US economic data takes a turn for the worse
Brian Rose, U.S. Economist UBS

US economic data has surprised mostly on the downside in recent months. Over the past few days there have been three particularly troubling releases:
1. Durable goods orders fell -5.1% m/m in December, with core capital goods orders down -4.3%, and previous months were revised lower.
2. Construction spending rose by just 0.1% in December, below expectations and previous months were revised lower.
3. The ISM non-manufacturing index dropped to 53.5 in January, down from 55.8 in December. The business activity sub-index, which had been hovering around 60 since April 2014, plunged to 53.9, and the employment sub-index fell more than 4 points to 52.1.
Note that I haven't included the subdued 0.7% growth rate in 4Q15 GDP because at least that was in line with expectations.
The durable goods and construction data suggest that business investment is slowing, and not just because of the plunge in energy-related investment. The ISM non-manufacturing index is a coincident measure of economic activity. While a reading of 53.5 is still consistent with decent growth and not a sign that the economy is moving into recession, it is disappointing to see the index falling so far so fast.

In the face of this data, the market has almost completely priced out the possibility of a March rate hike, and priced in around a 50% chance that the Fed will not raise rates at all this year. That in turn has undermined the value of the dollar against other currencies.
The labor report for January, due for release this Friday, now becomes even more important than it already was. Despite all the other bad economic news, nonfarm payrolls increased by an average of 284,000 in the fourth quarter. Job growth at even half that rate should be enough to support consumer spending and keep the economy out of recession. However , a sudden deterioration below 100,000 would be a worrying sign that the recovery which started in June 2009 could be nearing its end.
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My analysis:




The Party of No has ruined the economic recovery. With control of the Senate , Repugs have stifled any legislation that could have been beneficial to a continued recovery. This election cycle has produced Repug candidates full of insane rhetoric that has spooked corporations and investors. When your 401k goes down and your deadbeat neighbor still has not found a job. say thanks to a Repug.
Repugs bunch of Debbie downer , party poopers. Hunker down for now, things will get better after the elections. Remember, never, ever vote repug. jdbman


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So if you are a surfer I wish you the prosperity that allows you more time to pursue the salt water dream, and the true happiness that comes from warm water, clean waves and the companionship of your fellow surfers. If you are an internet troll just spewing bs then f off.

Edited: 02/04/2016 at 12:08 PM by jdbman

In 2008 the American banking system collapsed because the bankers gambled that no one would ever find out that money was being circulated in a shell game of loaning money to you and me and then selling the right to receive our future payments to private investors. With the monies received from these sales, more loans were made until there was more outstanding debt than there was money. Unless the banking system admits they are at fault and forgives the excessive debt, no one will survive the inevitable economic implosion. When they ran out of money playing this game, the government step in and stole money from you and me to bail them out. They received a slap on the wrist and you and I were left holding the bag.

There will never be an economic recovery, every politician in Washington knows this, so this circus we are witnessing is a bunch of billionaires jockying for position to have the best exit strategy when the collapse happens. They believe that they can flee the country and leave us on turmoil. Wait until it all blows over and return and rebuild. Listen very carefully to what each of them is saying and you will begin to put it all into its proper context.

Wow that was insightful jdb.  I loved how concisely you showed all the links between cause and affect.  The only fault in your logic, or should I say omission,  was you failed to blame Bush and didn't interject any claims of racism.  You must remember a progressive rant is never complete without those throw in randomly.

But I read on here, echoed from FOX and Breitbart, that the whole mess in 2008 was ACORN's fault and I was instructed to vote for Romney as an answer to fix that.

Only a socialist would dare criticize the banks.

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Supply side trap is an answer to the opening post.

Money changers that are at fault in OBX's mostly correct narrative above are at fault here too.

Money policy has been to increase the amount of capital at the top with the expectation that it would magically be put to productive pursuit as opposed to being used to chase more capital. That's a dumb assumption when tax rates favor capital gains over production increases and lack of money on the bottom end stifles demand.

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How much of that is driven by oil prices taking a dump with the effects that is having on contruction and exploration up air in the great frozen north?

What was a pretty big growth sector has pretty much shut down.

Control for that change and what does the rest of the economy look like?

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Yep, we sure did. But most people, however, blame the party of the president and will do so here. This should assure us of getting a decent president in 2017. Got to think ahead.

Now, we Republicans see a down market as an opportunity. As progs are being fired and kicked out onto the street - a good thing, btw - we will use our cash to by the cheaper stocks. When the market goes back up, we will be rolling in dough. So, essentially, we will be taking assets from progs, a wonderful thing.

As far as my neighbor being unemployed, that would mean he is a prog. We Republicans are responsible citizens who would immediately get another job. Needless to say, I will shed no tears if  prog neighbors get kicked out of their houses and starve. Ultimately, a normal person will move in, which will better the neighborhood and raise the value of my property.

So, this will be a good thing, unless you are a prog. And progs deserve all the bad that comes their way. People will applaud the ruination of progs.

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I :heart; Q

Well, does not seem the case here.  Big shacks (new) 6000 sq ft + on Riverside or Beach Side. Some require quite a few $ in "mitigation" fee's. LOT'S of remodling being done on house's that were most likely picked up cheap.....and now have become valuable again.   So, I don't see these stat's with my eye's. Condo I keep up is 100% Occupancy starting with the 500 and through Oct..   Job security for me. Seems construction types working, Architects, Engineers, ditch diggers....etc.

 

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  Trying to think of something new

 

 

 

Temporary blip due to low oil costs and inclement weather.

But yes, we would be sailing along if the do-nothing republicans got off their asses and did what they were elected to do. Hell, it would help if they did anything other than block Planned Parenthood and vote for the 100th time to toss out Obamacare.

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I was right.

This would be a great opportunity to renovate some rental apartments...hell maybe fill them with hot college chicks and make sure their parents name is on the lease!

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I troll 2L.com to be a better person in real life

Can you say, , , , Ponzi Scheme?

I asked somewhat the same kind of thing many, many, years ago in an economics class at FSU. The Prof replied that we would not talk about such things in class because, if things DID NOT WORK that way, things JUST WOULD NOT WORK AT ALL.

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Dora Hates You

"Temporary blip due to low oil costs and inclement weather"Actually need to look to other side of the globe,  chinas economy is in the shitter which directly affects the US.  Exports from China are down and  I am seeing a lot less applicants/investors for the EB-5 program also. 

I agree. They were elected to stop the PiC from doing all the damage he is doing. They have failed at that. And it is hurting the economy.

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I :heart; Q

I am glad to see oil prices down, those filthy little greasers were getting to be as bad as the Diamond horders......now I want a diesel truck with prices at or below $2 per gallon

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I troll 2L.com to be a better person in real life

Slow But No Recession
From Maury N. Harris
UBS Economist

2016 Real GDP Growth Cut 130 Basis Points To 1.5%
We have reduced our calendar average real GDP forecast from 2.8% to 1.5% in 2016
but maintained our 2.5% forecast for 2017. The major reasons for reducing our 2016
growth forecast are somewhat tighter credit conditions, the undesired 2015 inventory
building, weaker capital spending signals and more negative than earlier anticipated
effects from the strong dollar and plunging oil prices. The major reasons for no
recession in the forecast horizon and a recovery in 2017 growth are no broad-based
credit crunch, the end of a 2016 inventory correction, a much more slowly appreciating
dollar and a moderate recovery in oil prices.

Growth Already Was At 1.35% Annual Rate
The negative consequences of a strong dollar, weaker oil prices and reduced inventory
building were especially evident in recently reported GDP data for Q4(15). Annualized
real GDP growth in Q4(15) slowed to 0.7%, with 0.5% reductions each from
deteriorating foreign trade and weaker inventory building. Also, further declines in
domestic energy exploration subtracted another 25 basis points from annualized
Q4(15) growth. For H2(, average quarterly real GDP growth was just 1.35% versus
2.25% in H1.

Expected Soft H1 Is Replay of Weak H2
The weak 1.35% annualized growth in H2 is expected to carry over into H1.
While oil prices and the dollar could stabilize, their complete economic impacts from
their earlier movements are registered only with lags. Moreover, there are 2016 legacy
effects from previous dollar and oil price swings. Specifically, inventories were built too
rapidly. For example, the 3.1% annualized growth of real inventories in Q4(15) came
with just flat final sales of goods. Business profits and confidence have waned, with
accompanying negative effects on capital spending. For instance, in the Q4 Business
Roundtable CEO Outlook poll, the net fraction of respondents expecting higher capital
spending in the next half year fell to just 3% versus 21% in the previous survey. Also, a
dimmer business outlook stemming from the dollar and oil price changes of 2015
engendered more lender caution heading into 2016.
We expect annualized real GDP growth of just 1.0% in Q1(16) and 1.5% in Q2(16).
However, as the oil price, exchange rate and inventory correction headwinds start to
fade, we expect growth should improve somewhat to annualized growth rates of 2.0%
in Q3(16) and Q4(16) and 2.5% in calendar 2017.
Stronger dollar's toll continuing for time being
The strong dollar has been accompanied by weaker exports, which fell at a 2.5%
annual rate in Q4(15). Even if, as we expect, the rate of trade-weighted dollar
appreciation starts to diminish, the dollar affects trade with lags. For calendar
2016, we expect a 0.7% decline in real exports of goods and services, which
Edged up 1.1% last year. . For 2017, however, we expect renewed 2.1% export growth.


Lower oil prices' surprisingly negative effects
One of the biggest surprises last year was that the decline in oil prices did not have
the widely hypothesized net positive effects on the economy. We expected a
neutral effect as households' spending gains from lower energy prices would be
approximately offset by lower domestic energy exploration expenditures. Over the
four quarters ending in Q4(15), current dollar spending in the exploration, shafts
and wells GDP category plunged $81 billion to a $64 billion annual pace. At the
same time, the household sector's gain from lower gasoline prices was around
$115 billion, according to the American Automobile Association. However, in
calendar 2015 overall personal savings rose by $78 billion. And part of that rise
reflected the household sector not spending elsewhere all of their savings on
gasoline expenses. For example, 31% of gasoline is purchased by families who are
in the top fifth of the income distribution and whose consumption is not apt to be
governed by gas prices. If they saved all of their $36 billion in reduced gasoline
expenditures (i.e., 31% of $115 billion), such saving would represent close to half up 1.1% last year. expenditures of the $78 billion rise in overall personal savings.

Inventory pile-up in wake of dollar and oil shocks
With sales disappointments from the dollar and oil shocks, inventories have been
growing too fast. The annualized pace of real inventory investment fell from
$113.5 billion in Q2(15) to $68.6 billion in Q4(15.) That decline already subtracted
an average of 58 basis points per quarter from annual real GDP growth in H2(15),
and inventories are still too high. The $68.6 billion pace of inventory investment in
Q4(15) still represented the stock of inventories growing at a 3.1% annual rate
versus flat real final sales of goods. Consequently, inventory/sales ratios have been
rising. Thus, we foresee inventory investment continuing to decline through the
first three quarters of 2016, with the largest quarterly decrease occurring in the
current Q1(16). However, we do not expect outright aggregate liquidation.


More cautious capex environment
In this setting of disappointing consumer spending and exports and an inventory
build-up, businesses have been throttling back on their 2016 capital spending
plans. For instance, in the Q4(15) Business Roundtable CEO Outlook poll, the net
fraction of respondents expecting higher capital spending in the next half year fell
to just 3% versus 21% in the previous survey. (See Exhibit 1.) In December, orders
for nondefense capital goods excluding civilian aircraft dropped 4.3% versus
November when they were off 1.1% from October.


Job formation to moderate
Despite slow real GDP growth, nonfarm payroll growth remained strong in H2(15).
Consequently, productivity growth has been particularly soft. That is partly because
productivity improvements depend, in part, on capex. And capital spending has
disappointed so far in the current business expansion. Looking ahead, with profit
margins under pressure in a low productivity growth environment and somewhat
tighter credit conditions, job growth is apt to slow in 2016. Specifically, we expect
nonfarm payrolls to rise by around 170,000 per month after the 228,000 average
monthly gain last year.


Credit and economy feed on each other
Somewhat tighter credit conditions last year in response to weakening H2(15)
growth are one reason for expecting slower job growth in 2016. Credit quality
spreads in the corporate bond market have been widening and banks have been
somewhat tightening their business lending standards. To be sure, the tightening
in lending conditions has yet to look like it did prior to the last two recessions. That
said, slower job formation is suggested by our forecast model in which jobs
depend on the previous year's credit conditions.


Wages can still pick up with slow growth
However, slower job growth does not necessarily spell slower income growth if
wage growth picks up at a stable but relatively low unemployment rate. After
falling last year, the unemployment rate is expected to stabilize this year at around
its recent 5.0% level in December. Since 5% has been an inflection point for wage
acceleration in the last few decades, wage gains can still accelerate even with slow
job growth. Note: Slow labor force growth means nonfarm payroll gains need to
be only around 100,000 per month for the unemployment rate to stabilize.


Why no recession is forecast
We do not believe that the recent and prospective soft overall economic growth
will evolve into an outright recession with quarters of negative real GDP growth.
1. While credit conditions have been firming, they still are not as tight as
observed prior to recent recessions.
2. Although we believe that the pace of recent inventory building has been
too high, inventories still are not as top heavy as they were entering into
recent recessions.
3. UBS energy industry analysts foresee the recently very weak West Texas
Intermediate (WTI) crude oil price rising to a $40 per barrel calendar
average level in 2016 as excess oil inventories finally are sufficiently whittled
4. UBS fixed-income strategists believe that less than earlier expected federal
funds rate tightening in 2016 means a yearend 10-year Treasury note
yield of 2.0%. That is 50 basis points under our earlier forecast when we
still anticipated four instead of two Fed tightening steps in 2016.
5. UBS foreign exchange strategists do not foresee much further strong
dollar appreciation. For instance, by yearend 2016 the Euro is expected to
appreciate to $1.16 versus its recent around $1.10 level.




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So if you are a surfer I wish you the prosperity that allows you more time to pursue the salt water dream, and the true happiness that comes from warm water, clean waves and the companionship of your fellow surfers. If you are an internet troll just spewing bs then f off.

Can we just get on with rebuilding bridges, roads, airports and the like to upgrade our country and put a ton of people to work?

We need a New Deal.

Unemployment rate went down to 4.9%. Cheap oil is just hurting the market cause all those rich oil barrons don't have as much money to keep the market proped up. As long as Americans have jobs and oil is cheap, us working slobs are in the best place and all the rich are crying.

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Ah, religion, bigotry dressed up as morality.

It will move downhill. And going from a net worth of $50 billion to $30 billion is not going to hurt much.

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I :heart; Q

The economy sucks and it has sucked all 7 years under the PiC. If you don't believe me, listen to Bernie Sanders.

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I :heart; Q

The repubs have forgotten 2008 I guess. Yep, good times. Banks failing, foreclosures, quite the hullabaloo.

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“It is the heart of US policy to use fascism to preserve capitalism while claiming to be saving democracy from communism “ - Michael Parenti