Double-Dip Watch: Regional Feds Report Deteriorating Business Conditions

I have been on a double-dip countdown as leading indicators continue to show that the Recoveryless Recovery is fading. I put the count on hold in early Aug as the 2Q GDP report came in ok at 2.4%. That report was quickly revised down to 1.6% and the countdown ticked one more down, but then went back on hold again as we saw conflicting data at the end of August: the regional Fed reports came in lower, but the national ISM report was surprisingly positive. This was part of the bundle of positive news that seemed to drive the start of September to a fast bullish clip. 

The regional reports are notoriously noisy, but they do come back into alignment with the national report, so I posed the test:

either the next ISM drops, or the next regional reports strengthen

The regional reports are coming in first, and are now even further out of alignment with the national report: 

• the Philly Fed report came in showing contraction for the second month in a row at a negative -0.7, higher than last month (-7.7) but worse than expected (+3.8)
• the Empire State report from the NY Fed remains in expansion but slipped 3 points to 4.1

 

This non-confirmation of the ISM report plus the fact that the leading components of ISM were trending down suggest that the national ISM report will be dropping in the next report. We may also see a revision down of the last report. Goldman Sachs expects the national ISM to go below 50, signaling contraction, within a few months. 

 

The overall reports, however, remain ambiguous. 

Industrial Production and Capacity Utilization were up in August, albeit still at low levels. 

Rail traffic has been trending up, but recently spiked down, likely reflect a holiday period not a trend change. Rail has been increasing along with imports, and imports seem to be softening. We had higher expectations for back-to-school and holiday sales that drove imports, and the slow back-to-school season led to excess retail inventories and a slowdown in new orders. BTS sales picked up late in the season based on aggressive sales and discounting. This does not bode well for the holidays but at least if retailers cleared stock, a new surge in imports for Xmas may show up in the data, including rail traffic 

 

Copper has also been rising, probably tracking the global demand for gadgets. Global production is more robust than US production, and it shows up in copper. Copper is signaling strength in the global economy. Still, copper has been volatile and production has been sideways. 

 

Comments

[Chabazite]

One of the uses of copper is as a hedge against the declining dollar, so it fair to include it in your analysis? As you probably know, a year or so ago the Chinese were stockpiling mountains of the stuff.

[Michael]

Chile is the biggest producer of copper in the world. You need to look at the production that got upset after the Earthquake. In otherwords, it's not always the Demand side of the equation that the market is operating under. It can also be disruptions in Supply.

That having been said, people continue to discount what is going on in China as far as demand is concerned. In my opinion, that is a BIG mistake!

[Michael]

"And for anyone who suggests I always bend toward EWI's view of things, it is they who have come around to the way I have shown my 5 primary wave counts of looking at things."

The above quote was found on Daneric's website today. His Ego is so HUGE . . . he's bigger than EWI and the market itself!

Too bad he's been flat-out WRONG for an entire year and hasn't made a dime trading.

[Wave Rust]

flash crash up ?
and guess what's shrinking ,,,, go ahead

it ain't bullish sentiment

trade a couple more decades and you'll get to see how often sentiment is right, as opposed to when it's wrong.

back to shrinkage and stinkage ,,,, smells like burning bear hair

A=flash crash
B=bounce
C was abcde and the e finished at 1040 Aug 31

If the correction ain't over (like if it was an intermediate A), then get ready for a big old B for a flat.

either way it's bullish ,,,, unless, of course, i'm wrong

ok, lets act bullish for little while. if not, i'll just let ya talk amongst yourselves about those good old down days last month.

wave rust