Mish's Global Economic Trend Analysis

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Sentiment as a Measure of Health of the Economy; Sentiment Theory vs. Practice Posted: 14 Aug 2015 12:10 PM PDT The University of Michigan consumer sentiment numbers came out today. Sentiment is down again this month, albeit slightly. Yet, confidence remains at a lofty level. Economists claim high sentiment numbers are good news for retail spending. Economists also claim  the high confidence numbers is a reflection on the overall health of the domestic economy. Sentiment Theory vs. Practice Let's take a look at that theory starting with the Bloomberg Consensus Estimate of the University of Michigan sentiment numbers. Consumer sentiment is little changed so far this month, at 92.9 for the mid-month August reading vs 93.1 for final July. An early indication on August's consumer sector comes with the current conditions component which is nearly unchanged, at 107.1 vs July's 107.2. This hints at steady strength for consumer spending this month. The expectations component, which offers indications on the employment outlook, slipped 3 tenths to a still solid 83.8. Inflation readings are also little changed and have yet to reflect the ongoing price collapse for oil, at 2.8 percent for 1-year expectations, which is unchanged, and 2.7 percent for 5-year expectations which is down 1 tenth. Consumer confidence readings are down from their highs earlier in the year but are still very solid and a reminder that unemployment is low and that the domestic economy is healthy. Definition The University of Michigan's Consumer Survey Center questions 500 households each month on their financial conditions and attitudes about the economy. Consumer sentiment is directly related to the strength of consumer spending. Consumer confidence and consumer sentiment are two ways of talking about consumer attitudes. Among economic reports, consumer sentiment refers to the Michigan survey while consumer confidence refers to The Conference Board's survey. Preliminary estimates for a month are released at mid-month. Final estimates for a month are released near the end of the month. Having taken a look at what economists claim, let's investigate the accuracy of those claims. Consumer Sentiment vs. Retail Sales Sentiment has a tendency to rise due to population growth. So instead, let's focus on year-over-year changes in sentiment vs. year-over-year sales growth. Consumer Sentiment vs. Retail Sales (Percent Growth from Year Ago) Consumer Sentiment as Measure of Sound Economy Proven Bullsheet The idea that spending follows consumer sentiment is proven silliness. The idea that confidence readings are a sign of a healthy economy are as ridiculous, if not even more ridiculous. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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.

Industrial Production Jumps on Surge in Auto Production; Revisions and Seasonal Adjustments in Play Posted: 14 Aug 2015 10:41 AM PDT Industrial Production Jumps Industrial production numbers for July, released today, beat the Bloomberg Consensus Estimate of 0.4% by 0.2 percentage points. However, June industrial production was revised lower by 0.2 percentage points from 0.3% to 0.1%. Moreover, June manufacturing was revised to -0.3% from an initial reading of 0.0%. A 10.6 percent surge in motor vehicle production gave a very significant lift to industrial production which rose 0.6 percent in July. The manufacturing component, which has been flat all year, jumped 0.8 percent. Excluding vehicles, however, manufacturing rose only 0.1 percent. The lack of strength here is the result of business equipment which edged only 0.1 percent higher after declining 0.2 percent in June. The rise in production drove capacity utilization up 3 tenths to 78.0 percent which is where it was back in April. Capacity utilization for manufacturing rose 5 tenths to 76.2 percent. The two non-manufacturing components are mixed. Production at utilities, due to July's cool weather, fell 1.0 percent with capacity utilization down 8 tenths to 79.1 percent, while mining production rose 0.2 percent with capacity utilization down 1 tenth to 84.4 percent. Weak foreign demand and weakness in the energy sector may be hurting much of the industrial sector but these factors are not at play in the domestic auto industry. The readings in today's report are mixed but the headline gain, driven by the convincing strength for autos, is an eye catcher and will certainly be ammunition for the hawks at next month's FOMC meeting. Revisions and Seasonal Adjustments in Play The revisions lower last month followed by the surge this month suggests some significant seasonal adjustments and/or one-time production shifts in play. Auto Production Strength Cannot Last Autos remain in the spotlight. But record, or near-record auto sales cannot last forever. Today's strength will be tomorrow's weakness. When auto sales turn for good, the resultant numbers will likely be shockingly bad. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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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