About Those "Strong Fundamentals"...

Day after day 'positive' anecdotal data points are latched on to by a self-confirming media (and plethora of talking heads and asset-gatherers) unable to see anything but their 'it's all good in the long-term' thesis. The truth is, as Bloomberg's Rich Yamarone notes, there’s no way to assess last week’s economic data as anything other than poor. Chinese GDP continued to deteriorate, U.S. core retail sales and the index of leading economic indicators for June were flat, industrial production was at the same level as in March, and housing, the lone oasis of prosperity, slowed as new starts plunged nearly 10 percent from the previous month. Toss in the city of Detroit filing the largest municipal bankruptcy in U.S. history and the tone of America’s economic outlook took a decisive turn for the worse. Of course, this is all good for stocks is our new (ab)normal reality of single-factor Fed-liquidity-driven mass hypnosis.


Via Rich Yamarone, Bloomberg Briefs,

The week commenced with word that the ailing Chinese economy grew only 7.5 percent during the second quarter, a deceleration from a 12 percent increase in early 2010. By week end, policy makers of the world’s second-largest economy eliminated the floor on corporate loans in order to boost the economy. This is proof that safe economic harbors are few and far between.


Recent reports suggest a very weak U.S. economic performance in the second quarter. At the beginning of the year economists polled by Bloomberg forecast second-quarter real GDP would grow 2.1 percent. That has since been sliced to 1.6 percent according to the latest survey. Bank of America Merrill Lynch currently has a projection of 0.9 percent while Goldman Sachs has a 0.8 percent estimate.


The Conference Board’s Index of Leading Economic Indicators increased just 0.2 percent in June. Overall retail sales advanced a meager 0.4 percent while sales excluding motor vehicles and parts were unchanged. The weakest categories were miscellaneous store retailers (minus 2.5 percent), building material & garden equipment (minus 2.2 percent), and restaurants and bars (minus 1.2 percent.) Since these data are not adjusted for inflation, economists do not know whether changes are due to prices or volumes, but the Bloomberg Orange Book has several citations of discounting and lower prices in each of these businesses.


U.S. industrial production increased 0.3 percent in June, with the year-over-year rate now at the critical 2 percent pace. Economists get uneasy when the growth levels of many indicators (consumption expenditures, personal incomes, real GDP, real retail sales, etc.) sink below that pace. Historically those are recession signals.


The level of new home starts plunged 9.9 percent in June to 836,000 – the lowest level in 10 months.


Meanwhile, the forward-looking level of building permits sank 7.5 percent in June after slumping 2.0 percent in May. Related measures of housing demand, like the Mortgage Bankers Association’s Purchases Index, suggest little reason for optimism. The Purchase Index was 202.7 during the week ended July 12. This is negligibly different from the 207 average since 2009.

Of course, none of this matters...


Charts: Bloomberg

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