Do These Headlines Look Like a Healthy Economy to You?

Following a relentless barrage of recessionary industrial and manufacturing data, moments ago the Business Roundtable released its latest, fourth quarter 2015 CEO Economic Outlook Survey, and it is an absolute disaster.
According to the report, for the third quarter in a row, CEOs expressed growing caution about the U.S. economy’s near-term prospects and indicated they are moderating their plans for capital investment over the next six months, according to the Business Roundtable fourth quarter 2015 CEO Economic Outlook Survey, released today.

 ISM Manufacturing, a key manufacturing economic index has now fallen below 50 for the first time since Nov 2012, crashing to 48.6! This is the weakest since June 2009.

Today was the weakest PMI report since October 2013 (as ISM Manufacturing also dropped to its lowest since Dec 2012).

 

The chart above is the percent of stocks in the Gavekal Capital International DM Americas Index that are at least 10% off of their 200-day high. A stunning 55% of DM Americas stocks are at least 10% from their 200-day high while the DM Americas Index is hovering just below its all time high. That's startlingly concerning! 

Canadian GDP plunged 0.5% - its largest Month-over-Month drop since March 2009 and the biggest miss of expectations since Dec 2008. Good thing stocks are up 100 today, or we might have thought the economy was weakening!

Mixed(-Up) ISM

from Zero Hedge:
"...the Institute for Supply Management revealed that the February non-manufacturing ISM declined from 55.7 to 55.2, but was just above the expected 55.0, which was enough to send the headline scanners into full blown liftathon mode and the S&P to intraday highs. Ignored was that the key New Orders series actually declined from 58.3 to 54.4, yet offset by a jump in Employment from 55.3 to 57.5. What was amusing was the jump in New Export Orders to 55.5 from a contractionary reading. We can't wait to learn just whom the US is exporting its mission critical services to these days. Finally, and perhaps most relevant, was one of the healtcare related respondents who said the truth, the whole truth and nothing but the truth on the issue of Obamacare: "Healthcare reform causing continued slowdown and less investment." That's only the beginning."

So Was ISM Better... or Not?

from Zero Hedge:
"Just like last week's ISM beat on ugly core data was boosted by hollow peripheral components such as inventories, so today's Non-Manufacturing ISM was an exercise in pure desperation. While the August print did beat expectations of 51, coming at 53.3, up from 52.7 previously, the biggest increase was in... Prices and Export Orders (rising at 7.6 and 7.5): i.e. margin squeeze resumes. The important stuff: New Orders and Employment? Both down (-0.5 and -0.9). Also up? Imports. In other words, Exports offset Imports, margins cuts, and less workers. But at least backlogs are up.... Until backlogged orders get cancelled."

This much is for certain: It hasn't helped stocks! ES is down about 35 points!

Euphoric Insanity Didn't Last Long Either

I took my profits and ran for cover as quickly as I could. I got out very close to the top, and I'm glad I did! This one was pure luck! This choppiness suggests some exhaustion from the rally of the last few days.

Sanity Didn't Last Long

ISM just came in with a headline modestly better than consensus. The internal data was terrible!

Zero Hedge give us some details:
"The problem is that the beat was once again on purely artificial data, with Inventories and Customer Inventories posting the largest increase in the month, or basically the two most hollow economic series. Far more important - Production, dropped to 48.6, the lowest since May 2009. Another Pyrrhic victory was the increase in imports and decrease in exports: we all know what that means for GDP."

ISM Services Disappoints Market, Stocks Continue to Tumble

A new recession is coming soon. This is only the latest in a long series of data misses since April, that point to further trouble ahead. Dow down nearly 100 points.

ISM Disappoints!

Just like with the ISM indexes for the rest of the globe, US ISM has now shown greater contraction than expected.

from Zero Hedge:
Earlier today we said: "the reverse decoupling thesis will be tested once again today after the July ISM is released with consensus looking for a 54.9 print, and Zero Hedge looking for number just a tad above 50." (LaVorgna was at 54.0) Unfortunately, we were correct: the July ISM plunged from 55.3 to 50.9, or yes, "a tad above 50", on expectations of 54.9. This is the lowest ISM in two years, and confirms that the Fed's viagra no longer does anything to help the soft spot. The market took it in stride and plunged to late Friday lows. So much for the latest US debt ceiling raise market euphoria. Every single subindex dropped, with only exports and imports posting an increase, although with Imports +2.5, this more than offsets the benefits from Exports rising by just 0.5.

Mikey DOESN'T Like It!

After the futures were up 150-170 overnight, the S&P just went negative after only 30 minutes. Global manufacturing is contracting, with ISM figures dropping in UK, Germany, India, and China overnight! It's ugly!

Services ISM: Not Positve!

Bad, but not dreadful! But it gets worse the deeper we look!

from Zero Hedge:

June's Services ISM just printed at 53.3, down from 54.6 in May, and missing expectations of 53.7. As a reminder for the US, which is a 70% service economy, this number is far more indicative of the true direction of the economy. Among the components, there was a decline in the New Orders, Prices, Backlogs, Imports and, huh, Inventories? Yes, the same inventories that accounted for 66% of the Manufacturing ISM surge are dropping here. Of the 17 non-manufacturing industries reporting all reported growth, except for the all too critical Financial & Insurance and the completely irrelevant Health Care & Social Assistance. Oh yes, all commodities except for diesel and gasoline were reported up in price. And now that WTI is almost back to $100, that's about to end shortly. Some deflation. And now, talk of a triple dip recession may resume.

ISM: Not So Fast!

This from Tyler Durden at Zero Hedge:


While all the algos are scanning the ISM general business conditions headline, the New Orders Less Inventories spread, which leads the broader index by 3 months, has tumbled and the divergence between it and the ISM Composite is now at near record wide levels. The last time this spread closed in a favorable fashion was back in 2010, when QE1 and 2 goosed the market and the general manufacturing space. This time around, in the absence of another stimulus, the spread will close again all right, but not the way it did last time around, and explains why an ISM analyst just said new orders "not where we'd like it to be." The sub 50 ISM print is coming. Just not this month.

h/t John Lohman

ISM Pushes Stocks to New Highs

Just like earlier in the year, the global recovery is once again on the shoulders of the US. Manufacturing ISM just printed at 55.3, a major beat to expectations of 51.3, and up from 53.5 before. How this meshes with PMI data that is contracting across the globe is irrelevant: just BTFD as America is once again expected to push the world out of the "soft spot" although this time with no QE or fiscal stimulus. Among the various indices, employment mysteriously increased from 58.2 to 59.9 despite consistently weak initial claims and NFP numbers missing expectations, New Orders increased from 51.0 to 51.6 despite a collapse in comparable metrics in recent regional Fed surveys, and prices paid dropped from 76.5 to 68.0, despite ongoing inflationary pressures.

ISM Reaches Near Contraction Level, Sends Stocks Plunging

Kudos to Zero Hedge for this:

As predicted, the US economy is now in free fall (even with QE2 still having two more months to go), validated by today's Services ISM (recall that the US economy is based on "services", not a manufacturing) which plunged from 57.5 to 52.8, taking out consensus of 57.5, and "growing" at the lowest rate since August 2010. As a reminder a number south of 50 means "contraction." From the report: "The NMI registered 52.8 percent in April, 4.5 percentage points lower than the 57.3 percent registered in March, and indicating continued growth at a slower rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index decreased 6 percentage points to 53.7 percent, reflecting growth for the 21st consecutive month, but at a slower rate than in March. The New Orders Index decreased substantially by 11.4 percentage points to 52.7 percent. The Employment Index decreased 1.8 percentage points to 51.9 percent, indicating growth in employment for the eighth consecutive month, but at a slower rate. The Prices Index decreased 2 percentage points to 70.1 percent, indicating that prices increased at a slightly slower rate in April when compared to March. According to the NMI, 17 non-manufacturing industries reported growth in April. Respondents' comments are mixed about overall business conditions; however, they are mostly positive. Respondents' comments also indicate concern over rising fuel costs, commodity costs and the lingering uncertainty about the economy." Virtually every index declined with New Orders plummeting from 64.1 to 52.7 - the biggest drop in history, excepts for Supplier Deliveries (this will certainly drop next month), and Imports.

A quick look at the commodity situation:

Commodities Up in Price

Air Freight; Aircraft Fuel; Airfares (5); Beef; Can Liners; Carbon Pipe; Copper (3); Copper Products (5); Corrugated; Cotton (6); Cotton Products (8); #1 Diesel Fuel (7); #2 Diesel Fuel (10); Freight Charges; Fuel (16); Fuel Surcharges (4); Gasoline (7); Ink Jet Toner Cartridges; Latex Gloves (4); Lube Products; Oil Products; Packaging Materials (2); Paper (6); Petroleum; Petroleum Products (4); Plastics; Plastic Products (2); Plastic Sheet; Polyester Garments (2); Polyethylene Bags (5); Polyethylene Film; Resins; Steel (5); Steel Pipe and Fittings; Steel Products (5); Textiles; Tomatoes; and Transportation Costs.

Commodities Down in Price

No commodities are reported down in price.

Commodities in Short Supply

Cotton (4); Cotton Products; Laptop Computers; and Servers.

And respondents:

• "Business conditions [remain] unchanged. No supply impact from the Japan earthquake/tsunami, but continue to track with the supply base." (Management of Companies & Support Services)
• "Revenues are picking up slowly, but the growth is positive as compared to last month and the same month last year." (Real Estate, Rental & Leasing)
• "Looking forward with reserved caution. Cost of goods by this fall are a big worry." (Accommodation & Food Services)
• "Continuing economic uncertainty will curtail or delay project spending for the immediate future." (Educational Services)
• "Fuel prices continue to be challenging and in addition to shipping, are influencing the cost of materials." (Public Administration)
• "We are seeing price increases in many areas, and the lead times are stretching out. Our business activities are improving at a moderate rate." (Wholesale Trade)

Zero Hedge is now upgrading its keyword for 2011 from staglation to hyperstagflation

ISM Disappoints, Underscores Rising Input Costs

Stocks are now almost back to flat (green line on 15 minute chart, top left). Perhaps this disappointment is responsible.

excerpt from Zero Hedge:

The April ISM is out, and while it confirms last week's declining Chicago PMI data and the fact that the Japanese contraction has not even remotely impacted US businesses yet (and it will), the recent weakness predicted by various Fed diffusion indices is being confirmed. The ISM came at 60.4, a decline from 61.2 in March, primarily a a result of a fall in Production (-5.2), New Orders (-1.6) Supplier Deliveries (2.9) and Imports (-1.0). All of these metrics will drop far more once the Japanese contraction is truly appreciated.

Manufacturing Beats Estimates

This is good, but is a slight beating of expectations worth 17 points for the S&P 500?

from Zero Hedge:
The January ISM Manufacturing M/M 60.8 vs. Exp. 58.0 compared to the previous print of 58.5. Yet the key metric that everyone is focusing on is the surging Price Paid number, which hit a 2 year high 81.5 (73.5 expectations): the highest since July 31, 2008! The corporate margin collapse is about to cripple Q1 numbers, and at this point it is only a matter of time before even sell-side analysts are forced to aggressively lower their S&P EPS estimates.

ISM Internals Were Ugly!

So inflation and inventories were up? And today, factory orders were down, which harmonizes with the build in inventories! Not good!

from ETFGuide.com:

By, DARYL MONTGOMERY Oct 01, 2010 The headline number for the September ISM Manufacturing index didn't indicate how bad the report's internals were. Consumer income was up in August due to extended unemployment benefits. The budget deficit for 2010 is supposedly going to be only $1.3 trillion, although more than this amount was already borrowed by the federal government by August. Altogether the 'good' news on the economy has actually been pretty bad lately.

Consumer income had a nice rise in August thanks to extended unemployment benefits (not regular unemployment benefits). The final budget deficit figures for fiscal year 2010 have been leaked and the U.S. is supposedly only in the hole for a massive $1.3 trillion. The ISM manufacturing index came in at 54.4 and the  the mainstream press is citing a strong manufacturing sector as the reason the U.S. stock market had its best September since 1939.  Altogether, the news could be summed up as 'stupidity you can believe in'. By almost every measure except the headline number, the ISM report was a disaster. The highest number inside the report was prices paid, an inflation measure, which came in over 70. Prices apparently went up a lot in August. This component had the biggest increase by far, which wasn't difficult because only one other component went up - inventories. Inventories usually pile up because sales are slowing down. The negative big gains were more than matched with negative big losses in the report. Order backlogs, supplier deliveries, employment, and the production components all had big drops. Well, that certainly should have led to a big stock market rally all right. As for the supposed improved budget deficit figures, as of this August, $1.377 trillion dollars had already been borrowed to fund the federal government in fiscal year 2010. This number would have been $115 billion larger (for a total of $1.492 trillion) if there hadn't been 'financing by other means'.  Financing by other means had a big increase in August and is projected to have another big increase in September. There are also substantial 'off budget outlays'. See http://www.fms.treas.gov/mts/mts0810.pdffor the August Treasury report on 2010 fiscal year spending. Makes you wonder if the U.S. government is using the Enron Accounting Manual to do its books. Finally, some people might argue that an economy that is dependent on extended unemployment benefits for increased consumer spending could just perhaps be somewhat troubled. Few if any of these people write for the mainstream press of course, which generally treated the news of an increase in consumer income and a rise in the savings rate to 5.8% as just more rosy news. If this is such good news, obviously the U.S. should institute ultra super extended unemployment benefits. After all, look at what these policies have done for Europe – riots in the streets and turmoil in the bond markets. The euro has been rising though and obviously this must be due to improved manufacturing in the U.S., if you follow the logic of the mainstream press.  If not, you might just conclude that there is a whole bunch of government manipulation of the markets going on.  Disclosure: No positions. Daryl Montgomery Organizer, New York Investing meetup http://investing.meetup.com/21

Something Smells Fishy With the ISM

from Zero Hedge:

Digging beneath the surface of today's ISM report revealed a complete economic disaster: bad components (Inventories and Price) were up, while good ones (Orders and Employment) were down, as we pointed out at our first view of the ISM. What this implies, as John Lohman highlights, is that the "best" indicator - Orders less Inventories, plunged lower. As John explains: "Statistically, orders minus inventories leads ISM composite by 3 months (i.e., the highest correlation is at lag 3).  Even when smoothed 3 months (slowing it down), orders minus inventories leads EPS estimates, and below 5 typically means a peak or plateau (and by definition therefore a slowing growth rate) in earnings estimates."

We are now well below 5, and looking at historical precedents, the market is now certainly due for a correction, which would definitely occur if the Fed would finally leave the economy alone for at least one second. But no, as Jim Grant earlier stated so eloquently, the Fed is now "lethally" ingrained in all sorts of intervention and manipulation of the US economy, and the only way the two can separate from each other is through the implosion of either, or both. And since the parasitic Fed is far more powerful than even the host country it has invaded for the past 97 years, we have a bad feeling it will be left standing long after America has been brought to ruin.

Service ISM Causes a Pause in the Rejoicing

from Fox Business:

Wall Street remained in positive territory Friday afternoon, leaving the Dow on track for its best pre-Labor Day week in two decades, as the markets focused on a stronger-than-expected jobs report rather than a gloomy service-sector index.
Today’s Markets
As of 12:30 p.m. ET, the Dow Jones Industrial Average rose 71.60 points, or 0.69%, to 10391.78, the S&P 500 gained 8.50 points, or 0.78%, to 1098.60 and the Nasdaq Composite picked up 19.48 points, or 0.88%, to 2219.42. The FOX 50 added 5.02 points, or 0.64%, to 792.30.
While the markets were still solidly in the green and on track for a rare four-day winning streak, the Dow had been up as much as 130 points before the weaker-than-expected service-sector data. After initially rallying, economically-sensitive stocks like General Electric (NYSE:GE) pared their gains and crude oil turned sharply negative.
This week’s rally, which is on pace to become the Dow's best pre-Labor Day performance since 1990, has largely been sparked by new data on labor, manufacturing and home sales that, while still weak, suggest fears of a double-dip recession may have been overblown. Wall Street has also received a boost from the latest M&A action, including Friday’s $3.4 billion acquisition of Australia’s Andean Resources by Goldcorp (NYSE:GG).
Most of the Dow's 30 components were solidly higher Friday morning, led by Caterpillar (NYSE:CAT), JPMorgan Chase (NYSE:JPM) and Boeing (NYSE:BA). The index's worst performers were defensive plays AT&T (NYSE:T) and Verizon (NYSE:VZ).
The Nasdaq Composite outperformed the broader markets, gaining 1% as technology stocks like SanDisk (NASDAQ:SNDK) and Amazon.com (NASDAQ:AMZN) rallied.
U.S. markets began their ascent immediately after the Labor Department said the U.S. lost 54,000 jobs in August, beating forecasts from economists for a loss of 100,000 jobs. The government also said the U.S. added a stronger-than-expected 67,000 private-sector jobs last month, further boosting market sentiment. The unemployment rate ticked up 0.1 percentage points to 9.6% as job seekers reentered the labor markets and the government sharply cut its job-loss estimate from July.
While Friday’s jobs report significantly beat consensus forecasts and Wall Street’s low expectations, it is important to remember the labor picture remains very gloomy. At the end of the day, fewer people held jobs in August than did in July and the fact the U.S. is still losing jobs at this point of the recovery is discouraging.
In contrast to this week’s stronger-than-expected reports, the Institute for Supply Management said service-sector growth slowed down in August. ISM’s non-manufacturing index slid from 54.3 in July to 51.6 last month, missing forecasts for 53.0. A reading above 50 indicates expansion. Digging into the report, the business activity and employment components stood at their lowest levels since January and the new orders components fell to December 2009 levels.
After initially rallying on the jobs report, crude oil turned sharply negative. Crude was recently down $1.33 a barrel, or 1.77%, to $73.69. Copper sank 0.01% a pound to $3.4950. Gold dropped $1.80 a troy ounce, or 0.14%, to $1,251.60.

ISM Index Drops, But Less Than Forecast

WASHINGTON (MarketWatch) -- Activity among the nation's manufacturing firms in July slowed to the worst level since December, according to a closely followed survey of top executives released Monday.

The Institute for Supply Management's manufacturing index fell to 55.5% in July from 56.2% in June. This was above the 55.0% expected by economists surveyed by MarketWatch but the third decline in succession. See calendar and forecasts of all major U.S. indicators.
Stocks added to their climb after the report was released because the headline was better than expected.

Service Sector Contracting Again

from Mish Shedlock:

Inquiring minds are reading the November 2009 Non-Manufacturing ISM Report

Economic activity in the non-manufacturing sector contracted in November after two consecutive months of expansion, say the nation's purchasing and supply executives in the latest Non-Manufacturing ISM Report On Business®.

What Respondents Are Saying ...

• "Capital markets remain very tight; lenders are not releasing funds for development projects, limiting expansion." (Accommodation & Food Services)
• "Fourth quarter still looking grim, but potential upturn for Q1 2010." (Professional, Scientific & Technical Services)
• "No one trusts that the recovery is real. Seems everything and everyone is in a holding pattern." (Public Administration)
• "Business is still flat." (Wholesale Trade)
• "U.S. business remains better than 2007 levels, although it's been through personnel and cost reductions that we are now profitable. Business continues to be about 8 percent below 2008 levels." (Real Estate, Rental & Leasing)

Non-Manufacturing ISM History

Is This A Recovery?

Take good look at the chart immediately above. After sloshing around $trillions in bailouts and stimulus packages the NMI could barely get above break-even and topped in September.

New orders are up, but much of that is front-loaded government stimulus efforts. With government spending and reflation efforts by central bankers worldwide, it should not be surprising to see prices rising. Yet, employment is not confirming the pickup in business activity.

Double Dip Recession Warning

Paul Krugman is waking up to a possibility that I think is nearly a given. Please consider Double Dip Warning.

I’ve never been fully committed to the notion that we’re going to have a “double dip” — that the economy will slide back into recession. But it has been clear for a while that it’s a serious possibility, for two reasons. First, a large part of the growth we’ve had has been driven by the stimulus — but the stimulus has already had its maximum impact on the growth of GDP, will hit its maximum impact on the level of GDP in the middle of next year, and then will begin to fade out. Second, the rise in manufacturing production is to a large extent an inventory bounce — and this, too, will fade out in the quarters ahead.

I’d be more sanguine about all of this if there were any indications that private, final demand is taking off — consumers, business investment, whatever. But I haven’t seen anything suggesting that sort of thing.

The chances of a relapse into recession seem to be rising.

Stimulus Fades

Krugman mentioned a couple of articles that show the fading effects of fiscal stimulus. Please consider Job Cuts Loom as Stimulus Fades

Highway-construction companies around the country, having completed the mostly small projects paid for by the federal economic-stimulus package, are starting to see their business run aground, an ominous sign for the nation's weak employment picture.

Tim Word, vice president of Dean Word Co., a heavy-construction company in New Braunfels, Texas, said his income is now coming mostly from projects that are winding up. He said that in normal times he has about $100 million of signed contracts in hand. But that number has fallen to $30 million, and the pipeline is empty. In the past two years, his work force has shrunk nearly 40% to 260 from 420.

"Having something to bid on is the lifeblood of the industry, and it's running out," said Mr. Word. He isn't sure what will happen next year without new projects. "There's no pavement fairy that's going to help."

No Economic Fairies

Not only are there no pavement fairies, there are no fairies of any kind. The idea that Keynesian work projects can stimulate the economy back to a lasting recovery is loony. Japan proved that for two decades, but Keynesian clowns still insist it's just a matter of throwing more money around until something good happens.

Nothing good happened in Japan from Quantitative Easing or Keynesian stimulus efforts and nothing good will happen in the US from them either. The problem is debt and the cure is paying off that debt, not going deeper into it.

In the meantime prepare for the double-dip or an economic flatline at best because that is how the signs are pointing.

Business Gets Worse, Says ISM Survey

from Bloomberg:
U.S. business activity contracted at a faster pace than forecast this month as orders and employment dropped.

The Institute for Supply Management-Chicago Inc. said today its business barometer decreased to 34.9 from 40.1 in April. Readings below 50 signal a contraction.

The report ran counter to others this month that indicated manufacturing was starting to improve this quarter, perhaps signaling that Chicago’s proximity to the auto slump in neighboring Detroit may be affecting the entire Midwest. Still, private economists have scaled back forecasts for economic growth in the second half of the year.