Economic Data Review - Piling it On

10 Pounds for a 5 Pound Bag

Our economic data review of last week's reports illustrates the overwhelming and continuous flow of evidence for double-dip recession

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Economic Data Review

The weekly barrage of economic data continued to pile on to the case for a double-dip recession last week. The harsh economic reality beat down hopeful strategists and forecasters with truth. It's an ugly truth, unfortunately, but it's what we must deal with. This latest week's data dumping included more signs of slowing in manufacturing, housing, consumer sentiment and labor. Policy makers, corporate leaders and investment professionals are once again learning that you cannot fool the market with rhetoric for long. She is efficient at processing data, and eventually, each and every one of them must bow to the truth.

Friday sealed the deal, with the release of the Employment Situation Report. While the unemployment rate was reported decreased, to 9.5% in June, from 9.7% in May, nonfarm payrolls noted a net loss of 125K jobs, as temporary census workers completed their work and were let go. Private payrolls, excluding the public sector, added 83K jobs in June, short of the consensus forecast for 105K. More importantly, the size of the workforce was reported lower, while those considered marginally attached and discouraged increased by more than 400K. Those 400K plus folks are not counted as unemployed by the government’s reading, and are taken out of both the numerator and denominator in the unemployment rate calculation; this has the effect of understating true unemployment. While the President found a microphone lickety-split, the market was not buying in to the supposed good news. (Interests NYSE: RHI, NYSE: KFY, NYSE: MAN, NYSE: MWW, NYSE: JOB, NYSE: JOBS, Nasdaq: CECO.)

Meanwhile, data from other ends of the spectrum seemed to all weigh against the case for continued recovery. The Institute for Supply Management (ISM) reported on manufacturing activity for the month of June Thursday. The Purchasing Managers Index, at 56.2%, marked the 11th month of expansion, and the reading implies economic expansion of 14 straight months. And that's where the good news ends... You see, the truth is that while 56.2 represents expansion (>50%), it also marks a decrease in pace from May's 59.7% reading. Furthermore, it is the lowest reading since December 2009. Simple logic tells you that before you shift into reverse, you are likely to slow down, and for the behemoth US economy that's usually the case as well. (Interests NYSE: GE, NYSE: UTX, NYSE: DHR, NYSE: HON, NYSE: WHR, NYSE: TM, NYSE: HMC, NYSE: F, NYSE: MMM, NYSE: PPG, NYSE: IX.)

The truth is that we will be mired in it for some time, because we have 9.5% unemployment to contend with and greater than 16% underemployment. With that many people out of work, or out of enough work, overall spending simply cannot keep growing. Indeed, last week Consumer Sentiment was also reported dramatically lower in June, with the Conference Board's Index falling nearly 10 points to 52.9. Economists will tell you that employment is a lagging indicator. That may be the case in a typical economic cycle, but not in the likes of this last catastrophe. The difficulty of climbing out of this laboring labor hole should prove historic, and the unemployed a weight against recovery. And now that it looks as if overseas drivers of demand will not hold up either, well then it's not a far stretch to forecast a slippage back into economic contraction here in the US. (Interests: NYSE: WMT, NYSE: JCP, NYSE: M, NYSE: CHS, NYSE: TGT, NYSE: JWN, NYSE: AEO, NYSE: ARO, NYSE: LTD, Nasdaq: COST)

Investors will note that domestic motor vehicle sales were also reported lower Thursday, which further perpetuates our concerns. At an annual rate of 8.4 million vehicle sales in June, Ford Motors and friends will be getting that bad taste in their mouths again. Sales were down from May's 8.9 million rate, and they also missed economists’ expectations for the same. With the Pending Home Sales Index dropping 30% for May, Factory Orders falling 1.4%, and with Weekly Jobless Claims jumping back up to 472K, we see no reason to party, let alone buy stocks now.



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