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Something we’ve just started picking up in the last couple of days…People are starting to talk about the economy already having troughed in this mid-cycle mini-slowdown we’ve been experiencing the last couple of months.
JPMorgan identified some positive signs in a bullish note put out yesterday.
In a note, Deutsche Bank talks about signs of a second-half re-acceleration:
Last Friday we learned that the May index of leading indicators (LEI) registered a solid +0.8% monthly increase. More importantly, the improvement was broadbased: Every component rose except one; the gains were led by the Treasury yield curve (+0.3%) followed by consumer expectations (+0.2%); the lone decliner was vendor deliveries, down -0.3%. These shorter lead times could be related somehow to the shut-in of motor vehicle production associated with the Japanese supply disruptions. In general, we have seen significant auto-related weakness in much of the US factory data.
For example, we also learned last week that motor vehicle production declined -1.4% in May after having fallen -6.5% in April. This places the level of Q2 motor vehicle production down -16.0% at an annualized rate relative to Q1. We had been worrying that the hit to the economy could be as much as two full percentage points. Fortunately, that does not appear to be the case, as the April decline in motor vehicle production was revised up-it had originally been reported at -8.9%. Additionally, May motor vehicle production was down just -1.4%, much less than the -4.0% decline in the motor vehicle hours worked series from the May employment report. At the moment, the impact on Q2 real GDP could be closer to one full percentage point.
Much of the hope for the bulls seems to rest on autos/Japan doing a V after the post-March malaise.
Back on June 2 we identified Japan as the one wild card, noting that if it were a prime culprit for the slowdown, it could lift the global economy back.
Still we’ll avoid getting excited for now. The ongoing deleveraging in the US, coupled with imminent austerity (it appears) is a toxic mix for growth.
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