Wayne Wile, After Houses and Cars, What’s Left?

As I wrote back on March 26, there is no better indicator of the health of the US economy than housing. Not that it should be so important. But America is a consumer society and housing is the biggest ticket item there is for most people.

On March 21, we got the existing home sales data for February. Demand for housing shocked to the downside. Existing home sales fell 7.1% with all segments of the market showing weakness. Median prices fell 1.4%. Econoday noted that the numbers were “much lower than expected.”

Well, there is one other asset just as important to the US economy as houses…cars. And cars are now looking sick. Something is not right in auto-land. Inventory is rising rapidly and the all-important inventory-to-sales ratio is verging on panic territory. Obviously, the manufacturers have been stuffing the wholesale channel to get their sales up. Now, they are going to pay the price. If you know a car dealer personally, consider rounding up his guns before he does something stupid.

Inventories at the wholesale level are the worst we have seen since the Great Recession. Here’s the 25 year seasonally-adjusted chart of wholesale inventories for the month of February from Jeffrey Snider of Alhambra Partners:


The inventory problem is the direct result of a serious setback in overall motor vehicle sales. Surplus inventory is not going to be solved by increased sales which are actually tanking (see chart below).

Total Vehicle

What’s even more concerning is that vehicles have been about the only bright spot in an otherwise depressed US manufacturing sector. Peaking in October and November at a seasonally adjusted annual rate of 18.6 million units, sales have dropped by an astounding 9% to just 16.9 million in March, with sales falling 1 million units in March alone. As these numbers filter into the data on industrial production and durable goods, markets are going to be shocked.

Vehicle and housing sales are the key factors to watch now. They are clearly signalling a US recession dead ahead. When the market figures that out, you will not want to be holding US equities.


Wayne Wile, Jobs: Quality means more than quantity

Political commentators seem unable to understand why Bernie Saunders and Donald Trump have managed to tap into such rage among average American voters. The talking heads just assume the headline economic numbers reported by Wall Street are real. The economy is fine and getting finer, right? Wrong, and Americans know it.

One of the great lies is in the monthly jobs report. It’s not that the headline numbers are made up. The problem is what the numbers don’t tell you…that the new jobs are mostly not good jobs. That is why household incomes are not growing, average families are slipping behind in their bills and people are getting frustrated and angry. It’s a problem of quality.

Since March 2011 — five years ago — the U.S. economy has added 12.4 million jobs. Here’s where two-thirds of them can be found:

  • 2.2 million in “leisure and hospitality,” including 1.8 million in “accommodation and food services”
  • 2.6 million in “education and health services,” including 2.1 million in “health care and social assistance”
  • 1.4 million in “retail trade,” including 300,000 in car dealerships and 260,000 in “food and beverage stores”
  • 1.3 million in ‘”administrative and waste services”

In the main, these are not good-paying jobs. To raise a family, you may need at least two of them, and many workers have more than one job. They are offsetting quality with quantity.

Where do the people taking these jobs come from? Often, from better paying jobs such as in manufacturing where the layoffs continue.

As shown in the chart below, in the past month 29,000 manufacturing jobs were lost. This was the single biggest monthly drop in the series going back to December 2009.

monthly change

As the predominance of red over green clearly shows, the manufacturing jobs lost in the Great Recession have not come back. And since the start of 2015, 24,000 manufacturing jobs have been lost compared to an increase of 365,000 food service workers. If Americans did not eat out every day, many of them wouldn’t be working either.

Last month, nearly every laid-off manufacturing worker seems to have found a job as a waiter. In March, workers in the “Food services and drinking places” category, waiters– bartenders and cooks– rose to a new record of 11,307,000 workers, an increase of 25,000 in the month, just about offsetting all the lost manufacturing jobs.

Here’s the chart:


If I went from earning $25 an hour in manufacturing to a minimum wage job at the local diner, I would be voting for Trump too.

Chart Source: zerohedge.com

Wayne Wile; Q1 GDP Expectations Continue to Sink

Readers will be familiar with the GDPNow estimates published regularly by the Atlanta Federal Reserve. These estimates have been the most accurate out there, quarter after quarter. The latest forecast for Q1 GDP is just 0.4%, despite the most benign winter weather in decades.

You may remember that the “polar vortex” phenomenon was said to have been the reason for lower GDP in Q1 of 2014 and even 2015. This year, you can expect that the unseasonal warmer weather will be the excuse for poor growth because it has suppressed parka sales and home heating and utility revenues. You heard it here first.

This latest markdown in GDPNow estimates for Q1 reflects another set of weak economic reports. If you are keeping score at home, here are the reports the Fed says are responsible for taking down their forecast from just under 2% on March 15 to 0.4% today:

  • On March 21, existing home sales plunged a surprising 7.1%.
  • On March 23, new home sales showed a distinct lack of momentum.
  • On March 24, durable goods order fell 2.8%, much more than expected.
  • On March 28, a surprisingly weak household income report signalled weaker consumer sales on the way.
  • On April 4, factory orders fell 1.7% and capital goods orders surprised to the downside by 2.5%.
  • On April 5, the trade deficit unexpectedly widened.

The result of this run of terrible data is clearly evident in the chart below:

Evolution of Atlanta Fed

Wake up and smell the recession, people. This is no time to buy the S&Ps.

Wayne Wile, Capital Goods: Another Sign of Weakness

Every time the U.S. economy burps up a slightly better number, the bulls do a little dance and declare an end to the current weakness. The recovery is back, they say. They have been doing this routine for seven years now. But every time, the next number to come out is down and their hopes are squashed. I marvel at their resilience.

The latest example is the February Factory Orders report from the U.S. Census Bureau. Factory Orders for January were originally reported as up 1.6%. The period of manufacturing weakness is over, said the bulls. But today’s release of the February numbers took it all away. January was revised down to a gain of 1.2% while February recorded a drop of 1.7%. Net-net, the decline continues.

Here’s the evidence:

Wayne Wile

As you can see, the ship is sinking. There is no recovery here.

What’s worse is the capital goods component of the report. Leaving out defense spending and aircraft orders, the Durable Goods report provides valuable insight into capital spending. Orders for Core Capital Goods fell 2.5 percent in February, pointing to continuing trouble for business investment. Core Capital Goods were down year-over year for the 12th consecutive month. The last positive reading was for January 2015. Month-over-month, shipments fell for 8 straight months.

How can you have an economic recovery without business investment?

One of the narratives you here from the bulls is that we can have a manufacturing recession without a recession in the economy as a whole. Really? Look at this chart and tell me we aren’t heading toward a 2008-style recession all over again.


Chart Source: Mishtalk.com