Waning Confidence

March Consumer Confidence: -8.3.  Consumer confidence vanished; falling through expectations (66.9) to 59.7 while February’s reading was also revised 1.6 points lower.  A shot across the strengthening economy’s bow, this report suggests that consumers are not as resilient to higher gas prices, pay-roll tax increases or sequestration uncertainty as initially expected.  Consumer spending has accelerated this year as consumers became more confortable with the economy, increasing household wealth and surging stocks prices.  This drop erases January’s gain and brings the report just points away from a 2-year low.  Within the report, a steep decline in consumer expectations accounted for most of the headline drop, as consumer’s income, employment and business outlook worsened.  Nevertheless current conditions also weakened, as the net amount saying business conditions are good dropped while the net amount saying jobs are hard to get increased.

This drop was not without warning, as the past 2 weekly Bloomberg Consumer Sentiment reports (see March 14 & 21) declined while the University of Michigan Sentiment gauge (See March 15) took its largest dive since 2011.  A fundamental shift in confidence is at root, threatening this year’s strengthening economic growth.

  • Present Situation:                                           57.9           -3.5
  • Expectations:                                                 60.9           -11.5
  • 1 Year inflation Expectations:                        5.5%*        -.2%     *lowest since July


Twin Peaks

2007 Today
10 Year Yield: 4.64% 1.90%
High Yield: 8.5% 6.6%
VIX: 17.5 14
Gold: $748 $1575
Dollar / Yen: 117 93
Unemployment: 4.8% 7.9%
Size of Fed Balance Sheet: 0.89T $3T
Consumer Confidence: 99.5 69.6
Gas: $2.76 $3.74
Mortgage Rates: 6.38% 3.53%
Student Loans: $590B 1.074T


January NFIB Small Business Optimism (or Pessimism)

Small business sentiment never really picked up from its 2009 lows and is now heading back down.

Small business sentiment never really picked up from its 2009 lows and is now heading back down.

NFIB January Small Business Optimism: +0.9.  Despite the small increase to 88.9 last month, confidence among small business owners remains near the lowest levels in this report’s 40-year history.   And while expectations for business conditions did gain 5 points to -30%, this still marks the 4th lowest reading for this gauge.  Rising taxes, higher health insurance costs and increasing regulations are killing confidence.  The frequency of capital spending rose 3 points to 55%, a level considered ‘maintenance mode.’  This level is only slightly better than those in the great depression, and combined with a bearish outlook, cap ex will continue to muddle through 2013.

Inflation and employment shine, as 43% of owners are hiring or trying to hire.  More owners reported net hiring than reductions and a lack for qualified applicants for open positions was also noted.  Similarly inflation remained in check, with a net 2% of sellers raising their average prices.  Unfortunately inflation remained controlled for all the wrong reasons: overcapacity and weak demand.  Coupled with recently weak consumer confidence reports, this NFIB report paints a bleak picture for sustainable growth in retail sales and capital spending.

CBRE February US, Europe & Asia Pacific Outlook

CBRE: US Europe Asia Pacific. Within the report divided into 3 continental regions, Asia-Pacific wins the 2013 outlook, primarily based on strong Chinese industrial production, bank loans fixed investment.  Exports from the smaller industrialized economies are growing as well, while Australia and Japan have more problems to deal with.

In the US, growth is expected to continue just like in 2012 with the notable changes confidence and housing.  Consumer confidence being the primary concern even though retail sales were robust last year  (4.7% overall, 4.4% ex-autos & gas).  Housing’s recovery can now be titled ‘sustainable’ while manufacturing is lagging and the service sector is doing rather well.

Obviously Europe is the worst of the 3 regions, and while confidence and manufacturing are at depressed levels, there is signs that the recession is bottoming out.  Still no sign on employment improvements however, that chart still goes straight down. The ratio of new orders to inventories hit a 11 month high, signaling a production rebound as demand from the US and China pull Europe form its malaise.