It’s safe for markets to now ignore all those manufacturing surveys because the hard data we’re getting says all the positive trends are reversing, according to Gluskin Sheff’s David Rosenberg.
Rosenberg cites yesterday’s weak durable goods number as the key sign things are heading south for U.S. manufacturing,
From David Rosenberg:
Indeed, surveys of industrial activity have been remarkably firm, but maybe it’s because these company executives are merely reporting what they’ve seen in their share price. What is happening on the expenditure side is a different story. U.S. durable goods new orders unexpectedly fell in February for the fourth time in the past five months, slipping 0.9% on the month (the consensus was looking for +1.2% ― and the stock market still rallied and in style to boot). Practically every sector was down. What is key for GDP is the core capital goods orders measure (nondefense capital goods new orders excluding aircraft) ― slid 1.3% after a 6% plunge in January. This is the steepest first back-to-back decline since January 2009.
He now projects that while Q1 2011 GDP will be the best of the year, it’s going to be much weaker than previously anticipated.
The sources of support for the recovery are beginning to slip away. Those economists that a short while ago calling for 4%-plus real U.S. GDP growth for Q1 have pared their numbers to 2-something. But here’s the rub. As was the case in 2010, the odds are very high that this quarter’s growth rate will prove to be the high-water mark of the year.
The difference is that GDP expanded at a 3.7% annual rate in the first quarter of 2010; however, this time, we are looking at something that is likely closer to 2.5%. The market’s ability to shrug adverse economic news is going to be receiving a very critical test in coming months.
Societe Generale analyst Brian Jones wrote that he was anticipating GDP outlook cuts as a result of this durable goods number. and Goldman Sachs’ Jan Hatzius says he was already considering it.
So while there was a lot to be pleased about in today’s GDP revision, it looks unlikely to last.
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