Juggling Dynamite

January US Empire Manufacturing reading this morning was -43.7, much worse than the -5 estimated and much weaker than during the 2008 financial crisis/great recession.

January Empire Manufacturing Index plunged to -43.7 vs. -5 est. & -14.5 prior; interestingly, index was never this negative/weak during GFC … new orders sank to -49.4, shipments fell to -31.3, employment eased a touch to -6.9, and prices paid moved higher pic.twitter.com/uHDkVGiz5u

— Liz Ann Sonders (@LizAnnSonders) January 16, 2024

Meanwhile, the analyst consensus is for S&P earnings per share growth of more than 10 percent over the next 12 months (red line below since 2000, courtesy of Mikael Sarwe) even as nominal new orders are contracting (in blue). Typically, earnings follow new order trends. At the same time, US Gross Domestic Income was -.2% year over year in the third quarter compared with a 4.9% estimate for GDP. This disconnect is extreme and commonly, GDP is revised lower in retrospect to meet GDI.

Dr. Hunt illuminates many of these readings in the segment below.

Here is a direct video link.

The Bank of Canada’s (BOC’s) Business Outlook Survey for the fourth quarter of 2023 found that 40% of Canadian companies were experiencing a slowdown in sales. Indicators of future sales – including order books, advance bookings, and sales inquiries – remain subdued. See: Bank of Canada surveys show weak business environment, lower inflation expectations. The dour outlook for demand is feeding into weaker investment intentions and hiring plans, and most firms no longer feel the need to add staff.

Canadian consumer spending contracted 4% year over year in 2023, even with unemployment still sub-6% and the bulk of mortgages yet to renew at higher interest rates in 2024-2026. A separate BOC survey of consumers found that households are growing more pessimistic about the economy and pulling back on spending. See 2024 in charts.

Spending from 2020 to 2023 was enabled by unsustainable government support for households and businesses and record debt addition in the public and private sector.

The Bank of Canada will soon have to acknowledge that the economy has weakened far more rapidly than it expected. The third-quarter 2023 GDP growth was negative, and the first half of 2024 is looking to follow suit. Already, the unemployment rate has increased by a percentage point since June 2022, and home prices are falling again. According to the Canadian Federation of Independent Business, the proportion of businesses suffering from insufficient demand has rocketed to its highest level since early in the pandemic.

After a period of unprecedented rate hikes, this year will be a story of wage growth slowing as unemployment goes up. That’s according to David Rosenberg, Founder and President of Rosenberg Research. Here is a direct video link.

Danielle was a guest with Jim Goddard on Talk Digital Network, talking about recent developments in the world economy and markets. You can listen to an audio clip of the segment here.

Further to the discussion of retail investors getting smoked in funds that hold illiquid concepts and securities, see Property sharing investment firm Willow latest to get hit by rising interest rates. More of these to come:

A commercial property-sharing startup aimed at retail investors is the latest real estate venture to face trouble amid higher borrowing costs.

Willow LP, which was acquired by an online rental-services company in late 2023, was part of a new wave of property investing called “fractional investing or prop sharing” that became popular when the pandemic’s spike in property prices enticed more Canadians to invest in real estate.

Unlike real estate investment trusts, in which investors purchase units in an entity that owns a large portfolio of properties, fractional-investing companies give individual investors a chance to own a piece of a commercial property, such as a retail building or office tower. Fractional investing became especially attractive for younger investors.

Willow charged $36.06 to buy one unit of a retail and residential property in a popular shopping area on Queen St. West in Toronto in 2022, according to legal documents it provided to investors.

But now with higher interest rates, hundreds of small investors have seen the value of their investment decline between 50 and 60 per cent, according to a December e-mail sent to Willow investors from the company’s new owner, Montreal-based Solutions Guiker Inc.