Another major leading index is from Consumer Metrics Institute, and it is showing even worse conditions that ECRI. The CMI index is in contraction mode and dropping (blue line is 2010):
Manufacturing had been looking like a V-shaped bounce, but recently has weakened: both the Philly Fed and Empire State surveys have turned down and are approaching the zero line (which means contraction):
Shipping indicators are looking weaker as well: imports surging but exports lagging means we are back to consumption exceeding production:
- The containers out of LA/Long Beach and NY/NJ are continuing to grow, which is consistent with seasonal trends (this is the period of inbound shipments to stock up for back-to-school and holiday sales). Inbound is up 30% over a year ago, and is up 1% (essentially flat) over two years ago. Exports increased 7.7% from a year ago, but remain down 13% from two years ago. This means expectations are for a stronger Christmas but our exports are slackening, a bad sign that is consistent with weakening manufacturing domestically.
- The Baltic Dry Index is falling so hard it led to a delightful headline: Market Going Down With The Ship? The BDI is used to track Chinese activity across the oceans, and the predictions of a sharp slow-down in 2H10 have increased, suggesting after restocking for the holidays imports will begin to drop.
- Rail cars had been trending up, but recently dipped below 2009 levels and are 20% below 2008 levels (see chart). When looked at more broadly as including intermodal traffic, the trend had been up but is flattening. This would be consistent with a rolling over from recovery to a second dip, but does not predict it.
Ed Harrison of CreditWritedowns notes that the bearish pundits other than Rosenberg are playing down the double dip: Stephen Roach says only 40% likely, and Nouriel Roubini is at 20%. He thinks they are expecting a late inning save by the Fed or by more fiscal stimulus. While fiscal stimulus is looking less likely, deflation is now emerging, and that might force the Fed to begin QE2, a another round of quantitative easing, a topic is discussed in the Peak Debt post.
Mish notes how the powers-that-be tend to exclude food and energy and talk about the core rate, but this is not really valid, since those matter hugely to the people affected. As he puts it, people tend to note each penny's rise in gas prices, and ignore the drops. When gas is going up, the cries of hyperinflation! ring out; but when they drop, the silence on deflation is deafening.
The core rate is even more misleading on real estate: it uses an imputed rent, not real housing price changes, which of course have been dropping more than the CPI shows. Oddly enough, as natural gas prices rise, the imputed rent drops; and as it falls, the imputed rent rises. The BLS assumes rent is constant and they impute a windfall in the rent due to rising heating costs. Even though a survey of real rents will quickly show they are falling with housing prices, although not as fast, since natural gas has also fallen, the imputed rent has actually gone up, keeping CPI afloat. Nuts!
In any event, this chart shows how the CPI of all items peaked about the time the Stimulus peaked in spend rate, and has been dropping since:
What is going on behind the curtains is an historic contraction of consumer and small-business credit: the Consumer Metrics Institute notes how consumer credit has decreased in 15 of the last 16 months, and the drop in April is the second largest in history, after the drop the prior Nov (2009). The cumulative drop is the largest since 1944, when FDR pushed consumers to buy war bonds rather than borrow and spend. This contraction is part of an overall deleveraging of the private sector (especially in real estate), and is causing the total debt in Dollar terms to drop off its peak of $53T. That decrease in total debt is happening faster than government borrowing is making up, leading to deflationary pressures. As the next wave of mortgage defaults hits next year, this deflationary tendency should become very strong.
The Fed may feel forced into QE2 to stave off the inevitable slide into deflation. Keynesian Cheerleaders like Krugman find the Fed's silence feckless. If they initiate it - perhaps to backstop Muni's, since they already have backstopped Treasuries and Mortgage-Backed Securities - it might delay the onset of the double dip.