miercuri, 25 noiembrie 2015

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis


On the Verge of Consumer Exhaustion

Posted: 25 Nov 2015 12:25 PM PST

Fourth Quarter GDPNow Forecast Sinks to 1.8%

Following today's personal income report in which consumer spending rose only 0.1% month-over-month, the Atlanta Fed GDPNow Forecast for fourth quarter declined by 0.5 percent to 1.8 percent.



"The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2015 is 1.8 percent on November 25, down from 2.3 percent on November 18. The forecast for the fourth-quarter rate of real consumer spending declined from 3.1 percent to 2.2 percent after this morning's personal income and outlays release from the U.S. Bureau of Economic Analysis."

The latest Blue-Chip forecast for early November was 2.7%, a highly unlikely number at this stage unless season spending picks up big time.

Reports show stores are not discounting merchandise as much as consumers like, and consumers generally expect to spend less, so odds of a hefty jump in Christmas sales is questionable.

We may know more next week when reports on Black and Blue Friday become available.

4th Quarter GDP Trends



Consumer Exhaustion 

The initial 4th quarter GDPNow forecast started at 2.5% on October 30. It rose as high as 2.9% following the auto sales and jobs reports. It's pretty much been downhill since then.

Wholesale trade, retail trade, existing home sales, all knocked off points.

Today's Personal Incomes and Outlays Report knocked off a half percentage point even though wage growth was substantial.

Many signs point to consumer exhaustion.

Back-to-school spending was weak, housing starts have been weak, existing home sales are weak, manufacturing has been weak, recent spending reports have been weak, and Christmas sales appear "tepid" at this point.

Auto sales have been the one consistently bright spot, in this otherwise treading water economy, but what cannot go on forever, won't.

Mike "Mish" Shedlock

Personal Income and Outlays: Income Hits Estimates, Spending Disappoints; Optimism Reins Supreme

Posted: 25 Nov 2015 10:49 AM PST

Today's Personal Income and Outlays shows consumer spending once again on the "soft side" despite solid income growth.

Income was in-line with expectations of a 0.4% gain. However, spending came in with an anemic  0.1% gain month-over-month. The Econoday Consensus Estimate for consumer spending was 0.3%, in a range of 0.2% to 0.5%, so economists once again were way overoptimistic.

Moreover, the core PCE (personal consumption expenditures) price index, the Fed's preferred inflation measure, came in at 0.0% whereas the consensus estimate was 0.2% in a range of 0.1% to 0.2%. The PCE price index was another big miss for economists.
Highlights

The core PCE is the Fed's most important inflation reading and it is not showing rising pressure, coming in unchanged in October, vs an expected gain of 0.2 percent, with the year-on-year rate at 1.3 percent which is also unchanged. Consumer spending also proved soft, up only 0.1 percent vs expectations for a 0.3 percent gain. Spending shows flat readings across categories including only a small gain for services which usually are strong.

The income side is better, hitting expectations at a 0.4 percent gain with wages & salaries showing an outsized gain of 0.6 percent. And the outlook for future spending is solid with a strong 3 tenths rise in the savings rate to 5.6 percent.

Turning back to inflation readings, the overall PCE price index remains nearly dead flat in a reminder that fuel prices remain very low and should give a boost to durable spending during the holidays. The PCE price index is up only 0.1 percent, vs Econoday expectations for a 0.2 percent gain, with the year-on-year rate at a very telling and extremely low plus 0.2 percent.

Though income data in this report do point to consumer strength ahead, the spending data are not a strong start at all for the fourth quarter. These results, especially the core price readings, will not lift the odds for a December rate hike.

Recent History Of This Indicator

The core PCE price index is the Fed's favorite inflation reading and Econoday expectations are calling for a 0.2 percent gain in October in what would be substantial enough to further build expectations for a December rate hike. Readings on personal income and personal spending are also expected to rise, at respective consensus forecasts of plus 0.4 percent for the former, reflecting wage and workweek gains in the October employment report, and plus 0.3 percent for the latter in what, combined with steady incremental gains in service spending, would be in line with gains for core retail sales. 
Another Overoptimistic Forecast

All-in-all this was another hugely overoptimistic estimate by economists. Wage gains were in-line with expectations, but wage gains are easy to forecast given data that comes out of monthly job reports.

For more on perpetual overoptimism, please see Persistent Overoptimism Three Ways: Truckers, Fed Economists, Manufacturers

Mike "Mish" Shedlock

Black and Blue Friday Coming Up

Posted: 24 Nov 2015 11:48 PM PST

Tomorrow is Thanksgiving. Black and Blue Friday will follow, putting U.S. Consumers and Stores in Face Off Over Discounts.
A Reuters/Ipsos survey found more people planned to cut holiday spending than increase in every category surveyed: clothing, jewelry, electronics, food and toys, and that 46 percent felt they could wait longer in the season to buy because of faster shipping.

Appliances, entertainment items, infant products and hardware showed narrowing discounts, MarketTrak reported, while promotions for apparel, toys and electronics were getting bigger.

Kurt Jetta, head of retail industry researcher TABS Group, found the discounts underwhelming.

"The fact that retail has been so weak coming in to the season would suggest they may need to ramp up efforts to make up for this later," Jetta said. Consumers were cautious going into the holidays, with sales at Macy's, Nordstrom Inc and Best Buy missing expectations in recent quarterly results. Target's online sales fell due to a drop in demand for electronics.

The Reuters/Ipsos survey of 4,639 adults from Nov. 12-23 found 28 percent of consumers expected discounts of 50 percent or more on most items, 36 percent hoped to see promotions of at least 33 percent while 49 percent expect a minimum discount of 20 percent on most products.

A survey for Boston Consulting Group found 70 percent of consumers would spend the same or less as last year, describing the consumer outlook as "tepid."

"Consumers have been trained to know that they can wait, and they will wait and that will force the retailers to continue to be promotional," said Joel Bines, managing director at AlixPartners.
Unreliable Polls

Polls are notoriously unreliable. Typically consumers spend more than they expect, on junk they do not need and cannot really afford.

Yet, manufacturing reports have been dismal, and retail sales tepid other than autos.

The recovery is also very long in the tooth, with the Fed poised to hike interest rates.

All things considered I expect a very weak holiday shopping season. If so, someone is sure to be blue. Will it be retailers or shoppers with buying hangovers? I suspect both.

Black and Blue Fighting

There is always a stampede or two over the latest craze toy or hot promotion that will be thrown into the ashcan six months from now. And someone lands a punch every year, in fights over who had their hands first on the last discounted thingamabob.

The best way to face the hustle and bustle of black and blue Friday is to not face it at all. I recommend a hike, a bike ride, a walk in the park, or golf if weather permits.

Mike "Mish" Shedlock

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