Bellwether CAT Sales Decline 23%

Caterpillar is the world' largest manufacturer of industrial equipment, so when sales decline, it's an indicator of global economic weakening. Even still, a decline that large, of 23%, is a huge red flag!

Barclays Macro Data Surprise Index Continues Slide

Stocks, after being higher all night, have just gone into the red:

Data Divergence

John Hussman has been predicting precisely this kind of data divergence in anticipation of the next stock market correction. 

Morgan Stanley's David Greenlaw addresses this in a recent note to clients:

There has been an unusual divergence in the data flow in the US. Last week, our tracking estimate of Q1 GDP slipped all the way from +2.2% to +1.0% in response to disappointing reports on durable goods, construction spending and personal consumption. At the same time, jobless claims continued to improve, consumer sentiment showed a decent pickup, chain store reports were positive, and motor vehicle sales surprised to the upside. The sharp divergence between the GDP arithmetic and better-than-expected performance from a range of indicators is unusual, but not unheard of. Most importantly, the economy's underlying growth trend still seems to be in the neighborhood +2.0% – consistent with both the +3.0% outcome seen in Q4 and a +1.0% tracking estimate for Q1.

Other economists who have had to make some big revisions to their GDP estimates include Goldman's Jan Hatzius who last week revised his Q1 GDP estimate from 2.4 percent to 2.3 percent, then again to 2.0 percent.  Bank of America also recently cut its estimate from 2.2 percent to 1.8 percent.

More Disappointing Data

Not to worry, however. Wall Street is ignoring the bad news and has rallied out of the starting gate.  News, data, and analysis are irrelevant. We have printed prosperity now! Pollyanna Party on, Wall Street!

from Zero Hedge:

Not surprisingly, the personal household weakness continues into May, when both personal income and spending came lower than expected, the first printing at 0.3% on expectations of 0.4%, in line with a revised 0.3% in April, while spending printing coming unchanged in May on expectations of a 0.1% rise, down from a revised 0.3% in April. Most important was that the PCE deflator increased by the most since late 2009, surging from 2.2% to 2.5%, just as expected. Squatters rent component of income once again increased: "Rental income of persons increased $3.3 billion in May, compared with an increase of $2.9 billion in April." More importantly, "Private wage and salary disbursements increased $14.1 billion in May, compared with an increase of $26.4 billion in April." This in line with observed decline in tax withholdings by the government over the past several months. Net result, in May the savings rate increased modestly from 4.9% to 5.0%, much to the chagrin of spending advocates everywhere, as in addition to deleveraging, US consumers also saved more. And this is before the market flush in June...
Savings rate:

And here is Goldman's disappointed take on the numbers:
MAIN POINTS:

1. Personal spending fell short of expectations, remaining unchanged in nominal terms but falling 0.1% in real terms. Moreover, the level of real spending in April was revised down. Real personal spending in the first quarter is tracking at 1% or just below, compared with the latest Q2 assumption of 1¼%. This implies a bit of downside risk to our 2% GDP growth estimate for the second quarter. Personal income also fell short of consensus expectations in May, rising 0.3% from a downward-revised base. The saving rate increased by one tenth to 5.0%.

2. The price components of this report contained few meaningful surprises. The increase in the core index was a bit above our expectation (+0.26% versus 0.24%). The year-to-year trend accelerated to 1.2%, as expected