Not the Time for Happy Talk and Wishful Thinking

One of the drawbacks of living in a digital age is a pervasive, tunnel vision-like focus on "the numbers," often to the exclusion of everything else. Sure, hard data matters, especially when the topic at hand is business and finance, but that's not the end of it. What is just as important is what those numbers actually mean, how they are interpreted, and what people plan to do as a result.

If, as we've seen in the U.S. (and elsewhere), the statistical picture is ostensibly positive but the majority are clearly in no mood to spend or invest, then it seems to me that the soft data, as such, should be weighted much more heavily.

In fact, the dark and deteriorating social mood, as revealed through first-hand accounts, anecdotal and news reports, and other means, is one of the reasons why I have remained steadfastly bearish despite all the "good news" Washington and Wall Street keep shoveling our way.

Arguably, the background details of a monthly statistical series announced this morning, summarized by Dow Jones Market Talk in "‘We Are Just Trying to Hold on,’" lend further support to the notion that now is definitely not the time for happy talk and wishful thinking [red highlighting mine].

Just in case you’re still hung over from the weekend, the Dallas Fed has a bucket of cold water for you. The regional bank came out with its June manufacturing survey this morning, and as bad as the numbers are, and they are bad, the comments are even worse.

The general business activity index fell to negative 4 from 2.9, the company outlook index fell to negative 2.8 from 19.6. The production index fell to negative 1.9 from 20.8 in May; capacity utilization fell to positive 2.7 from 18.7 in May. New orders fell to negative 8.2 from 15.8 in May. Go all the way down the line, the numbers are all down from a month ago. But even more so than the numbers, the comments from businesses surveyed are the real tell here, and it seems to me the Fed wouldn’t have any reason to cherry pick especially bad comments, so this is probably a pretty good take on where things stand.

You really need to read the whole thing to get the total picture:

Comments from Survey Respondents
These comments were selected from respondents’ completed surveys and have been edited for publication.

Wood Product Manufacturing
After skyrocketing in February through April, the North American lumber market has collapsed, indicative of the slowdown at U.S. job sites. Small and medium businesses here in “the trenches” are hurting every bit as much as last year. Much of the downturn is a result of the stimulus ending and the typical midyear slowdown that occurs in the building and construction industry.

Paper Manufacturing
A third price increase on linerboard is a possibility within the next couple of months. If this occurs, it will cause a major uproar with our customers. They will all be going out for bids, causing margins to erode.

Chemical Manufacturing
We are not optimistic about the next couple years.  There are too many negative factors in the world of finance right now.

Plastics and Rubber Products Manufacturing
As a business, we are just trying to hold on until the upturn comes.

The availability of skilled technicians and toolmakers is scarce, particularly in the 20- to 40-year-old age group.

Nonmetallic Mineral Product Manufacturing
Housing activity has had some pullback with the expiration of the home-buyer tax credit. The recovery will be lengthy and slow in coming, and it will be subject to improved employment levels and an upturn in the credit markets.

Fabricated Metal Product Manufacturing
After two consecutive months of increased activity, we have seen a dramatic drop in new business, with no backlog for July and beyond. We are having considerable trouble with our bank; although we are not in default and are making all payments, the bank has not executed a loan facility renewal after almost 90 days past our renewal date. There is a high degree of uncertainty in the marketplace, with owners and their designated contractors and design engineers seeing a dramatic reluctance to initiate planned projects, both maintenance and capital expenditure.

We have yet to see any evidence in Texas or across the country of an economic recovery.

Overall business has improved. There seems to be more onshoring of manufacturing due to risk control, inventory management and short lead times. Increased business expenses created by state tax increases are causing pressure on cost competitiveness. It is still very challenging to obtain financing for capital expenditure and growth.

Economic activity remains tenuous for building materials manufacturers.  Financing and demand for capital goods will determine the strength of the recovery as it relates to construction.

Machinery Manufacturing
We are quite concerned about the trends in general business activity. It feels like we are slowing down, not speeding up. I don’t see much that is encouraging at this point.

Our outlook for the next six months has improved due to our company broadening its product offerings, not necessarily due to improved economic conditions.

Demand for capital goods in the food service industry remains at a very low level.

Computer and Electronic Product Manufacturing
Right now business looks steady, but we’re stepping lightly.

Furniture and Related Product Manufacturing
Business has worsened this month. Retail activity has gone down, damaging the hope for improvement among retailers.

Beverage and Tobacco Product Manufacturing
2009 was great, but the wheels came off a little bit in the first quarter of 2010. The second quarter has been better, but not great.

Comments

[Rob]

Went to a Lowe's in Union City, CA, this past week to buy carpet. Service was non-
existant.
Called to ask a question, and no one answered the phone.
And they wonder why retail sales are down??
They must be taking lessons from their competitors, in the big orange box.

[sharonsj]

I have spent time at Home Depot instead. Been there at least once a week, looking for stuff because I am opening a small second-hand store locally. People are buying, but customers are sparse. Only two registers were open. But there were plenty of service people offering help.

It also looks empty at Walmart, although the parking lot appears full. I'm there once a week as well. I've noticed they've closed down many of the registers too. Less than half are open at any one time.

In fact, most of the stores never look full. Many are almost deserted. Went to Sears in a nearby city during the week and saw only a handful of people. Ate lunch at a TGIF restaurant and it looked about a quarter full.

Anybody who believes the media spin about a recovery is crazy.

[real leaders inspire, not conspire.]

Confidence declines when you know your being played by the same set of players.

Notwithstanding anything said or done by the Congress this year, operating through trained surrogates such as Geithner, Summers and others, Robert Rubin is still pulling the economic and financial strings in Washington. The fact that there is a Democrat in the White House almost does not seem to matter. President Obama arguably has a subordinate position to Rubin because of considerations of money. If you differ, then ask yourself if Barack Obama could seek the presidency in 2012 without the support of Bob Rubin and the folks at Goldman Sachs. Case closed.

http://tinyurl.com/372g8au

[Bill Mcdonald]

I wonder how long the corporate media can hold out. I mean how long can they keep dishing out this "feel good about the recovery" pablum before even their own conscience will stop
them. They must look in the mirror sometimes.

My sense is when Rupert Murdock or one of the other "titans of the media" feel they are
starting to lose credibility with the average working stiffs who buy their advertisers
products and services, that they'll change their focus to the actual negative economic
happenings, after explaining the new campaign to the advertisers first.

I am a bus driver in the hospitality industry in southern California, and I can assure
you that from my seat behind the wheel, there "ain't a whole lot of recovering going on".

[Progressive Ed]

Re President O'bama's economic policy decisions: When you remember his primary adviser throughout his ascendancy to the presidency of the United States was the Marxist William Ayers, it all makes sense(the willful ignorance of Larry Kudlow and William O'Reilly notwithstanding).

[Linda C]

Capitalism might be dead because capitalist killed it, not some Marxists like Bill Ayers. The death of capitalism is effective when you can make money by not producing anything. If you have one company like Goldman Sachs who claims themselves to be the "market makers", they effectively kill capitalism. They can also be the market breakers, which they have been. They control the information and pick and chose what is going to happen in the market and what won't happen. This does not benefit society or the economy, just Goldman Sachs and companies like them. Therefore, capitalism is being killed by the capitalists. This current crisis was brought on by excessive leveraging as well as collusion of the rating companies in a scheme by these TBTF banks. Virtually everything was given a AAA rating when it was all "subprime". Investors were not let in on this scheme because of lack of access to information and intended misinformation. People were buying empty boxes of nothings and were told that it was actually something. Sort of like buying a "pet rock", but at least you still had a rock in the box.

The president's and lawmakers are doing next to nothing to address this basic issue. We can't even tax the banks to pay for what little reform is being introduced because "bankers" don't want it. The cost of the banking tax "might be passed own" to consumers by even more nefarious fees that the banks charge already. Of course not taxing the banks, will give the tab to the average tax payer anyway by either higher taxes directly or a cut in domestic programs that create direct demand in the economy. In the end the average American will pick up the tab for the bailout, the reform and still get charged those nefarious banking fees. Companies that do survive will benefit from the lack of competition. The media, the banks, and the lawmakers will tell you how that is all good for the economy and the citizen taxpayer.

[ruralcounsel]

Capitalism is suffering at the hands of the mercantilists and oligopolists...people who support capitalism in name, but rarely in practice. (Akin to "pro-choice Catholics"...oxymoron at best.) They trade on their political connections, and have conspired with government to continue several long running Ponzi schemes.

That's why POTUS and his "lawmakers" are doing nothing. Actually, they are working very hard at appearing to do something while in reality doing nothing. When you are part of the problem, you don't have much incentive to be part of the solution. But they are very much like Bill Ayers, so I dispute your opening sentence, Linda C.

There is a golden rule of politics and economics...the consumer wage earner will eventually be the final recipient of any cost, invoice, or bill. No matter who the politician says will pay for it.

The current government interaction with the economy, and it's frantic attempts to reinflate the bubbles and stop the dominos from tumbling, is akin to having a surgeon amputate your leg with a nail file. I'm convinvced that a rapid major depression would be more beneficial than this slow death-by-debt that merely delays the inevitable. And hopefully would have the side benefit of flushing all the political and Wall Street TBTF turds out of the system.

I'm hoping that individual investors pull out of the market, invest in hard commodities (tools, food, weapons), retreat from the economy by going into bunker-mentality and stopping any tax-incurring activity, and sit back and watch the Ship of State sink in it's own fetid whirlpool.