Monday, 8-6-10

LAST WEEK: 

  • Markets had a great Monday, but gave back the gains the rest of the week.   
  • GDP numbers came in on Friday.  Q1 GDP was revised upward from +2.7% to +3.7%.  But the Q2 GDP preliminary number came in at +2.4%, clearly missing expectations.  It was only in the last 6-8 weeks that economists were expecting the yearly GDP to fall somewhere between +3.0% and +4.0%.  Many economists have revised their forecasts for the 2nd half of the year and point to +2.5% growth. 
  • The Federal Reserve’s Beige book came out last Wednesday.  Made up of 12 regions, the Fed publishes the Beige book 8 times each year to give a regionalized reporting of economic conditions.  The Cleveland Federal Reserve is the 4th region and is made up of Ohio, Western Pennsylvania, Eastern Kentucky and the Northern Panhandle of West Virginia.  Here are the key points of Wednesday’s 4th region report: 
    • Overall:  showing signs of stability, but activity remains sluggish
    • Manufacturing:  production is stabilized but low.  Year-over year factory output is sharply lower, with no change in the near future.
    • Autos:  increase in June, but year-over-year production in both domestic and foreign auto-makers is sharply down.  New car sales are weak; used car sales are strong.
    • Real Estate:  residential construction is weak.  Builders say they are seeing some business, but they are less optimistic than they were last quarter.
    • Consumer spending:  retailers are slightly down.  Any gains are considered more of cyclical moves.  No changes in the trend are expected in the 3rd quarter.
    • Banking:  commercial and industrial lending appeared to be shifting from the larger regional banks to community banks.  Residential refinancing has slowed.  Delinquencies for both commercial and residential real estate are increasing.
    • Energy:  Coal production is declining, due to weaker demand from electric utilities.
    • Transportation:  shipping volume is at low levels, substantially down year-over-year.  Expectations are for these low levels to continue the rest of the calendar year. 
  • St. Louis Federal Reserve President James Bullard was on CNBC’s Squawk Box last week and said the U.S. was in danger of falling into a Japanese-like deflation.  He felt there should be quantitative easing, or large buying of Treasury securities to offset the concern.  Bullard also said he thought increasing taxes (aka: the expiration of the Bush tax cuts) wasn’t the right thing to do right now. 
  • Consumer confidence dropped to a five-month low in July. 
  • Barron’s reported one of the new changes in the FINREG legislation, that just became law, allows the SEC to decline requests for information (even under the Freedom of Information Act) for documents dealing with surveillance, risk assessments and other regulatory and oversight activities. 
  • Barron’s reported that Pimco’s chief Bill Gross, commenting on using government deficit spending to maintain consumption, said doing so ”can be compared to flushing money down an economic toilet”.

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 THIS WEEK:

  •  Most of the week’s focus will be on the July Unemployment number that comes out Friday morning.  Expectations are for it to climb slightly form 9.5% to 9.6%.  
  • The July ISM index and June construction spending come out on Monday.  Small decreases are expected from both.  
  • June personal income, June consumption and June factory orders will all be reported on Tuesday.  Small decreases are expected on the first two, with a small increase on the latter.  
  • The July ISM non-manufacturing index comes out on Wednesday. A decrease is expected.  
  • The following companies report Q2 numbers this week:  Allergan, Loews, Marathon, Pfizer, Toyota and Transocean. 

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 All the best,

Chris

  

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