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Bloomberg is reporting Services
ISM Unexpectedly Slows.
U.S. service industries grew at the slowest pace in almost four years in
March, leaving the economy more exposed to slumps in manufacturing and housing.
The Institute for Supply Management's index of non-manufacturing businesses
including banks, builders and retailers slid to 52.4, lower than economists
anticipated. Orders placed with American factories rose 1 percent in February,
the Commerce Department said in Washington, also less than analysts predicted.
Services, which account for 90 percent of the economy and have propped
up growth for the past year, are now being hurt by rising fuel costs and
slowing sales.
FedEx Corp., the world's largest air-cargo carrier, is among service providers
getting pinched. On March 21, the Memphis, Tennessee-based company reported
its first quarterly profit decline in three years and cut its earnings forecast
for this quarter citing slowing economic growth. The slowdown is hurting
its Express parcel delivery and Freight trucking units.
The ISM index was forecast to rise to 55, according to the median estimate
in a Bloomberg News survey of economists. Factory orders were forecast to
increase 1.8 percent. Excluding transportation equipment, bookings fell 0.4
percent after a 2.5 decline the prior month.
Orders Slow, Prices Rise
The ISM's report showed the index of new orders fell to a seven-month low
of 53.8 and a measure of prices paid rose to 63.3, the highest since August.
The report also showed hiring cooled to an almost three-year low.
"Business sentiment is weakening," said Kevin Logan, senior market economist
at Dresdner Kleinwort in New York. "Sales are slowing, and businesses are
looking out and seeing that it's going to be harder to make money."
Monster Worldwide Inc., owner of the world's largest Internet job-listing
site, said today first-quarter sales rose less than forecast as demand slowed
in the U.S.
The slowdown in services last month confirmed a similar weakening in manufacturing.
ISM's factory index, out earlier this week, showed activity slowed while
raw-materials costs jumped, adding to concerns that a cooling economy is
failing to damp inflation.
Once again we see the word "unexpected" and once again I can not figure out
why. The better question is how is it holding up as good as it is?
German Industrial Production Declines
In Germany we see Industrial
Production Probably Declined in February.
German industrial production probably declined in February for the first
time in four months after export orders sagged early in the year, a survey
of economists shows.
Production may have fallen a seasonally adjusted 0.5 percent from January,
when it rose 1.9 percent, according to the median of 39 forecasts in a Bloomberg
News survey. The Economy and Technology Ministry will release the figures
at noon today.
Dyckerhoff AG, Germany's second-biggest cement maker, said March 28 it
expects earnings this year to stagnate. Vossloh AG, Germany's largest supplier
of concrete rail-track ties, aims to cut annual spending on production, purchasing
and logistics by 25 million euros ($33 million) by next year.
Used car prices plummet in Canada
In Canada a Flood
of used cars pours in from U.S.
Peter Pauls runs a small used-car dealership northeast of Winnipeg and rarely
has his lot been more jammed with metal than in the past several months.
Cars and trucks have been piling into Canada's pre-owned market and into
the hands of dealers like Mr. Pauls. And their prices have plunged as supply
exceeds demand.
Mr. Pauls said he sold a handful of Pontiac Grand Am and Oldsmobile Alero
cars before Christmas for between $12,900 and $14,100. That's half of their
manufacturer's suggested retail price. All the cars were one year old.
"I'm still up to the rafters in inventory," he said yesterday. "I'm over-filled.
Unless I've got a vehicle sold, I am still not buying anything."
Used-vehicle prices are a key leading indicator of overall vehicle demand
and also a good proxy for the health of the overall economy, according to
Bank of Nova Scotia. And their accelerated drop in recent months signals
potential pain ahead.
The price drop began in Canada last summer and has worsened in recent months,
Scotiabank said. It has spread to the United States, as slowing economic
growth begins to dampen household purchasing power, the bank said.
Lower used-car prices hurt sales of new cars because consumers have less
equity when they trade in their vehicles. That in turn means they're more
likely to keep driving the vehicles they have instead of buying a new one.
"We think that this means new-vehicle sales should start coming under additional
pressure in coming months," said Carlos Gomes, senior Scotiabank economist.
Scotiabank forecasts automakers will sell 1.55 million new light vehicles
in Canada in 2007, down from 1.61 million last year. The unexpectedly strong
Canadian sales automakers have seen in the past four months are not sustainable,
the bank said.
Building permits in Canada plunge
The big story in Canada is a plunge
in building permits.
The value of Canadian building permits plunged from record highs to their
lowest level in a year in February, but analysts were quick to caution against
doomsday predictions of a sudden real estate collapse.
Statistics Canada reported on Wednesday a 22.4 percent tumble in permits
due to a sharp decline in both residential and nonresidential permits.
The decline was more than three times the 6.5-percent drop forecast by
analysts in a Reuters poll. The total value of permits was C$4.9 billion
($4.2 billion), 12 percent below the monthly average in 2006.
Building intentions in the residential sector fell 17.8 percent to C$3.0
billion, pulled down by a 34.4 percent plunge in permits for multifamily
units. The biggest decline was in the province of Ontario but western Canadian
provinces of Alberta and British Columbia, as well as Quebec in the central
region also saw significant setbacks.
Analysts noted extremely cold temperatures in February, which might have
impacted construction.
When things go bad blame the weather. I suggest this is the beginning of the
end of the housing boom in Canada. Canada seems to be about 18 months or so
behind the US and has a lot of catching up to do. It will be a painful process
especially for recent buyers and trapped sellers, just as it played out in
the US.
The Current Scorecard
- Non-manufacturing ISM unexpectedly slows.
- Capital spending is weak.
- Sales of new single-family homes plunged to the lowest level in more than
six years.
- U.S. corporate profits fell in the fourth quarter of 2006.
- Durable goods orders except transportation unexpectedly drop.
- Monster job listing rose less than forecast.
- Housing permits plunge in Canada.
- Used car prices in Canada plunge.
- Germany Industrial production declines.
- The yield curve is inverted.
- Base money supply and M' annual rate of growth is negative.
- That combination of money supply and yield curve inversion has accurately
predicted every single recession with no misses and no false positives since
1960.
- 2.1 million homeowners missed a mortgage payment in the 4th quarter of
2006.
- Foreclosures are rising.
- Bankruptcies are rising.
- Home prices are falling.
- Jobs growth is anemic.
- There will be no housing spillover.
All this talk of no spillover is rather interesting given that many items
on that list might be considered proof of a spillover.
Nonetheless the International Monetary Fund headline du jour is World
'unlikely' to catch America's cold.
The economic slowdown in the United States is unlikely to spill over into
the rest of the world as long as America's problems remain confined to its
troubled housing market, the International Monetary Fund has concluded.
It said in its World Economic Outlook, published ahead of its annual meeting
in Washington next week, that the rest of the world was well placed to "de-couple" from
the US economy and sustain strong growth.
The IMF studied five recessions and two mid-cycle slowdowns since the 1970s.
It found that synchronised slumps were associated with full-blown recessions
like those in 1974-75, 1980-82 and 1991, rather than with intermediate growth
pauses like those in 1986, 1995 and the current phase.
It also concluded that worldwide downturns were rarely caused by "spillovers" from
US-specific problems like the sub-prime mortgage crisis but reflected global
shocks like the quadrupling of the oil price in the 1970s or the bursting
of the tech bubble in 2000.
So the IMF has concluded this is an "intermediate growth pause". I have news
for the IMF. The spillover from housing is going to be far bigger than the
spillover from the tech wreck. We are currently in the greatest monetary experiment
in history with worldwide housing bubbles, derivative bubbles, stock market
bubbles, and empire building bubbles (the US in Iraq). In fact we have bubbles
within bubbles with the all encompassing bubble being the credit/debt bubble
partially fueled by a mammoth YEN carry trade. The question is not whether
or not there will be a mammoth spillover (there will be) but rather how fast
and furious it will be once it gains some traction.
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