With the Dow near 18,100 and crude oil trading above to $56, today a legend in the business sent King World News a powerful piece warning that the U.S. economy is now accelerating on the downside. A guest commentary is included from the brilliant economist Richard Yamarone.
From Art Cashin's notes: Is The Economy Sputtering? – My friend, Rich Yamarone, Bloomberg's outstanding economist has written a somewhat cautionary note about today's Industrial Production number and some kindred data. Here's how he began:
Industrial production is likely to have declined 0.3 percent during March, according to economists polled by Bloomberg. This would follow a paltry 0.1 percent gain in February. The risk to the consensus estimate is to the downside, particularly due to a weather-induced slump in electricity output as winter weather moderated in March relative to February.
Several other indicators, such as a deteriorating capacity utilization rate and rising inventory-to-sales ratios, suggest a reluctance for business spending. That attitude may have forced factories to pull back on the production levers once again in March.
The Federal Reserve doesn’t always have the data to forecast this key measure accurately, so it uses the related data from the monthly Employment Situation report.
A common back-of-the-envelope estimate may be penciled in by multiplying the number of employees engaged in manufacturing activity by the level of hours worked weekly.
During March, there were 12.319 million workers at 40.9 hours worked, or 503.847 million man-hours; during February there were 12.320 million workers at 41.0 hours, totaling 505.12 million man-hours. So March’s weekly man-hour count is 0.25 percent lower than February’s level.
The level of overtime hours worked weekly was unchanged at 3.4 hours in March.
The Bloomberg consensus forecast for manufacturing production anticipates a 0.1 percent increase, but given the dip in aggregate hours, Bloomberg Economics views downside risks to this forecast.
Rich goes on to tie some of the data pieces together:
Another consideration regarding industrial production is the escalating total business inventory-to-sales ratio — at 1.36 months’ sales in February. This is a level not seen since the throes of the 2007-09 collapse in aggregate demand. Climbing I-S ratios suggest that the pace of demand isn’t keeping up with the level of supply, so businesses tend to cut back on production until those stockpiles are reduced.
A soggy report on March industrial production will add to concerns that the March jobs report was not a fluke. Similarly, it will diminish expectations for a sharp rebound in activity in the current quarter.
So we will be watching particularly closely when the production/utilization data hits at 9:15.
Today – Lots of data and Fedspeak through the day. Traders will also listen very carefully to Mario Draghi after the ECB opines this morning.
Consensus – Crude could be a key if it breaks to the upside from its extended rectangular range. I will be listening very closely to Fed Vice Chair Stanley Fischer who I think may be "the" key factor in the FOMC debate. S&P may see some resistance at 2105/2108. Stick with the drill – stay wary, alert and very, very, nimble. ***ALSO JUST RELEASED: A Remarkable View Of The War In The Gold, Stock And Natural Gas Markets CLICK HERE.
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