Gluskin Sheff economist David Rosenberg has been sceptical of the “green shoots” from the beginning, but as he’s admitted that he under-estimated the force of the snapback in stocks. In his morning note today, he runs down the fresh data and finds little to be relieved about:
Green shoots turning brownish
Well, we can forget about calling for an end to the recession. Three of the ingredients are still contracting:
1. Industrial production is still contracting — down 1.1% in May and this came on top of a downwardly revised -0.7% print in April (was -0.5%). This was the SEVENTH decline in a row and left the level of production at an 11-year low (July 1998, believe it or not). Even outside of the auto industry (-7.9%), output was still down 0.7% last month and it is now very difficult to discern any improvement at all since the credit collapse started to subside in March. Every major industry posted a decline in May — so much for the ISM (then again, it is only a diffusion index). Oh yes, it is early days yet but we do have the NY Empire index and it fell back to -9.41 in June from -4.55 in May — and this is a proxy for tech spending. It’s a sign that we could see a setback for ISM this time around — though we will await the Philly Fed survey before making any definitive statement.
2. Employment fell in May — indeed, the 345k slide in May was worse than the depths posted in each of the last two recessions. Strange way for a recession to end. As for jobless claims, it is not enough that they have fallen from their near-depression highs — they have to break well below 500k before payrolls stop declining, and only then will it be safe to call for the end of the recession.
3. Real organic personal income — one of the key ingredients (sorry, but the ECRI, which was predicting an ongoing boom in July 2007, doesn’t go into the NBER definition). Never mind ‘real’, in nominal terms, average weekly earnings fell 0.2% in May for the second time in the last three months.
Yes, yes, the housing start number was a good number, especially the single-family result (+7.5% to 401k units at an annual rate — the third increase in a row); as well as the 7.9% mum bounce in single-family permits. Still, it is difficult to really say anything except that perhaps the single-family sector has found bottom — after all, natural demographic demand for single-family homes is closer to 500k than 400k, the level at which starts are still hovering around. The report also lost part of its luster from the previously released NAHB index, which slipped back to 15 in June after two months of gains.