The Recovery Is Faltering


As the summer was turning into a fall, there was a really brief period when it was super-cool to believe in the V-shaped recovery.

There were all kinds of op-eds written about this bravely optimistic idea.

But something happened.

The data from October and November has not been particularly strong.

The V-shaped recovery is beginning to look more U-shaped or – gasp – W-shaped.

See the evidence for yourself >>

Inventories picking back up

Inventories, as David Rosenberg has warned, are creeping back up, after a big drawdown.

In fact, in just about every single category of production they're picking up.

More small businesses reporting cash flow issues

The number of small businesses with cash flow issues continues its positive trend higher. At the same time, according to Discover Small Business Watch, confidence 'plunged' between October and November.

Says Discover:

  • 2 per cent of owners say they have experienced cash flow issues in the past 90 days, up from 44 per cent in October. 40-one per cent of owners say they have not experienced cash flow issues, which is the lowest response in this category since the Watch began. The remaining 6 per cent said they weren't sure.
  • 53 per cent of small business owners see conditions getting worse in the next six months, up from 43 per cent in October; while 19 per cent report that conditions are improving, a sharp decline from 29 per cent in October; 23 per cent see conditions as the same, and 5 per cent weren't sure.
  • 62 per cent of small business owners rate the economy as poor, an increase from 55 per cent in October; 30 per cent rate it as fair, and 8 per cent say it is good or excellent.

Manufacturing slumped in November

According to JPMorgan, an aggregate global PMI slid in November.

The firm is still positive on the recovery, but it's clear that the data isn't looking v-shaped anymore.

Case Shiller Slowing Down

There are growing signs the housing recovery has stalled. September's Case-Shiller came in below expectations, and subsequent data from the likes of Altos Research suggests the following months have been weak.

California, which had been experiencing a dead-cat bounce, is starting to backslide, according to Altos.

Also on the housing front

Housing starts unexpectedly plunged 11% in October:

Bloomberg: Builders in October unexpectedly broke ground on fewer U.S. houses as the sales outlook darkened with the looming expiration of a government tax credit and mounting joblessness.

The 11 per cent plunge in starts to an annual rate of 529,000, the lowest level since April, followed a 592,000 pace the prior month, Commerce Department figures showed today in Washington. Building permits, a sign of future construction, also decreased.

Share of Civilian labour Force Continues To Plummet

While the headline unemployment number improved, the broader measure, the share of the civilian labour force actually working, hit a braint new low.

The Trade Gap Unexpectedly Narrowed

The trade gap came in much lower than expected in October.

While some might see this as a positive, it's a sign that import robustness isn't what we expected.

(Chart via Calculated risk)

Oil imports down

The primary culprit? Oil imports are down to a level not seen since January 2000.

November video games slumped

video game sales had a surprisingly weak November.

Reuters: Sales of video game equipment and software in the United States fell 7.6 per cent in November to $2.7 billion, research group NPD said on Thursday, as the struggling industry limped into the crucial holiday sales period.

Hardware sales fell 13.4 per cent, while software sales dropped 3.1 per cent. The results were worse than some analysts had expected.

The number of manufacturers shipping to the US shrinks

The number of manufacturers shipping goods into the United States fell, surprisingly, in November, according to Panjiva.

The Retail Sales Debacle

November retail sales came in widely below expectations, and nobody has a great explanation. A Deutsche Bank report slammed the typical 'weather' excuse, noting weakness at many of the warehouse clubs.

Here's what they said:

Weather was commonly considered the culprit, as most of the country did not have
seasonally appropriate temperatures. We understand how weather would limit apparel sales,
and we can even appreciate how the unseasonably pleasant weather would cause a modest
flu season limiting the Drugstore comps.

What causes us to be incrementally concerned are the misses from the Warehouse clubs
and Target; how did the weather contribute to these sales misses?
Food deflation clearly
would aggravate the sales sluggishness for these retailers, but that doesn't seem to be
enough to explain the results. Perhaps we will need to wait for Kroger results this Tuesday
for additional colour on this food inflation & Wal-Mart pricing umbrella issues.

The overall take away from today has to be incrementally negative. Unless Wal-Mart achieved
some surprisingly massive market share gains across all these sub-sectors of retailing,
today's widespread sales weakness is a negative indication on overall consumer spending.

The aggregate data confirms the breakdown

Here's another way of looking at the breakdown. This chart produced by John Hussman looks at positive and negative economic surprises. As you can see, in October, there's been a violent, negative move in the red line, indicating way more numbers that missed expectations, compared to those that beat.

And finally

December isn't looking so hot either.

WSJ: The first week of December, typically a lackluster time in the wake of Black Friday, was particularly slow. Sales for the week ended Dec. 5 fell 18% from the prior-week period, which included Black Friday, according to market researcher ShopperTrak RCT Corp. Last year, when the recession was in full force, sales fell a lesser 14%, according to the firm, which compiles shopping traffic at malls and uses sales statistics, as well as Commerce Department figures, for its estimate.

'After solid traffic the first couple of days, it looks like the middle of August out there,' said Stephen Baker, vice president of industry analysis for retail watcher NPD Group.

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