The news was something less than a surprise. In fact, factory orders for July dropped less than the consensus predicted, according to TheStreet.com. No matter, the stock market wasn’t much in the mood to celebrate. The S&P 500 closed down modestly today. The bond market, meanwhile, took the other side of the sentiment trade by bidding up the price of the 10-year Treasury. The yield on the benchmark bond fell sharply by the end of Tuesday’s session, settling at 4.1%, the lowest since July 11.
Some saw it coming. Last week’s news that durable goods orders crashed by 4.9% in July sent an advance warning of today’s factor-orders report.
The bigger issue before the court of fear and greed is whether the manufacturing speed bump that the economy hit last month is the start of something bearish, or just one more pause.
One reason for skepticism that something dark is about to descend is today’s other news: consumer confidence this month rebounded after July’s fall. “Consumers appear to be weathering the steady rise in gas prices quite,” says Lynn Franco, director of the Conference Board’s Consumer Research Center.
Ah, but there’s a glitch (as there always is): the survey was taken no later than August 23. Since then, crude oil prices rose by nearly 8% as of today’s intraday close and Hurricane Katrina yesterday dropped a costly path of devastation in New Orleans and surrounding areas. That includes the closure of oil platforms, refineries and pipelines along the Gulf Coast, reports CBS/AP.
“This is an extremely serious situation,” says Tom Kloza of Oil Price Information Service of the problems in the Gulf’s energy infrastructure. A shutdown of gasoline production of this magnitude comes at the “worst possible time,” given that the high season for driving is underway as we write. Traders in gasoline futures were quick to agree, and so bid up the prices for September futures by nearly 20% today—yes, 20% in one day!
Will the energy shock convince consumers to rethink the shop-till-you-drop mindset that’s kept the economy from the jaws of recession in past years? Only time will tell, but meanwhile there are clues to decipher. “It is important to look at what consumers are doing, not what they are saying,” Mark Vitner, senior economist at Wachovia Securities, tells AP via BusinessWeek. “And consumers are already starting to cut back on discretionary purchases.”
Ours is a moment of testing the economy, probing its resilience, and weighing Joe Sixpack’s capacity for spending. If he can survive the latest threat to sentiment and optimism, there’s no telling how much debt he can rack up on top of his already copious pile of liabilities. But for the moment, “if” is the operative word.