My grandfather was a Canadian pioneer born in 1900. 1 of 10 kids, he lived in a one-room log cabin in the foothills of the Riding Mountain in Manitoba. He left school in grade three to hunt full time for the family. They founded their homestead by hacking a clearing in the woods with their hands. For Christmas each kid would get one orange in a sock and they were delighted to receive it. During the winter months they would sometimes run empty on the produce they had stored from summer crops and would be left with just potatoes. My grandpa told me the kids jokingly called these dinners “potatoes and point”, because you would eat your potatoes and point for something else but the table was bare.
I am reminded of this story recently with the mounting store of weak economic data. This morning the US ISM manufacturing index for September came in at 54.4 from 56.3 in August and was the lowest for this indicator since September last year. Significantly the new orders sub-component (a leading indicator for future production) fell to its lowest level since June 2009 and the inventory sub-index rose sharply to 55.6 from 51.4, its highest level since 1984. The new orders to inventory spread, which is a useful gauge of future activity, plunged below the zero mark for the first time since February last year, suggesting a very weak outlook for US Manufacturing over the next few months.
Needless to say, it is not just the US that is slowing down. The Bank of Canada yesterday delivered a dour assessment of the Canadian economy. Governor Carney noted “unusual uncertainty” surrounding the economic outlook “warranting caution” as stimulus programs fade and the private sector is not yet picking up the slack. Last month Japan reported a sharp slowdown in growth to just .4% for Q2, and today the UK confirmed a similar trend (discussed in the clip below).
Stock bulls can point to hope saying the ISM above 50 shows an economy still technically in expansion for September. But realistically, it seems that what we have here is just potatoes folks. Its setting up for a pretty tough winter.
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The auto-makers reported their September sales throughout the day yesterday. They were misleading as reported to say the least.
Here’s how the headlines read yesterday:
Wall Street Journal Online: “Auto Makers Log Solid September Sales’.
MarketWatch: “The Numbers Are In And They Rock.” General Motors car sales rose nearly 11% last month. Ford Motors sales jumped 46%. Chrysler sales surged a staggering 61%.”
As each company released its sales they ran on the news wires like this:
“General Motors said Friday that U.S. sales in September rose 10.5% to 173,155 vehicles from 156,673 in September 2009.”
“Chrysler Group LLC said Friday that U.S. September sales surged 61% to 100,077 vehicles from 62,197 a year earlier.”
“Volkswagen of America said Friday its U.S. sales in September rose 14.9% from a year earlier.”
And so it went through the day, as Toyota, Honda, Nissan, Kia, Hyundai came out with reports of September sales mostly being up by double-digits.
The reports provided great support for the market yesterday as well as the idea that the economic recovery is back on track.
Not one report that we saw made reference to how the September auto sales compared to August sales, which is the important comparison as to the economy’s current direction. And very few noted how very misleading the comparison to last September is.
If you recall, the ‘Cash for Clunkers’ program ran in July and August of last year and created a huge bump in auto sales in those months, as it turned out drawing in sales that would have taken place in September. So auto sales fell off a cliff in September of last year, making for extremely easy year-on-year comparisons.
But the facts regarding auto sales this year, and particularly in September, are that, as you may have forgotten, auto sales plunged this August by an unexpectedly large amount even considering the difficult comparison to ‘cash for clunkers’ August last year. In fact, August was the slowest month in auto sales in 28 years.
Yet according to AutoData Corp., overall auto sales declined 4% in September from the August level.
For instance, all of the following reported double-digit gains compared to the end of ‘cash for clunkers’ depressed sales of last September.
But month-to-month, General Motors’ September sales were down 6% from August’s awful levels. Honda’s sales fell 10% from August. Subaru’s sales declined 3.6% from August. Volkswagen sales were 13% below August. Kia September sales were 7% below August. Toyota sales fell 1% from August. Nissan sales fell 3.4% from August. Hyundai’s sales were down 13% from August. And so on.
Once again Ford turned in the best numbers. But its sales in September were only up 2% from August.
So in spite of the attempt to spin September auto sales as positive yesterday, in fact they were more evidence that like the housing industry, and consumer spending, and manufacturing, the auto industry continued to add its weight to the stalled economic recovery in September.
Note: After the market close the reports did take on a more accurate tone, by including comparisons to August’s sales and not just comparisons to last year’s extremely depressed September sales.