Wednesday, June 22, 2011

If the slowdown is temporary, when will the news flow change?

by Bill McBride on 6/22/2011 08:29:00 PM

Just thinking out loud ...

Fed Chairman Ben Bernanke argued that the recent slowdown was mostly due to temporary factors. From the FOMC statement: "The slower pace of the recovery reflects in part factors that are likely to be temporary, including the damping effect of higher food and energy prices on consumer purchasing power and spending as well as supply chain disruptions associated with the tragic events in Japan."

I also think we will see some pickup in the 2nd half of 2011, although I think the recovery will remain sluggish and choppy.

There has been some progress on the supply chain issues, and oil and gasoline prices have fallen sharply since late April.

So when will we see some better economic news?

Clearly we will see some ugly reports over the next few weeks. The regional manufacturing surveys will probably all show contraction in June, and that means the ISM manufacturing survey will be pretty bad, and maybe below 50 - indicating contraction nationally (to be released Friday, July 1st).

The May Personal Income and Outlays (Monday, June 27th) will be weak (May was a tough month), and there is little indication that the June employment report will be strong (Friday July 8th).

However, the Pending Home sales index (Weds, June 29th) will probably show a decent rebound from April. And several house price indexes have shown a bounce in house prices in April including the FHFA index released today.

U.S. house prices rose 0.8 percent on a seasonally adjusted basis from March to April, according to the Federal Housing Finance Agency’s monthly House Price Index.
Of course the FHFA index is based on GSE houses only, and almost everyone follows the Case-Shiller index now (Tuesday June 28th).

Even though Case-Shiller is a three month average - and the April report is for February, March and April - it is likely that Case-Shiller will be less negative in April than the previous months, and maybe even slightly positive. Seasonally April is usually one of the worst months of the year for the Case-Shiller index, so a less negative reading would be viewed as a positive.

And auto sales (Friday, July 1st) will probably show a rebound in June after the sharp falloff in May. From the Detroit News: GM will have 'good' sales month in June, exec says
"GM is going to have a good month — and I will leave it at that ... I feel good about June, and Ford does, too," [General Motors North American President Mark] Reuss said.

Ford Americas President Mark Fields told reporters earlier this week that June is "off to a good start."
But for manufacturing in general it might be some time before we see some more positive reports - the earliest would be mid-July, but it might not be until August or later.

And although gasoline prices are falling, prices are still much higher than earlier this year - and still above the levels in March. Consumption was somewhat weak in March, and that was when we saw the sharp decline in consumer sentiment. So falling gasoline prices will help, but consumption will probably still be fairly weak.

Last year at this time I was looking for weaker reports, and this year I'm looking for slightly better reports. Of course, as I mentioned above, some of the ugly reports are still coming (ISM manufacturing, Q2 GDP, etc) - but I think we will see a little better news here and there. I'm just starting to figure out when (and if) we will see a little pickup.

Unfortunately, even if the news is a little better, the recovery will still be sluggish ... (and remember, I have no crystal ball).