John Bougearel
Because the August Economic data was upbeat, what did economists do with their expectations for the September Economic data. After they thought about it long and hard, they raised their month over month expectations.
Geez, Louise, sometimes, it seems that collectively economists are the dumbest people on earth. I used to reserve that moniker for psychologists. There was no way in hell that the data points in September were going to “improve” over August once the gov’t stimulus programs were clearly either going to lose their steam or were ending month over month.
First up, existing home sales for August (July would be seasonal peak sales that the economists missed) well below raised expectations and well below July (seasonal peak) sales.
As for the rate of change in the declines in the Case-Schiller Home price index in July, here is what Moody’s Economy.com had to say about that in their existing home sales summary for August. “The potential that the coming onslaught of foreclosures will send the housing market back down into a tailspin is thus also a downside risk for the broader economy’s emerging recovery.” The pipeline of foreclosures coming is a Tsunami according to Mark Hanson Advisors. “When tsunamis build the tide (foreclosures) rolls out for a protracted period of time while the sea (foreclosures in process) swells. Due to foreclosure prevention efforts the sea of foreclosures in process has swollen larger than ever.”
“Loans in the delinquency and default pipleline are the leading indicator.” That is, the Notices of Delinquency (NOD’s) and Notice of Trustee Sales (NTS).
So, economists first strike last week was their raised expectations for existing home sales. There second strike came today with regard to their raised expectations for the Sept Consumer Confidence report. Not only did Consumer Confidence not meet expectations, they failed to improve month over month., consumer confidence was higher in August. Say it ain’t so, Joe.
Hah! How did Moody’s Economy.com summarize the September Consumer Confidence? They said the Sept consumer confidence report shows that “consumers remain deeply depressed.” Notably, consumer expectations fell too as the gov’t cash-for-clunker program ended. Consumer job expectations worsened significantly as well. The number of consumers seeing jobs plentiful dropped to its lowest level since 1983. They are getting wind of the ideal that this “economic recovery” is going to take place without them for the foreseeable future and that this jobless recovery will be much worse than the 2003-04 jobless recovery.
Next up is the Sept ISM report on Thursday Oct 1. Here again, economists are apt to overshoot their expectations on the upside. August ISM improved to 52.9 beating economist expectations of a print of 50.5. With the cash-for-clunkers program in July and August, we saw somewhat of a parabolic curve in the recent ISM index to the upside.
So, what did economists do? Why they raised their expectations for the September ISM to 54.0, to get ahead of the parabolic curve. I’ll take the under once again, thank you very much. They see the curve, but fail to understand why it is parabolic. The curve went parabolic due to the cash-for-clunkers that ended August 24. “New orders increased from 55.3 to 64.9, their highest level since 2004. This is the third time in four months that new orders have been above their expansionary threshold of 50. The improvement in final demand, freer credit, and the rise in business sentiment are boosting new orders… The downturn in manufacturing is giving way to a recovery, supported by slower inventory liquidation, increased vehicle production, freer credit, and increased foreign demand… Motor vehicle production is providing a big boost to manufacturing in the current quarter. The success of the so-called cash for clunkers program… should ensure that motor vehicle production is strong into the final three months of this year.
It remains yet to be seen if motor vehicle production will remain strong in the final quarter. The jury is out on that. Vehicle sales for September are expected to decline to a 28 year low of 8.8 million according to Edmunds.com.
I am ready to call strike three on economist raised expectations as early as Thursday’s Oct 1 September ISM report. To Moody’s Economy.com’s credit, they did note the following: “The support from surging vehicle production will be temporary, and a self-sustaining rebound in manufacturing output hinges on an improvement in final demand. A greater than expected retrenchment in consumer spending late this year and early next would weigh on business sentiment…”
The inventory rebuild may be a boost to Q4 mfg numbers, and we will watch closely for that rebuild to peak in the coming months in response to the greater than expected retrenchment in consumer spending that we all know is coming without further govt programs to induce consumer spending.
Sources: Mark Hanson and Moody’s Economy.com
