Here we go again: Another batch of economic updates and another round of disappointment. That sums up the latest numbers released this morning via the ADP Employment Report and the ISM Manufacturing Index. In both cases, the trend has taken a turn for the worse. The bad news arrives on the heels of yesterday’s discouraging trio of economic reports. Stepping back and considering the latest updates suggests that we’ve entered a nasty pattern for macro news.
Major Asset Classes | May 2011 Performance Update
Bonds in the U.S. and emerging markets, along with REITs posted gains last month while stocks and commodities retreated. That’s no surprise, given the renewed worries for economic growth. Meanwhile, our proprietary Global Market Index (GMI), a passively weighted mix of all the major asset classes, shed 1.1% in May.
Three Economic Reports, Three More Reasons To Worry
A trio of economic reports released this morning bring fresh clues about the outlook for the macro trend, but all three offer only more reason to wonder if the economy can maintain positive momentum in the months ahead.
Strategic Briefing | 5.31.2011 | U.S. Housing Market
Home Prices in U.S. Probably Kept Falling as Housing Absent From Recovery
Bloomberg | May 31
U.S. home prices probably slumped in March by the most in 16 months, indicating residential real estate will keep weighing on the expansion, economists said before a report today… “Weak demand and a deluge of discounted sales of distressed properties have weighed significantly on prices,” said Aaron Smith, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “It’s hard to be enthusiastic about the economy’s prospects as long as house prices are falling.” A backlog of foreclosures poised to reach the market means prices may stay depressed, dissuading builders from taking on new-home construction projects.
Book Bits For Saturday: 5.28.2011
● I Am John Galt: Today’s Heroic Innovators Building the World and the Villainous Parasites Destroying It
Summary via publisher, Wiley
Inspired by Ayn Rand’s characters in Atlas Shrugged
Consumer Income & Spending Rise In April, But Warning Signs Persist
Disposable personal income and personal consumption spending rose last month, the U.S. Bureau of Economic Analysis reports. But after adjusting for inflation, the nominal rise fades to zero for income and posts only the smallest of increases for consumption. As such, today’s income and spending report is likely to give bears and bulls something to chew on.
New Jobless Claims Rise By 10,000 Last Week
Today’s update on initial jobless claims suggests that the recovery is at risk of stalling. Indeed, the April surge in new filings for unemployment benefits warned as much. Although the surge has moderated this month, the data appears stuck in a range that implies weak economic growth at best.
New Durable Goods Orders Tumble In April
New orders for durable goods suffered a hefty fall last month, dropping 3.6% in April on a seasonally adjusted basis, the Census Bureau reports. That’s the biggest monthly slide since last October’s 3.7% retreat. This isn’t news we want to hear right now, given renewed worries of an economic slowdown. What’s more, there’s no statistical hiding spot: April’s drop in new orders was broad based. But the trend is still positive on an annual basis, and that counts for something. Indeed, given the unusually high rate of recent gains on a rolling 12-month basis for new orders was destined to slow and so it’s not terribly surprising to see a bit of red ink.
Strategic Briefing | 5.25.2011 | Will There Be A QE3?
QE3 Has Already Started
OilPrice.com | May 24
The new QE3 is the “RISK OFF” trade. QE2 ended up pouring $600 billion into stocks, commodities, oil, gold, and silver. Since April 29, the prospect of slowing economic growth has prompted this hot money to take flight and bail from these assets classes. Think of it as the same $600 billion stampeding into risky markets, doing a 180, and then stampeding right back out against. Where is all this money going? Into the Treasury bond market. We have in fact been in new bull market for bonds since February, taking the yield on the ten year Treasury down from 4.10% to 3.10%. If the current “RISK OFF” trade continues, or even accelerates, we could see ten year yields down to 2.0%-2.5% by the end of the summer.
Is The Core Inflation Concept Rotten?
St. Louis Fed President James Bullard recently attacked the concept of core inflation, which excludes volatile food and energy prices. The “core is rotten,” he argued in a speech last week. “One popular argument for focusing on core inflation is that core inflation is a good predictor of future headline inflation,” he said. “I think this is wrongheaded, as well as wrong.”