My top 10 reason why bottom isn't here
1) Consumer price index is already deflating
The CPI is already in deflation mode, having fallen 0.4% on a year-over-year
basis, the first such negative trend since 1955. It is not just the actual deflation
rate, but the extent of the deceleration, since this time last year the pace was
running at +4.0%.
2) Pricing power is fading across a very broad front
This is not just a case of energy prices sliding from their lofty year-ago levels.
Looking at the CPI data sequentially and by sector, it is increasingly obvious that
pricing power is fading across a very broad front. Appliance prices fell 0.3% MoM
in March, apparel prices also dropped 0.3%, hotel rates sagged 2.4% and are
down six months in a row, airline fares also slipped 2.3% and have now deflated
seven months in a row, and home improvement materials fell 0.3%. In addition,
autos, communication services, restaurants and recreation were all basically flat.
3) More deflation coming down the road
Producer prices in March sank 1.2% sequentially and a record -3.5% year-overyear.
This time last year, the YoY rate was +6.7%, for a compression of over
1,000 basis points. The sustained deflation in the core crude and intermediate
price pipeline is probably a sign of what is still coming down the road in terms of
final goods prices.
4) Home prices declining at an accelerating rate
Case-Shiller home prices are actually declining at an accelerating rate and are
down a record 19% year-over-year. The pace of decline is accelerating with the
three-month trend running at a -26.5% annual rate.
5) Real estate values of all types deflating at a record rate
Real estate values of all types are now deflating at a record rate: -11.5% YoY for
apartment buildings, -3.3% for industrial properties, -6.1% for office buildings, and
-2% for retail complexes.
6) Record amount of spare capacity
The capacity utilization rate in manufacturing has declined to an all-time low of
65.8% from 66.9% in February and 77.7% a year ago. Only one other time in
recorded history has the CAPU rate fallen so far so fast.
7) Slack in the labor market at a lifetime high
The broadest measure of resource slack in the labor market is the U-6
unemployment rate and it rose to a lifetime high in March as well to 15.6% from
14.8% in February and 9.1% a year ago. Never before has the jobless rate risen
so fast.
8) Bank credit has contracted for three straight months
Bank credit contracted at a 2.9% annual rate in March and has declined now for
three months in a row. Data into early April point to a fourth monthly decline,
which would be unprecedented.
9) Record decline in household incomes
Nominal personal incomes less government transfers deflated 0.5% in March and
have now fallen for six months in a row. Since last August, the personal sector
has lost $234 billion of organic income (wages/salaries, rent, interest, dividends,
and proprietary). Take it from us that such a decline in household incomes has
never happened before.
10) Household net worth has contracted $20 trillion
Household net worth has contracted $20 trillion or by 30% since the third quarter
of 2007. The lags on consumer spending and the savings rate can last as long
as three years.
