The Conference Board index roars!

The Conference Board index roars!

The Conference Board headline index is up over the past four months so vigorously that it is the second largest four-month climb in the 405 month history of the index (nearly 24 years).

While the durable goods index may have raised some questions today the Conference Board report has blown away any fears we might have that recovery was going to start slipping away.

Even so the details of the confidence survey show that there is still a lot of work to do

 

Buying plans are uniformly weak. They are- cut anyway you want to - in the bottom single digits of their respective queues and not much better in terms of their historic high-low range standings.

On balance the economy is stirring we see consumer confidence in the U of M framework is improving the Bloomberg weekly survey is near a four-year high and the Conference Board survey now has joined the good-news club. Expectations for jobs are now in true normal territory. Income expectations are, however, poor and buying plans are even worse.

While there are some clear and decisive improvements there is still a long ways to go. Still this report is encouraging.

Durable goods sound the first loud sour note

It is a much weaker-than-expected durable goods report. 

New orders fell by 4% after rising by 3.2% and 4.2%. So the impact on the growth rate for orders is not going to be severe. The lesson may be that the economy is not yet building that real head of steam more than it is...oh, no the bottom is falling out. Don't be Chicken Little looking down. 

Indeed, except for the folk at ECRI who still have their recession call in place few will want to extrapolate this one observation. The fact is that the regional PMIs in force this month are still upbeat. MFG surveys (PMI and diffusion indicators for February, not just January) are still very upbeat. 

All four of the regional Fed releases (now available) are stronger in Feb than they were in January - the durable goods data draws form January. But the outlook portion of those surveys is lower in than in Jan for three of four of those reports. Even so the outlook readings are still relatively strong and certainly solid.

At the end of the day the durable goods report is volatile and it is keeping its 'good name' in the clear on that score this month. 

Three month growth rates for shipments, orders, unfilled orders, and for inventories are still accelerating - not just growing- over three months compared to six months. For ex-transportation the picture shifts- there the growth rates are all (almost all) positive but all are decelerating and the outright three-month orders growth rate is now negative. Excluding defense all growth rates for those categories are positive and are accelerating. For nondefense capital goods all growth rates are positive and accelerating except for shipments which are declining over three months and decelerating compared to six months.

These are hardly disaster statistics.

Overall sequential growth rates mostly show acceleration over the past year. Ex transportation most growth rates show continuing deceleration over the past year - but only for orders is the three-month pace negative as we mentioned above. 

Trends are lower for machinery with several of the sequential order growth rates negative (sequential rates: 12-mo, 6mo, 3-mo). Trends for computers are lower and negative across several of the key categories. Trends for communications equipment are mixed with a number of negative readings. Trends for transportation and vehicles are mostly positive and steady.

Sales are still growing faster than inventories in 57% of the industry categories over three months. So inventories are NOT building up, Inventory to sale ratios are not climbing.  Also over three-months: Shipments growth is positive in 71% of the categories, New orders growth is positive in 57% of the categories, unfilled order growth is positive in 85% of the categories and inventory growth is positive in 71% of the categories. Categories ( Primary metals, Fabricated metals, Machinery, Computers and electronics,  Electrical equipment, Transportation equipment, all other durable goods) 

Because durable goods is so volatile we will want to see what happens next month. Is this month a re-calibration of data that had been too strong over the past two months or is there some encroaching weakness?

Finding three month net declines in Machinery orders and in electrical equipment orders, key US export categories, is something that makes me wonder if we are seeing some effect for slower growth abroad. 

New Week New Hope: from Greece to GDP

With the Greek bail-out restructuring going through the ‘i’-dotting and the “t’-crossing stages some attention has switched to the community action clause (CAC) and to the reality of bonds issued under different legal jurisdictions. Our comment last week addressed some issues regarding bonds issued under differing legal jurisdictions.it turns out that there is a group of Greek bonds that were issued under English law instead of local Greek law; they are trading at a much higher value than Greek-law bonds. Still getting paid may take some time.

The point that is most relevant there is that local jurisdiction bonds simply do not afford the same protections as those issued under the usual international domains. That so many bonds were issued in this way and got bought just the same is another example of how poorly thought out the euro-Zone framework really was.  And that many other EMU members have a lot of local jurisdiction bonds trading in markets represents further systemic risk.  What Greece has done, others can do… Other countries could pursue novel schemes to redress their debt issues once this Greek ‘thing’ is settled. The European debt situation is far from over and Greek has just gotten a short term fix, not a long term solution.  It’s not Re-hab; it’s a fix.

ooo

European GDP data continue to show yr/yr growth rates are decelerating across the board. But the US GDP growth is on a different pattern; it is accelerating.

The next two weeks are filled with key reports and will put the hypothesis of an accelerating US economy to a strong test.

This week offers up the first revision to the GDP released (called the preliminary GDP estimate). Several MFG surveys are on tap, the ISM the Chicago and Dallas Fed surveys. Durable goods orders, and consumer confidence from the Conference Board, round things out.   And there are important gauge on personal income, the personal spending report, and the PCE that the Fed now dual-mandate assesses. The DMA for the PCE-deflator is 2% Yr/yr. We are going to have to watch and see how the Fed handles its own shift of emphasis to the headline PCE. 

So the week sets up some interesting metrics on income consumer spending manufacturing and construction. We are impressed that a wide variety of indicators continue to show progress. We expect it will continue in …the week ahead.

Attention in this week will shift to the US after the carping dies down about the lack of progress among finance ministers this past weekend.

Get me to the Greek..maybe not

Beware of Greeks Buried by 'Gifts'
I don't know about you, but Greece is getting to me.


50 ways to leave your lover- so why stay like this?
I can't imagine how so many countries and international institutions can get together to put together a deal that is so expensive and yet...achieves so little.

Why can't we live together?
Anyone who is doing any analysis of this program speaks about how much more is going to have to be done even given the optimism of the current baseline is for the plan. Greece's future remains highly suspect. This looks more like the beginning of an exit plan than a real effort at relief.

The Arrow Smith Clause: Dream on
The main mission of the plan is to see that Greece will service its debt in the future. The debt in this deal will be senior to any other debt that Greece might take on while this plan is in force.  That provision will make it easy for Greece to raise any new funds from the private sector, won't it?

Eve of Destruction...what Greece must do
Greece as to have funds set aside for three-months of debt payments. 

Greece will have an oversight board. 

Greece will install a system to track funds' sources and uses...it doesn't have that now? 

My favorite things...What Greece gets
Note all the positive factors to help Greece on this list. Note the development money that is streaming in from Germany and from the European Development Bank. Note the funds for retraining workers. Note the currency depreciation that will make Greece more competitive. Note the tax breaks for capital investment in Greece. Note that everything I have said in this paragraph is MISSING from the real plan.

Border Song
This is not a plan for Greece. This is a plan to try and make sure that the banks are repaid. And before you say well-gosh- those banks took big debt mark-downs, note (note for real) that the Greek government bonds were only marked somewhere close to market value.  The bonds are much better marked relative to mark-to-market value after this deal than they were before mark to Euro Can't-Default-Sovereign debt standards (eCDS).

Borderline
AND now everyone is talking about Portugal.

If you don't know me by now...
For anyone in Portugal that is hoping to get half the deal that Greece got just look at the destruction that was wreaked upon Greece before it was offered what is still barely a modicum of help. The lesson here is that you will pay dearly for any benefits for the Germans are intent on eradicating 'moral hazard'. Unfortunately, that also means imbuing each participating country with morale hazard.


Get me to the Greek..deal? I don't think so: STAY AWAY!