The U.S. economic data dump on Friday has been three for three, on the downside.
The latest figures on industrial production, consumer sentiment, and manufacturing conditions in New York all deteriorated. But so far, the dismal numbers haven’t had any impact at on stocks. They’re continuing to march higher on hopes of further monetary easing by central banks, with shares in both Toronto and New York rallying. Bonds, which normally advance on indications of economic weakness, performed as expected and have advanced.
The releases were “a hat-trick of disappointing U.S. economic data,” according to Andrew Grantham at CIBC World Markets. “While the US data today would, on their own be negative for stocks, speculation that central banks will act to prevent a worst case outcome after the weekend’s elections appears to be supporting sentiment at the moment.”
The most worrisome figures were the fall in the University of Michigan’s survey of consumer confidence, which dropped to its lowest level in six months.
Here is a take on why sentiment is down and what it means, from Capital Economics’ Amna Asaf:
“The negative impact on sentiment from the pull back in stock markets in the last two months, driven by the turmoil in Europe, outstripped the positive from the sharp fall in gasoline prices. The recent slowdown in job creation and the continuous uptick in the weekly jobless claims figures has cast a cloud on the strength of the overall recovery. The drop back in the headline index was the first in nine months and was in line with the recent falls in other consumer confidence indices. It was driven by declines in both the expectations index, which fell from 74.3 to 68.9, and the current conditions index, which fell from 87.2 to 82.1. The former is now consistent with second quarter annualized consumption growth of hardly 1.0 per cent, which would be a sharp deterioration from the 2.7 per cent posted in the first quarter. Overall, the recovery in the US economy has lost quite a bit of momentum.”
The Empire state manufacturing survey also indicated deteriorating conditions. It slumped to 2.3 in June from 17.1 in May. The consensus, at 12.5, was way off the mark.
The results are “the lowest level since last November, when the balance was starting to recover from the debt-ceiling and euro-crisis slump last fall. Therefore, the number will add to concerns that the US manufacturing sector is starting to be severely affected by events overseas in Europe and slower growth in emerging markets as well,” says the CIBC’s Mr. Grantham.
Completing the hat trick were U.S. industrial production figures, which also weakened, falling 0.1 per cent in May, with the slack emanating mainly from the car industry.