NEW$ & VIEW$ (25 APRIL 2013)


New orders for all durable goods plunged 5.7% in March, about double the 2.9% drop expected. Falling demand for aircraft and defense goods contributed much of the weakness, but not all of it. Of the major categories, only computer makers reported an increase in new orders.

For the first quarter, new orders and the backlog of unfilled demand were pretty much flat compared to year-earlier levels. Shipments held up. But orders are the lifeblood for future production. Unless order books fatten up, gains in production and shipments will slow soon.

Businesses have joined consumers in the spring siesta. New orders for core capital goods — which excludes aircraft and defense equipment — edged up 0.2% in March, but are no higher than they were a year ago.

How miserable? NBF Economics explains:

To say that US durable goods orders were weak in March is an understatement. The 5.7% drop is the worst monthly performance since last August. And with orders being outpaced once again by shipments, unfilled orders fell. That extended the declining trend in the year-on-year growth rate of unfilled orders.

As today’s Hot Charts show, such a decline is typically associated with soft patches, if not recessions. Note the year-on-year contraction in unfilled orders for non-defense capital goods excluding aircrafts, a proxy for business investment spending.

The uncertainty brought by the fiscal cliff and subsequently by the sequester are possible explanations for this atypical drop. That already
seems to be capping employment growth in the manufacturing sector and if orders continue to disappoint, things could get worse on that front.


Weaker than expected flash PMI surveys from Markit for China, the US and the euro area have increased worries about the global economy.

(…) the fact that the weakness of the China PMI was driven by slower new order growth, reflecting a renewed decline in new export work, led to growing fears about global demand (…).

The downbeat news was followed by some brighter news as an upturn in the Markit flash PMI for France indicated a marked easing in the pace of economic contraction for April. The manufacturing PMI came in broadly as forecast (44.4 against a consensus of 44.1), but the service sector PMI jumped to 44.1 against a consensus of 42.0. However, the rally was short-lived, as German flash PMI data fell well short of expectations. The manufacturing PMI for Germany slipped to 47.9 (consensus: 49.0), while activity in the service sector contracted slightly with the respective index down to 49.2 and confounding expectations of a rise to 51.0.


U.K. Economy Avoids Further Contraction

In its preliminary estimate, the Office for National Statistics said gross domestic product grew 0.3% in the first three months of the year compared with the fourth quarter. Economic output was 0.6% higher compared with the first quarter of 2012.

High five  But: Retailers gloomiest for 15 months in April

UK retailers reported a drop in sales on average for the first time in eight months in April, and the outlook for sales in the coming month darkened to the gloomiest for 15 months, according to the CBI.


Letta calls for easing of austerity policies

Italian bond yields close to recent record lows


“Europe’s policy of austerity is no longer sufficient,” he said, echoing similar remarks this week by Jose Manuel Barroso, European Commission president.

Crying face  Italy Led by Letta Brings Berlusconi Back as Winner

Silvio Berlusconi, the three-time prime minister and two-time convicted lawbreaker, won a path back to power in Italy by outmaneuvering rivals during an eight- week political stalemate.

Crying face  Spanish unemployment tops 6m
Record figure piles pressure on Madrid to ease austerity

Almost 240,000 people lost their jobs in the first three months of the year, according to Spain’s national statistics office, taking the overall number of jobless to 6.2m. The unemployment rate rose by more than 1 point to 27.16 per cent – worse than predicted by most economic forecasters.

The statistics office also revealed that almost 2m out of 17.4m Spanish households are now without a single person holding a job. (…)

The drop in employment in the first quarter was broadly similar to the falls seen in the past three quarters, and higher than in the corresponding period last year.

Job losses were particularly heavy in the services sector, but also in industry and farming. Employment dropped further in the construction sector, which has already shed more than 1.6m jobs since 2008 as a result of the bursting of Spain’s housing bubble. (Chart from El Pais via Ft Alphaville)

South Korea growth at two-year high
First-quarter GDP of 0.9% boosted by export recovery


Why Housing Won’t Save the U.S. Economy

In a new essay, University of Chicago’s Amir Sufi says we should “temper our optimism on what a housing recovery can do for the U.S. economy.”

(…) The crux of his argument is that a key way that housing stimulates growth — the so-called “wealth effect” in which people spend more because they feel richer as the value of their home increases — is likely to be muted because many of the borrowers who spent most liberally during the housing boom aren’t getting mortgages today. (…)

Mr. Sufi has done research suggesting that homeowners borrowed about $1.25 trillion out of their homes from 2002 to 2006. He finds that this spending wasn’t uniform. Homeowners with the lowest credit scores were very aggressive, he says, borrowing $0.40 against every dollar of increased housing equity, while those with the best credit “were almost completely passive,” pulling almost no equity out of their homes when house prices increased.

The inverse was true when households cut back on spending after the bust. Borrowers with weaker credit were more constrained and cut back much more dramatically on spending. (…)

“The only people getting mortgages at this point are those with pristine credit histories, which are exactly the group least likely to consume out of their housing wealth,” says Mr. Sufi. (…)



Mediocre Earnings and Revenues

Below is an updated look at the earnings and revenue beat rates for stocks that have reported so far this earnings season.  Last Friday we noted that the earnings beat rate stood at 58%, while the revenue beat rate was much lower at 43.9%.  Another 250 companies have already reported this week, which is more than double the amount that had reported all season from April 8th through April 19th.  As shown below, the earnings beat rate has taken a hit with this week’s reports added into the mix.  As it stands now, 56.9% of the 458 US companies that have reported have beaten earnings estimates.  This would be the lowest reading seen since the bull market began, so the remaining companies that still have to report have some work to do!


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