Has the Recession Arrived?

[unlawflcombatnt]

Monthly Factory Orders increased only 1% for the month of February, much less than the +1.8% increase predicted. This follows January's decline of -5.7%. January's Factory Orders decline was the biggest in 6 years. Over the last year, Factory Orders are down -1.1%. Excluding transportation orders, February orders declined -0.4%, following January's -2.5%. This was the 6th month out of the last 7 that ex-transportation orders have declined. February's total factory orders of $386 billion marks a 5% decline since December's seasonally-adjusted $406 billion.

Even some of the previously bullish experts are expressing newly found "concerns." Today's Factory Orders (http://www.briefing.com/Investor/Public/Calendars/EconomicReleases/facord.htm) report from Briefing.com statesÂ*Â*"The downward trend in factory orders is tuning in to a real economic concern. The struggling auto and housing sectors add to the softening in business capital investment as business confidence is fading with weak economic growth." They've also expressed a new concern for declining demand, as evidenced by their bolded statement "lack of demand is the heart of the manufacturing concern....." (At long last, some of the market experts are acknowledging that someone has to buy goods if they are going to be produced, and that unpurchased goods don't help the economy. Hallelujah!)

Despite this month's small increase in Factory Orders, the long term trend is clearly downward. This can be seen from the 3 graphs below from Briefing.com.

http://www.briefing.com/Common/Images/Content/PageContent/EcData/ndur.gif

http://www.briefing.com/Common/Images/Content/PageContent/EcData/ndcgxair.gif

http://www.briefing.com/Common/Images/Content/PageContent/EcData/fom2m.gif


The Durable Orders decline has been even worse than overall Factory Orders decline. The recently reported Durable Goods Orders increase for February was revised from March 28th's previously stated 2.5% down to a 1.7% increase on April 4th.Â*Â*Comparing the last 3 months' total (December, January, & February) for Durable Orders with the same 3 months from the previous year, Durable Goods Orders are down 4.7%, from a 3-month total of $663 billion to $631 billion. This can be seen from the combined, modified charts below from the Census Bureau's April 2007's Factory Orders report and March 2006's Durable Goods report. (April 2007's report is on the top, March 2006 is on the bottom. Durable Goods Orders are underlined in red.)

http://i27.photobucket.com/albums/c190/unlawflcombatnt/4-4-07grphDurOrdrCensX.gif

The American manufacturing sector is clearly in recession. A rapidly declining housing sector, combined with a subprime meltdown that is metastasizing to other financial sectors, makes it difficult to see how this can be called a "strong" economy. It's even more difficult to see how the overall economy won't drift into a recession (if it's not in one already.)

unlawflcombatnt

Economic Populist Forum (http://www.unlawflcombatnt.proboards84.com/)

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_________________
The economy needs balance between the "means of production" & "means of consumption."

[jafar00]

The manufacturing sector has already posted data suggesting a recession there. Today's jobless data from the US didn't help matters either as the US$ dropped nearly 1c against the Euro on the release of the data.

[speedracer]

I think people are in a bit of a hurry to declare the recession. It's been just over the horizon for years now. I don't think we're in line for a boom in the next decade, but I don't see the data supporting contraction either.

[firefox]

Boom? I highly doubt it. Imminent recession? Perhaps, but it will be gradual. The trend is down, adjusted for inflation, but I don't think it will suddenly tank over a period of a couple of months or anything. It will be interesting to see how the sub-prime mortgage market drop-out will affect the general economy.

[Labrocca]

Sometimes I wonder if people WANT a recession...always looking for signs that one exists.

[jafar00]

Well, the biggy is out today. Non Farm Payrolls and unemployment rate. This news is a big market mover that all currency traders look forward to for the month. Today will be especially interesting due to the fact that the market is illiquid due to the holidays so huge moves in exchange rates between USD and other currencies is expected.
I'm positioned against the US$ btw ;)

[Labrocca]

I'm positioned against the US$ btw

probably a smart move short term

[jafar00]

I'm positioned against the US$ btw

probably a smart move short term


Yes it is short term and ready to take the profit and run with it ;)
That said, Non Farm Payrolls and the Unemployment rate came out better than expected which surprised the market, yet the $ rally was rather subdued. I had a couple of intraday orders trigger and run to profit because of it.
We will see if there is any change in trend after the Easter break but I don't see anything more than a short rally for the US$. The USD index is firmly in a downtrend and doesn't look like breaking out any time soon. On the bright side, the cheap $ may help the US economy weather the worst of this downturn and it may get some of the Middle Eastern and Asian Central banks (Who have been dumping the $ in droves) into buying some more $ at a good price.

[Labrocca]

Wow Jafar...I am impressed you actually understand that markets well. :)

I used to be heavily involved myself ($80k portfolio) but it drove me nuts and I got out.

[unlawflcombatnt]

Boom? I highly doubt it. Imminent recession? Perhaps, but it will be gradual. The trend is down, adjusted for inflation, but I don't think it will suddenly tank over a period of a couple of months or anything.

I agree that it will be somewhat gradual. Current predictions for 1st quarter GDP are 1.5% growth.

The Leading Indicators index, considered by some to be a good overview of the economy, showed only a +0.1% increase in March. This followed a downwardly revised February reading of -0.6%, and a January reading of -0.3%. The year-over-year trend is definitely downward, as can be seen from the graph below of the Leading Indicators Index from Briefing.com.

http://i27.photobucket.com/albums/c190/unlawflcombatnt/4-19-07grphLdngIndLine-X.gif

The graph shows a dip below 0 during the 2001 recession, a rise to a peak somewhere around 2004-05, and now a decline to below 0.

I'd say this pretty much mirrors the direction of the economy.

[potter]

Everyone's employed, stores around here are busy. I think the biggest problem is inflation. Costs keep rising at an alarming rate. IMO fueled by rising energy costs. What was a comfortable living last year is a bit tighter this year....so folks may be diverting their money more to necessities...but I don't see a recession.

[firefox]

According to some figures I recently saw, food prices are up 17% since this time last year. This is a result of inflation, plus real price increases due to natural disasters.

In a similar vein, I just saw an interesting article in the SF Gate:

URL: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/04/22/BUGU9PB34E1.DTL


Dumb: Buying a house you can't afford with no down payment and a loan whose monthly payments will explode in a few years.

Dumber: Lending money to people who can't afford a traditional mortgage, especially when they have lousy credit ratings and don't substantiate their income.

Dumbest: Bailing out dumb and dumber, especially with taxpayer money.

State and federal lawmakers, community groups and housing advocates are proposing schemes to prevent the victims of the subprime loan crisis from losing their homes. I hate to sound callous, but it's hard for me to know who the victims are in this mess.

If mortgage brokers or lenders used inflated appraisals or made false or misleading statements, they should be prosecuted or at least forced to restructure the loans. If borrowers lied about their income or assets to get a bigger loan, they too should be prosecuted.

But many people got into the subprime mess because they were willing to believe a fast-talking broker who told them they could buy a home, or a bigger home, or take more cash out of their home than they could with a conventional mortgage.

Keeping people in homes they had no business buying is wrong in many ways.

For starters, there's no easy way to bail out homeowners without bailing out the lenders and investors who were largely responsible for the subprime mess.

Many experts say we are in the early innings of the foreclosure cycle. If we bail out people today, will we be willing and able to help people who fail later in the game?

Propping up borrowers who took a gamble on a house and lost reinforces gambling.

"If people think they can take out a bad mortgage and they get bailed out, that's called moral hazard in social insurance and it's a very bad thing," says Thomas Davidoff, an assistant professor in the Haas Real Estate Group at UC Berkeley.

Bailout advocates say they want to help people who were duped, not gamblers. But even if you could separate the swindled from the speculators, there's no guarantee that people who get a bailout will keep their homes. It could be an expensive form of life support.

Nobody offered to bail out investors who bought tech stocks in 1999. Nobody bailed out Enron employees who lost their jobs and chunks of their 401(k) plans because the company was a fraud. Nobody offers to bail out credit card abusers.

But homes are different, advocates say. It's shelter, not an investment.

Hogwash. The government itself says owning a house is part shelter, part investment.

In calculating the housing portion of the Consumer Price Index, the Bureau of Labor Statistics uses rental costs for leased properties. For owner-occupied housing, it estimates how much homeowners would get if they rented out the house. If the monthly payment exceeds that amount, it is considered an investment, not a cost of living....

This cycle needs to die, lest it grow into an even bigger problem that will damage the economy at large.

[Mayberry]

Well in my humble opinion, the economy has basically sucked for some time now. Especially since my side line is boat repair, the first thing to go when times ain't so great. 6 or 7 years ago, I had more work than I could handle, and I sent customers to other people when I was too busy. Boat repair virtually vaporized with the twin towers, then slowly began to pick up again as things settled, but never back to the pre- 9/11 level. But when the gas prices spiked a couple years ago, the boat work disappeared again. Summer is traditionally a slow time as everyone is out breaking their boats with the kids out of school, but with $3 a gallon gas last year things really took a dive. It's shaping up to do the same thing again with prices hovering at $2.69 locally. I am having to actively seek boat work when it usually comes to me. Boat work has been a pretty good economical barometer in my experience, and the barometer is dropping yet again, much to my dismay. I surely don't want to see a recession, because that will mean no beer or vacation for me :(

[jafar00]

The Richmond Fed Index came in at an awful -11 this month. It's an index that measures business activity in the Richmond area.
Existing Home Sales disappointed again with another drop to 6.12M from a previous 6.69M
Consumer confidence was down too.
Not a good day for the dollar which dropped almost 1c against the Euro and the Pound after the news release. And just when it looked like recovering a little too.

[potter]

According to some figures I recently saw, food prices are up 17% since this time last year. This is a result of inflation, plus real price increases due to natural disasters.

Thanks for that Foxfire.Â*Â*I knew groceries were more, just not how much more. I just can't imagine trying to raise a family with food costing what it does.



In a similar vein, I just saw an interesting article in the SF Gate:

URL: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/04/22/BUGU9PB34E1.DTL

[quote]
Dumb: Buying a house you can't afford with no down payment and a loan whose monthly payments will explode in a few years.

Dumber: Lending money to people who can't afford a traditional mortgage, especially when they have lousy credit ratings and don't substantiate their income.

Dumbest: Bailing out dumb and dumber, especially with taxpayer money.



If a taxpayer bailout happens it will be to benefit the mortgage companies, not the homeowners. The financial institutions (the ones who don't want to pay taxes) are big lobbyists and wouldn't think twice about taxpayers bailing their asses out.

[jafar00]

The stagnation economy is all but here. Inflation isn't really that high in the US when you take Oil and Gas out of the picture. If it really was a problem the FED would have raised interest rates again, but they have been on a pause for the last few months. If they did raise again, that would all but kill the housing market that is already in a coma.

[firefox]

Thanks for that Foxfire. I knew groceries were more, just not how much more. I just can't imagine trying to raise a family with food costing what it does.

No problem. @ school, we have meal points linked to our univ ID cards. I've had to buy more points 2x this semester because produce prices kept going up.



If a taxpayer bailout happens it will be to benefit the mortgage companies, not the homeowners. The financial institutions (the ones who don't want to pay taxes) are big lobbyists and wouldn't think twice about taxpayers bailing their asses out.


You've got that right! It wouldn't be the first time either, not by a long shot.