Saturday, November 8, 2008


The economic picture of the U.S. this week was terrible, and that’s an understatement. Just like charts for stocks, charts for economic indicators paint a very clear picture. Many charts have gone nearly parabolic, but that doesn’t mean the trend ends here. Looking at the big picture, it is obvious that the economy will get worse. There is no question about it. Although the stock market does rally ahead of an economic recovery, the economy is nowhere near a point of recovery. Here’s a simple review of this week’s economic indicators:

Motor Vehicle Sales

The consensus (m/m/ change) for motor vehicle sales was 9.2 million within a range of 8.4 to 9.6 million. The previous actual reading was 9.4 million. On Monday, the reading declined to 7.7 million. Automakers know this, so why do they keep on making cars that no one wants to drive and then go to Washington and beg for money?

Construction Spending

The consensus (m/m change) for construction spending was -0.8% within a range of -1.5% to -0.2%. The previous actual reading was 0%. On Monday, the reading came in at -0.3% “better” than expected. Looking at the chart, there is nothing better about it. As long as credit remains tight and banks refuse to lend, expect no “rebound” from these levels.

ISM Manufacturing Index

The consensus (m/m change) for the ISM Manufacturing Index was 41.5 within a range of 37.8 to 48.5. The previous actual reading was 43.5. On Monday, the reading came in at 38.9. Obviously, by looking at the chart, you can see that it fell off a cliff. These are the lowest readings since the 1980s and I have a strong feeling that it’ll be lower.

Challenger Job-Cut Report

The reason why the Challenger report is so important is because it foreshadows what the Employment Situation report will bring. The previous reading for announced layoffs on the Challenger report was 95,094 in September. On Wednesdays, the October report showed a reading of 112,884 announced layoffs, mostly in the financial and auto sectors (no surprise!). Given how the month started off. November’s report should be even worse.

ADP Employment Report

A double whammy on Wednesday, the ADP report confirmed what the Challenger report presented: we are losing lots and lots of jobs. The previous reading for September (m/m difference) was -8,000. On Wednesday, the reading for October came in at -157,000, a huge month-to-month difference, but expected.

ISM Non-Manufacturing Index

The consensus (m/m change) for the ISM Non-manufacturing Index was 47.5 within a range of 42 to 50.5. The previous actual reading was 50.2. On Wednesday, the reading came in at 44.4. The biggest drop was a result of the employment segment of the index (a -3 point drop). This is a record drop. This resulted in a sell-off in the USD and a move into Treasuries.

Jobless Claims

The consensus (weekly) for Jobless Claims was 480K within a range of 460K to 500K. The previous actual reading was 479K. On Thursday, the reading came in at 481K. The total comes in at 3.843 million claims for a 25-year high. Below, the chart looks almost like the VIX during its meteoric rise and it looks like it has more room to go.

The Employment Situation (Nonfarm Payrolls, Unemployment Rate)

The consensus for Nonfarm Payrolls (m/m change) was -200K within a range of -250K to -85K (whoever thought -85K should be fired). The previous actual reading was -159K. On Friday, the reading came in at -240K, worse than expected, but then again, Wall Street expected worse. The consensus for the Unemployment rate was 6.3% within a range of 6.2%-6.5%. The previous actual reading was 6.1%. On Friday, the reading came in at 6.5%, or the high end of consensus. November should be a very disappointing report because there is obviously nothing that can change the grim picture a month from now.

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Moneymonkey888 said...

THANK YOU so much for Summing up the report, very nice and clear!

Anonymous said...

So how did your students do in their first week in the mentoring? Profit/loss.


John C. Lee said...

My best is up 11% for the week, and my worse broke even I believe. And everyone else is in between.