Monday, June 1, 2015

Where is the US consumer?


Economic data continues to baffle economist and the Fed. One day we get positive data and the next we get the opposite. We look for “reasons to believe’ in every data point and possible miscalculations or a fallacy in the data collection, estimation, interpretation. In the end, we all know that the US economy depends on the consumer.

1.      The energy industry remains weak, as evidenced by May’s regional survey of business conditions conducted by the FRB-Dallas. Yet, oil prices have risen from the lows, leaving the consumer a bit hesitant about spending their ‘new found’ wealth. Gas prices, at least in VA are up over 20% from the lows. Clearly the price of oil is key to a consumer led recovery. Stability, though, is extremely important.

2.      May’s Chicago PMI was released on Friday. It was relatively weak. We now have six such surveys. The average of their composite indexes fell from 0.6 during April to -2.4 during May, the lowest since July 2009. The average of the orders and employment components was also weak in May. It still looks like a soft 2Q recovery based on the averages of these surveys.
3.      The American Trucking Association’s preliminary For-Hire Truck Tonnage Index, which is seasonally adjusted, fell 3.0% during April and it increased just 1.0% yoy, which was the smallest such gain since February 2013. Neither the weather nor potholes can be blamed for this slowdown, which seems to confirm the recent weakness in consumer spending.

4.      The Association of American Railroads that US railcar traffic was down 2.7% yoy for the week ending May 23, with carloads down 9.1% and intermodal units up 4.3%. The carloads picture is less desirable for those of us rooting for the US economy to come out of its soft patch. Of the eight major categories in this segment of rail traffic, six are trending lower. Bloomberg Economist Michael McDonough found that carloads of waste and scrap, which have been particularly low in recent weeks, are highly correlated and coincident with real GDP. Maybe the recent weakness in real GDP wasn’t just a bunch of seasonal adjustment garbage.

Let’s not kid ourselves, there is no major global economy that is booming. The only thing booming is central bank debt. And, by the way, the Fed bought a ton load of mortgages last week. Who cares if they even raise rates, they have a ‘truckload’ of interest and pay downs that they are reinvesting.

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