Our Economy Is In Big Trouble: Business Sales Is Slowing At An Increasing Rate, US Consumer Makes, Spends Less In October, Real Income Falls For Third Month, And Deflation Started in Europe Will Soon To Overtake The US
CHICAGO PMI RISES TO 50.4 — But Huge Drop In New Orders
from Chicago PMI:
Employment 55.2 vs. 50.35 prior. New orders 45.3 vs. 50.6 prior. Prices paid 70.1 vs. 59.3 prior. Inventories 47.1 vs. 49.6 prior. Supplier deliveries 57.3 vs. 50.4 prior.
Big jumps in supplier delivery times, employment, and prices look to be behind the improved headline read in the Chicago PMI, but the gauge’s best leading indicator – new orders – took a big hit, falling to 45.3 from 50.6, the lowest level since June 2009. “Business sales (have) been slowing throughout the year, and continue to slow, but now at an increasing rate; becoming very alarming.” (full report)
US Consumer Makes, Spends Less In October, Real Income Falls For Third Month
It was only appropriate that on a day in which our chart of the day confirmed that the US consumer is getting increasingly more broke, we got an update of Personal Income and Personal Spending, both of which missed expectations and declined substantially. October income printed at 0.0%, down from 0.4% in September, and below expectations of 0.2%, while spending plunged from 0.8% all the way into negative territory at -0.2%, missing expectations of an unchanged print. Counterintuitively, the spin is that this miss was due to Sandy, when this makes absolutely zero sense: as a reminder Sandy only hit in the last 4 days of October, which means it had no time to impact income, and if anything it prompted an increase in spending as consumers stockpiled ahead of the landfall. But that’s why they call it spin. Of course, none of this should come as a surprise: the implied savings rate in September hit a multi-year low of 3.3%, which means going forward the blend of spending and savings will be unpleasant for stocks as consumers have no choice but to rebuild savings once more. And finally, the most disturbing metric, and one which is a red flashing light for all those predicting yet another economic renaissance in 2013, is that real Disposable Income declined by 0.1%: the third decrease in 3 months, confirming that on an inflation adjusted basis the consumer peaked in the summer, and it is all downhill from here.
Personal Savings: finally a modest uptick
The Strongest Area Of The Economy Has Been The US Consumer — And Three Recent Signs Don’t Look Good
One of the big themes of the year has been the split between nervous corporates and confident consumer, with the latter holding up the economy.
But a few datapoints point to some weakness there.
Millan Mulraine of TD Securities describes today’s Personal Income & Spending report:
Consumer spending activity declined for the first time since May, posting an unexpected 0.2% m/m drop after rising briskly in the previous three months. Real spending was also quite weak, declining by 0.3% m/m, marking the biggest decline in this indicator in some time. And despite the very strong hand-off from September, the weak performance in October suggests that consumer spending activity is unlikely to provide any meaningful boost to economic activity in Q4.
The internals of the report were largely weak, with spending on durable (down 0.8% m/m) and nondurable (down 0.2% m/m) goods both lower on the month. The weakness in spending on goods was partially offset by higher expenditures on services, which rose by 0.1% m/m, though this is a marked slowdown from the 0.3% m/m gain in September. On the inflation front, there were quite encouraging news for the Fed, as the pace of core PCE inflation remained relatively contained at 0.1% m/m following a similar performance the month before. Annually, the pace of core inflation remained unchanged at 1.6% y/y, underscoring the relatively favorable backdrop for the Fed’s accommodative monetary policy stance.
What Happens in Europe Will Not Stay in Europe: In 1929, Deflation Started in Europe Before Overtaking the U.S.
What Happens in Europe Will Not Stay in Europe
More than 1,500 years after the fact, scholars still debate the causes of the Roman Empire’s fall.
What historians do agree on is that the crumbling empire’s final days were marked by economic contraction, a struggle to fund Rome’s routine affairs and excessive debt.
Mark Twain said, “History doesn’t repeat itself, but it does rhyme.”
That quote seems to apply when economically comparing the Roman Empire and the United States.
Today’s superpower also faces a mountain of debt and a slow economy.
Unlike then, however, the modern economy is global.
So an economic downturn in one major area of the globe is likely to affect another. In fact, even during the Great Depression (long before the phrase “global economy”), Europe was exporting to America.
Meanwhile In China: Consumer Instability? The Worst News We’ve Heard Out Of China In Weeks
GUNDLACH: ‘I’m Waiting For Something To Go Kaboom’
Deeply indebted countries and companies, which Gundlach doesn’t name, will default sometime after 2013. Central banks may forestall these defaults by pumping even more money into the economy — at the risk of higher inflation in coming years.
“I’m waiting for something to go kaboom,” Gundlach says in his office a week before the L.A. speech. “If phase three takes two years, it’s worth waiting for. The markets don’t have lots of opportunity now.”
Adding color to his call, Gundlach discusses U.S. policy:
In the U.S., Gundlach sees a postelection, pre-fiscal cliff economy that’s growing anemically and only because of consumer loans, government stimulus and the Fed. He says inflation could jump by 2 percentage points if the Fed ramps up its purchases of government debt beyond what it has done so far.
Led by Chairman Ben S. Bernanke, the Fed has purchased $2.3 trillion in securities in two rounds of quantitative easing since 2008. And it may extend its third round through 2013 and climb past a total of $1 trillion in purchases, according to economists interviewed by Bloomberg.
“You’re just going to build up pressure in the pressure cooker, and when it blows, the lid will blow sky-high, and that’s when you get to phase three,” Gundlach says.