Mish's Global Economic Trend Analysis

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Durable Goods Orders "Unexpectedly" Sink; How did Economists Blow the Call? Posted: 28 Jul 2010 11:47 AM PDT I cannot help but laugh at economists who refuse to see the economy is slowing dramatically, and somehow think manufacturing is going to lead the way to recovery. Check out this headline on Bloomberg prior to the durable goods report: Orders for Durable Goods in U.S. Probably Rebounded in June July 28 (Bloomberg) -- Orders for durable goods probably increased in June for the sixth time in the past seven months, showing business spending is supporting the U.S. recovery, economists said before a report today. Bookings for goods meant to last at least three years rose 1 percent after dropping 0.6 percent in May, according to the median of 76 projections in a Bloomberg News survey. Excluding transportation gear, orders may have grown 0.4 percent. "Business spending, particularly for capital equipment, is holding up," said Ken Mayland, president of ClearView Economics LLC in Pepper Pike, Ohio. "Ordering is strong as companies ramp up and resupply." Federal Reserve Bank of Philadelphia President Charles Plosser said July 26 that there is fundamental strength in the economy. "I think there is underlying strength there that is still there," Plosser said in an interview with Bloomberg Television in Washington. In the Bloomberg survey, the median and average forecasts were for an increase of +1%. The high forecast was a preposterous 4%. Excluding transportation, the median forecast was +.4% and average +.2%. Individual Forecasts 1.5 Percent or Greater Barclays Capital +1.5% BNP Paribas +4.0% Citi +1.6% Desjardins Group +2.0% High Frequency Economics +2.0% J.P. Morgan Chase +1.7% Janney Montgomery Scott +3.2% Landesbank Berlin +2.8% Nomura Securities Intl. +3.0% PineBridge Investments +2.5% Raymond James +2.0% RBC Capital Markets +2.3% Ried, Thunberg & Co. +1.5% Thomson Reuters/IFR +2.9% Wrightson Associates +1.5% Individual Forecasts Below Zero Percent 4CAST Ltd. -.5% IHS Global Insight -0.8% MF Global -1.0% Morgan Keegan & Co. -0.5% The Actual Report Inquiring minds are reading the Advance Report on Durable Goods Manufacturers' Shipments, Inventories and Orders June 2010 New Orders New orders for manufactured durable goods in June decreased $2.0 billion or 1.0 percent to $190.5 billion, the U.S. Census Bureau announced today. This was the second consecutive monthly decrease and followed a 0.8 percent May decrease. Excluding transportation, new orders decreased 0.6 percent. Excluding defense, new orders decreased 0.7 percent. Transportation equipment, down four of the last five months, had the largest decrease, $1.1 billion or 2.4 percent to $45.9 billion. This was due to nondefense aircraft and parts, which decreased $1.8 billion. Shipments Shipments of manufactured durable goods in June, down two consecutive months, decreased $0.7 billion or 0.3 percent to $195.0 billion. This followed a 0.7 percent May decrease. Computers and electronic products, down four of the last five months, had the largest decrease, $1.3 billion or 4.1 percent to $31.3 billion. Capital Goods Nondefense new orders for capital goods in June decreased $1.1 billion or 1.6 percent to $64.1 billion. Shipments increased $0.6 billion or 1.0 percent to $63.2 billion. Unfilled orders increased $0.9 billion or 0.2 percent to $486.6 billion. Inventories increased $1.3 billion or 1.0 percent to $128.1 billion. Defense new orders for capital goods in June decreased $0.7 billion or 6.8 percent to $9.6 billion. Shipments decreased $0.1 billion or 1.5 percent to $9.8 billion. Unfilled orders decreased $0.2 billion or 0.1 percent to $139.6 billion. Inventories increased slightly or 0.1 percent to $17.9 billion. Stunningly Bad Report That was an across the board stunningly bad report. Note that it is impossible to blame defense spending and transpiration spending for the miss. Those categories, especially defense can be extremely volatile. Check out computers: Computers and electronic products, down four of the last five months, had the largest decrease, $1.3 billion or 4.1 percent to $31.3 billion. Does that explain why Intel did not light up the tech sector? I think so. Look at the forecasts again. There are many names the average person has heard of in the list of those blowing the forecast. Most would not recognize the names of the the few who got it right. Flashback Wednesday, July 14, 2010: Expect Second-Half Housing and Durable Goods Crash Those who think manufacturing is going to lead the way to a sustainable recovery need to think again. Data suggest durable goods sales are about to collapse. .... Pundits everywhere seem to think Intel will jump-start a further stock market rally. Articles are everywhere you look. They said the same thing in April, and look what happened. In contrast, I see little fundamental reason for business spending to pickup from here, and no technical reason to think anything other than Intel's blowouts are more than priced in. So, if consumers are not going to be buying appliances (or cars according recent surveys), and if commercial real estate is going to remain in the dumps, technology spending is likely unsustainable, and states will be laying off workers to balance budgets, pray tell where is the second half growth or jobs coming from? Here's a hint: Don't expect miracles from further stimulus either. The current Congress is not much in the mood and the next Congress is likely to be downright hostile to significantly more deficit spending. All things considered, earnings estimates and the stock market are both priced well beyond perfection, as are forward GDP estimates. In light of Consumption Inflection Point - No One Wants Credit; Consumer Spending Plans Plunge I do not think the durable goods call was difficult. Apparently it was. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Billboard Battle in Michigan - Police Scare Tactics Posted: 28 Jul 2010 10:48 AM PDT The police union in Bay Michigan has resorted to scare tactics threatening more violence and masked terrorists if the city suspends a handful of police officers. Please consider Billboard Protest of Police Layoffs in Michigan Fuels Public Safety Debate Police officers in Bay City, Mich., are being called domestic terrorists after renting billboard space to trumpet that the layoffs of five police officers in the town could lead to more shootings, stabbings, robberies and beatings. The police say they paid for the two billboards that went up last week to bring attention to the impasse in negotiations between its union and city officials, who are seeking a 10.8 percent reduction in labor costs from eight unions to tackle a $1.66 million budget deficit for the fiscal year that began July 1. The billboards also spotlight the city's decision to replace the roof on city hall for $1.6 million. "City Hall's Roof Will Not Stop You From Getting: Beaten, Shot, Stabbed, Robbed. 5 Laid Off Bay City Cops Could Have!" one billboard reads. The other one shows a masked gunman and reads, "POSSIBLE. The result of Bay City Commissioners laying off five police officers." "I think it's distasteful and harmful to the community," Commission President Christopher Shannon told FoxNews.com. "I don't know what they wish to gain as far as good faith negotiating. I think it really drives a wedge somewhat between those of us who are trying to come up with reasonable compromises and those that are on the other side of it." The city reached a deal with the firefighters' union before the deadline of June 30 and says it is on the verge of inking contracts with three other unions that would reduce labor costs. But the police asked for a raise during its round of negotiations, Shannon said. "As it turned out, as deadlines approached no one had really made any meaningful progress so we had to issue layoffs," Shannon said, noting that the city is bound by state law to present a balanced budget by June 30. "It wasn't the best option, but the only option we had given the fiscal pressures we were facing." Shannon said if the billboards are to be taken seriously and the police force believes it has lost its ability to protect and service, "it really forces me as commission president in Bay City, Mich., to put together a committee to explore contracting services out to the sheriff's department" and other local law enforcement agencies. "If they cannot do their job…we have to consider alternatives to provide public safety," he said. Police are upset that the city spent $1.6 million fixing the roof on city hall. That sounds like a hell of an expensive roof for a city of approximately 34,000. However, a roof is a onetime fix, and raises granted to unions last forever. Without being there it is difficult to accurately access the roof. However, it is easy to weigh in on police scare tactics and absurd pension benefits. Once again, if the union had any concern for residents it was supposed to protect, it would not be running these ads and it would accept pay cuts to protect jobs. The action by Bay City police is very similar to the MTA union running ads showing Iranian Terrorists. If you missed it, please see Transit Union Plays Nuclear Terrorist Card. I commend the statement by commissioner Shannon threatening to outsource the police department to the local sheriff's association. Indeed, government should opt to provide the most services at the least cost, not the fewest benefits at the most cost. Public unions invariably do the latter. Outsourcing to the sheriff's association would save a huge amount of money, enough to allow Bay City to have more officers for less money, so that is exactly what it should do. If you live in Bay City, it is important to stand up to the police thugs attempting to extort more of your dollars via tax increases. Please call the mayor and the city council and ask them to outsource the police department. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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