Market Rises Today, but Trends are Negative
The market is moving up today despite bad news.
* Corporate earnings continue to disappoint: JC Penny expects far lower results, Lennar sales were down 60% and KB Homes missed earnings completely.
* February consumer spending was flat at 0.1% (excluding food and fuel). This is very bad news – with inflation running high and taking more out of the wallet, a 0.1% rise is really a reduction in spending. Folks are buying less but paying more.
In the past, markets would get excited because bad news implied future rate cuts. In practice, the Fed doesn’t have much more room to cut.
What is exciting the markets is that personal incomes rose 0.5% and there are hints that inflation is moderating.
INFLATION
These are the moves of hope over experience. The economy is slowing down and will continue to slow down. Usually, economic slowdown is deflationary and prices are coming down in some places like housing. But in key areas like food, consumer goods, and energy, prices continue to surge.
No amount of economic slowdown will reduce those prices because global demand is driving demand for food and fuel. In addition, the US is facing a long term trend of a weak dollar.
While the Fed can play games with how inflation is measured, the reality is that the US consumer is going to spend less and save more. Fewer goods will be purchased. Layoffs will pick up. The vicious cycle will pick up.
PERSONAL INCOME
I don’t understand how incomes can be up when 63,000 people were laid off in February.
http://www.bls.gov/news.release/mmls.nr0.htm
I also don’t understand how unemployment was reported flat at 4.8% in the face of these significant layoffs.
The issue of personal income is around spending and inflation. If you can pay more and inflation remains low, then that is not a problem. And if you can pay more, then spending can go up. Except that consumer spending in fact went down. This supports my thinking that, however it gets measured, spending is going down.
One last point. January saw a reduction in saving which reversed in February. I wouldn’t read too much into that. January dissaving was just paying the holiday bills. February saving is probably tied to Tax season and the need to get ready to pay taxes.
* Corporate earnings continue to disappoint: JC Penny expects far lower results, Lennar sales were down 60% and KB Homes missed earnings completely.
* February consumer spending was flat at 0.1% (excluding food and fuel). This is very bad news – with inflation running high and taking more out of the wallet, a 0.1% rise is really a reduction in spending. Folks are buying less but paying more.
In the past, markets would get excited because bad news implied future rate cuts. In practice, the Fed doesn’t have much more room to cut.
What is exciting the markets is that personal incomes rose 0.5% and there are hints that inflation is moderating.
INFLATION
These are the moves of hope over experience. The economy is slowing down and will continue to slow down. Usually, economic slowdown is deflationary and prices are coming down in some places like housing. But in key areas like food, consumer goods, and energy, prices continue to surge.
No amount of economic slowdown will reduce those prices because global demand is driving demand for food and fuel. In addition, the US is facing a long term trend of a weak dollar.
While the Fed can play games with how inflation is measured, the reality is that the US consumer is going to spend less and save more. Fewer goods will be purchased. Layoffs will pick up. The vicious cycle will pick up.
PERSONAL INCOME
I don’t understand how incomes can be up when 63,000 people were laid off in February.
http://www.bls.gov/news.release/mmls.nr0.htm
I also don’t understand how unemployment was reported flat at 4.8% in the face of these significant layoffs.
The issue of personal income is around spending and inflation. If you can pay more and inflation remains low, then that is not a problem. And if you can pay more, then spending can go up. Except that consumer spending in fact went down. This supports my thinking that, however it gets measured, spending is going down.
One last point. January saw a reduction in saving which reversed in February. I wouldn’t read too much into that. January dissaving was just paying the holiday bills. February saving is probably tied to Tax season and the need to get ready to pay taxes.
posted by Andrew at
7:12 AM
1 Comments:
For what its worth, this time Feb had one extra day, that is 0.4% extra time to gain 0.1% as per govt.
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