Friday, April 9, 2010


I got the "idea" today to google "signs + economy" in Google News. The results were what I expected. Signs of an economic recovery are everywhere:

Stocks Gain Early on Signs Economy is On Steady Track to Recovery

Oil up above $86 on signs of stronger US economy

Stocks rise on more signs of growth; Dow tops 11K

TREASURIES-10Y yield hits 4 pct on signs economy picking up

Are You Seeing Signs of Economic Recovery?

Copper Jumps to 20-Month High on Signs Economy Will Help Demand

MPC holds rates steady as economy shows gentle signs of life

Signs, signs, everywhere a sign... Seven "signs" sightings in Results 1 – 10 of about 11,346 for Signs + economy. If "signs" were all it took to commence an economic recovery, we'd be partyin' like it was 1999 today.

And then, as the markets closed for the week, the biggest "sign" of them all appeared at the top of Yahoo's financial page:

Dow Breaks 11,000, Closes Just a Few Points Short- AP
Fresh signs that the economy continues to recover sent the Dow briefly above 11,000 for the first time in 18 months, but the index ended the day below the mark.

With so many "signs" that the economy is recovering, I am shocked it took this long for the DOW to reach 11,000. But then 11,000 is just a number, and this recovery is just an illusion.

"He that lives upon hope will die fasting."
-Benjamin Franklin

Data Point Deceptions and the Lackluster Recovery
By Eric Fry, The Daily Reckoning
“Private payrolls turned in a respectable 123,000 gain [in March],” observes economist David Rosenberg. “This was the third [private sector] increase in a row and brings the cumulative gain to 147,000. But let’s keep in mind that the comparable findings from the ADP survey are far different – down 23,000 in March and down 255,000 in the past three months.

“If you go back to the last jobless recovery,” Rosenberg continues, “it was not rare to see such a divergence, but in the end, only when both measures were rising in tandem was it safe to call for a sustainable economic expansion – both rose together each and every month from August 2003 to June 2007. But in the sketchy period of 2002 and 2003, there were multiple months where private payrolls in the nonfarm payroll survey were solid at a time when the ADP failed to ratify (October 2002, December 2002, January 2003, May 2003), and each time the ADP got the call right…

“Now, we are not going to dismiss the BLS data,” Rosenberg cautions, “but wouldn’t it be nicer if both surveys said the same thing? The ADP is a pretty simple concept – and does not have any ‘plug’ factors to try and assume how many new businesses were created or destroyed in any given month.”

Rosenberg’s analysis reminds us that honest data points sometimes produce powerful deceptions. Based on data points like GDP growth and “Core CPI,” the US economy is producing non-inflationary growth.

Conversely, based on data points like U6 unemployment; Consumer Spending, before changes in the savings rate and; CPI, excluding rents, the US economy is producing more inflation than genuine growth.

The “U6” measure of unemployment, which includes “underemployed” and long-term unemployed laborers, rose to a record-high 16.9% of the workforce in March. Not surprisingly, therefore, the “recovery” in consumer spending we have been reading so much about is a complete fantasy. “US consumer spending in the first quarter was higher,” Rosenberg points out, “[only] because the savings rate slipped to 3.1% from 4.7% at the end of last year… without that unsustainable decline in what is already a low personal savings rate, consumer spending would have actually contracted 0.4% in January and 0.6% in February.”

Yet, despite these real-world indications of sluggish economic activity, inflationary forces are gaining strength. Yes, yes, we know, that’s not what you’re hearing on CNBC. But here’s the skinny: the headline CPI numbers are subdued because the housing market is flat on its back.

About 30% of the CPI calculation derives from an estimate of residential rents that – more or less – reflects conditions in the residential real estate market. (To see the scintillating details of this calculation for yourself, click here). So when the housing market is weak, so are the estimates of “owners equivalent rent,” which represents about one quarter of the CPI calculation. (A separate “rent” estimate contributes another 5% to the CPI calculation).

Generally speaking, the residential rent estimates track closely with other components of the CPI calculation. But that has not been the case lately...

Instead, the headline CPI number, which includes residential rents, indicates that inflation is nearly nonexistent. However, the CPI calculation that excludes residential rents shows a very different picture. In fact, this calculation shows that inflation has been rising at a 3% clip since the end of 2007, despite the fact that the economy has been recessionary throughout most of this period.

To be sure, deflation in the residential real estate market is genuine deflation. So we are not discounting the value of this metric. On the other hand, the 70% of the CPI that measures the cost of the goods and service is telling us that inflation is far from dead. The bond market is telling us the exact same thing.

Like trying to fill a teacup with a fire hose, the Fed has directed massive quantities of new dollars and cheap credit into an economy that cannot efficiently utilize it. As a result, “too much money will chase after too few goods and services,” to cite Milton Friedman’s timeless definition of inflation.

That’s why bond yields are heading higher, no matter what the economy does from here.

And I thought bond yields were heading higher because of "signs" the economy is recovering. Bond yields are heading higher because the Fed and US Treasury are printing money as fast as they can spend it. Not because the economy is recovering. The "signs" however, remain persitent.

Initial jobless claims increase unexpectedly
WASHINGTON (AP) -- The number of newly laid-off workers seeking unemployment benefits rose last week, a sign that jobs remain scarce even as the economy recovers.

The increase also may result from the difficulty the Labor Department has in seasonally adjusting the claims around the Easter holiday, which falls on different weeks each year.

"This is ... a volatile time when the numbers move around quite a bit," a department analyst said.

The Labor Department said Thursday that first-time claims increased by 18,000 in the week ended April 3, to a seasonally adjusted 460,000. That's worse than economists' estimates of a drop to 435,000, according to a survey by Thomson Reuters.

California also closed its state offices for a holiday on March 31, which likely held down the claims figures. On an unadjusted basis, claims rose by 6,500 to nearly 415,000.

Initial claims have dropped four out of the past six weeks and many economists say they are likely to soon resume their decline.

"Not everything goes in a straight line," Jennifer Lee, senior economist at BMO Capital Markets, wrote in a research note. "Definitely not the claims data."

What's this, a "bad" sign? Oh my! This is of course old news by now, but I posted it here to draw attention to the "excuses" given for the "unexpectedly" bad number. Pathetic...

Consumer borrowing falls $11.5 billion in February
WASHINGTON (AP) -- Consumer borrowing fell again in February, reflecting weakness in credit cards and auto loans. Analysts said the sharp reduction showed that the weak economy is still making consumers hesitant to take on more debt.

The Federal Reserve said Wednesday that borrowing declined by $11.5 billion in February, surprisingly weaker than the small $500 million gain that economists had expected. The February decline was the 12th decrease in the past 13 months as consumers slash borrowing in the face of a deep economic recession and high unemployment.

Analysts said consumer borrowing is being held back by lingering fears about job security with unemployment still near 10 percent and a move by banks to tighten credit standards following the severe financial crisis of the past two years.

Christopher Rupkey, an economist at Bank of Tokyo-Mitsubishi in New York, said the job worries were a bigger factor holding back borrowing than the tighter lending standards.

"Consumers are still cautious. Their wealth is down from pre-crisis levels and they are still finding it difficult to get a job," he said. "Their caution means this recovery is still fragile."

In January, borrowing rose by $10.6 billion, a gain that had broken a record 11 consecutive declines. While that increase was revised up from an original estimate of a gain of $5 billion, the revisions showed even larger declines in previous months.

"This was a disappointing report, showing that households are continuing to pare back credit," economists at Barclays Capital wrote in a research note.

This headline news and revelation did not get the respect it deserves from the financial news media. Why? Because it blows huge holes in their "signs of recovery" story. Look, our economy is based on the "buy now, pay later" system. That system has all but been destroyed. No growth in credit, no recovery. It is really that simple. 70% of the economy relies on some form of consumer spending. Stories about retail sales growth are just that, stories. Data manipulation can lead you to believe whatever the manipulation sets out to reveal.

March retail sales jump, post record growth
NEW YORK (Reuters) - Top retail chains posted a record rise in monthly same-store sales for March, helped by an early Easter holiday and an improving job market, in the strongest sign yet of revived consumer demand.

Sales at stores open at least a year rose 9.1 percent in March, the largest monthly jump since Thomson Reuters began tracking results in 2000 and ahead of Wall Street estimates of a 6.3 percent increase. More than 90 percent of 28 retailers tracked beat expectations.

Executives at retailers from department store operator Macy's (NYSE:M - News) to discounter Target Corp (NYSE:TGT - News) warned on Thursday that the huge jump in March would come at the expense of April sales.

But analysts and economists focused on trends for the combined two-month period, saying underlying consumer spending was accelerating after six months of modest growth.

Oh, another 'sign"! Spectacular! This sign appears a bit conflicted however, and in light of the drop in consumer credit we will chose to dismiss it as more hot air. Remeber that retail spending figures track receipts, and not volume of goods sold. Rising prices contribute more to this growth in retail sales than those reporting it would like you to believe.

There were "signs" that Gold and Silver broke from their consolidations this week. Gold sliced through resistance at 1134, 1145, and tested 1161 today. Silver launched out of it's consolidation this week clearing 17.90. We will look at these breakouts closely this weekend.


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