, down for the fifth consecutive month below the Bloomberg Consensus Estimate.


Industrial production is stalling, down 0.3 percent in April for a 5th straight monthly contraction. Factories are cutting back with capacity utilization down 4 tenths to 78.2 percent. And the manufacturing component, which has been flat to negative all year, is unchanged. All these readings are at or near the Econoday low-side forecasts.

Among manufacturing subcomponents, consumer goods output fell 0.3 percent with business goods down 0.4 percent. Construction supplies rose only fractionally but at 0.1 percent the reading is the best all year (this a reminder of how weak construction and housing has been). A positive is a second strong month for auto output, up 1.3 percent on top of March's 4.3 percent surge, but whether output increases further will depend on auto sales which, in yesterday's retail sales report, turned lower in April.

The two other main components in today's report show even greater weakness with mining, hurt by oil & gas, at minus 0.8 percent for the 6th contraction in 7 months and utilities at minus 1.3 percent for a 2nd straight decline.

The industrial economy remains flat and is holding down what is supposed to be the economy's springtime bounce. The news from the factory sector, including this morning's Empire State report, won't be pulling forward expectations for the Fed's first rate hike.
Clean Sweep of Economists' Misses

  • Production - Weaker than Expected
  • Capacity Utilization - Weaker than Expected
  • Manufacturing - Weaker than Expected

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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