The flood of economic data continues, and the net of it all is that there are signs of recovery, or at worst a slowdown in the rate of decline. On Wednesday, we saw industrial productionfall 1.5% for the month, and that makes the last year at -12.7% the worst on record since WW II. That hardly seems encouraging, but, taken with recent inventory declines, it makes sense to figure the next move almost has to be up.
The Consumer Price Index was released as well and showed a decline of 0.1%. The increase for the past year is only 0.4%, but if you take energy out of the equation, the rate of gain is 2.2%, which would negate the deflation fear. That headline of 0.4% for the trailing 12 months is the lowest since 1955, so it is important place it into a proper context. The Feds are right to be worried about deflation and let the theoretical reinflation argument wait until we can reignite the economy. With capacity utilization at an all-time low of around 69%, it is hard to worry about immediate inflation.
The Beige book two months ago stated that 10 of 12 districts saw weaker conditions or outright declines. Last month, the report read that 5 of the 12 noted a "moderation in the pace of decline." While not jump-for-joy news, it is an indication that a slow turn might be at hand. That was reinforced by the NY Empire Index (a measure of production) showing a huge improvement, from -38 to -14.7 last month. While still a minus, the pace of decline has slowed appreciably. And that was followed Thursday by a similar report from the Philadelphia survey which also saw a slowdown in the rate of decline, from -35 to -24. Yes, it's still a decline, but the rate of decline has to abate before it can turn positive.
Initial jobless claims were down to a still-sickening 610,000, but the four-week moving average shows signs of leveling off, and in the past that has preceded the end of the worse news. We still think the rate of unemployment will climb, but the market seems to be anticipating that fact, as it always does. Housing starts were a low 540,000, but, since we have excess inventory of homes for sale, the lower the number of new homes, the greater the odds the glut will be worked off and the housing crisis can stabilize. Some very smart guys figure a normal level of starts needs to be around 1.5 million annually to accommodate normal household formation. Keep the starts low for now, work down the inventory of unsold homes, and look forward to more normal activity, hopefully by next year.
China reported growth in GDPof 6.1%, which for them is disappointing. But both the industrial production component (up 8.3% in March) and retail sales (up 14.7% in March) showed renewed strength at the end of the quarter, which indicates their growth is returning to a more normal pace. And JP Morgan had a good earnings report and said they could pay back the TARP tomorrow. I'm guessing that after the "stress tests" are done, the stronger players (Goldman, JPM) will be allowed to pay it back and the Feds will use that to turn around and support some of the needy banks. That way, they may be able to avoid going to a hostile Congress for more money.
But after a report that the troubled Regions Financial will report a profit for the quarter, regional banks up-ticked in the market and the upcoming reporting season became even more interesting. Might it be possible that the banking system is not as severely damaged as first feared?
My pal, Sydney Williams, passed along a YouTube phenom you have to look at. Go to YouTube and search Susan Boyle for a feel-good moment like you won't believe. Watch the full 7-minute version. It's worth the time. (Soleil salesmen and traders will wait till after hours, of course!)