My response is simple: What are these guys smoking? The latest news has been anything BUT fine – and it tells me it’s time to worry about the U.S. economy. Really worry.
Just this morning, we learned that durable goods orders rose only 0.8% in March. Not only did that fail to reverse even a third of the massive 3.1% plunge in February, but it also missed economist forecasts for a 1.9% gain by a mile.
Strip out volatile transportation orders and you get a 0.2% drop. Economists expected a rise of 0.5%. Non-defense capital goods orders, ex-aircraft … a proxy for “core” business spending? They went nowhere, versus expectations for a 0.6% increase.
The Conference Board’s consumer confidence index? It dropped to 94.2 in April from 96.1 in March. That was another miss, considering forecasts called for a rise to 96.7. And it’s not like today’s figures are coming out of left field, either.
|Retail sales dropped 0.3% in March, badly missing forecasts|
Retail sales dropped 0.3% in March, badly missing forecasts for a 0.1% gain and continuing a string of lousy numbers. The annualized rate of vehicle sales last month missed targets by more than 700,000, despite exploding incentives and a surge in deeply subsidized leasing.
In real estate, housing starts plunged almost 9% last month. That was more than quadruple the drop economists were looking for. New home sales dropped for the third month in a row, and underlying trends in commercial real estate appear to be worsening by the week.
The missing ingredient to the slowdown thesis … so far … has been jobs. Monthly job gains have been decent, if not spectacular, and jobless claims remain low.
But anyone who knows anything about economic and credit cycles knows that labor is a “lagging” indicator, one of the last things to turn. I think it’s just a matter of time before the numbers cool there. So again, I’m more worried than sanguine.
|“This kind of
disconnect between reality and fantasy
can’t last forever.”
That’s especially true now that the markets have rallied sharply on the expectation of more monetary hocus-pocus from the Bank of Japan or European Central Bank. This kind of disconnect between reality and fantasy can’t last forever – and I wouldn’t be surprised if the “reconnection” were to happen very soon.
So what do you think about the latest economic data? Is the U.S. economy at a significant turning point? Is this just a temporary blip in the expansion? Can central bank funny money paper over it all anyway, making actual analysis pointless? Let me know in the comment section.
In yesterday’s column, I put out a call for reports on local real estate market conditions. Boy, did I ever get a lot of feedback. Many of you confirmed my observations – but some of you said things still looked good in your neck of the woods.
Reader Capt T. shared this view from Southwest Florida: “Fort Myers area here. Not seeing the explosion of open space, but there is some and it does seem to be growing. They have been on a building tear for several years, and I do expect to see the crash repeated.”
Reader Bob offered his take from not far away: “I haven’t seen this much vacant land clearing in North Naples, Florida in the last seven years. Infrastructure for thousands of residential lots, with lots of money in the ground, and a fair amount of spec housing being constructed.
“Retail and office space ‘For rent’ signs increasing almost daily. Can’t figure out why vacant commercial lots are being built on everywhere. I must be missing something.”
Meanwhile, Reader Len weighed in from central New Jersey with these observations: “I have noticed the same phenomenon – commercial property available everywhere you turn, and it seems to be on the increase with very little new construction. I thought it was a sign of the outward migration of business from our very highly taxed state.”
In Maryland, Reader Chuck B. said: “Here in Baltimore, a 40-odd-story apartment building and a 17-story office/apartment/retail building recently broke ground. Several others are in the wings, including another 40-plus story building. Quite a few older downtown office buildings have been or are being converted to apartments, so developers must think the market is strong.
“The city is said to be a good job market for young college grads. On the other hand, a luxury hotel added 11 floors of luxury condos, and is having a bit of trouble selling them. Had to lower prices.”
Down in Texas, Reader Myron said: “I live in a suburb of Houston, and I have been seeing a sharp increase in “For lease” or “For sale signs at commercial real estate properties.”
As for conditions in Colorado, Reader Chuck said: “Denver rents and real estate prices are going up. There is not enough commercial space for prospective tenants and vacancies are low and dropping. Developers cannot keep up, in part because during the ‘Great Recession,’ construction workers left the business and are not coming back.”
Shifting farther out West, Reader Robert S. said: “I have also noted that there are many “For lease” signs in the commercial space in our section of Los Angeles. The local economy leaves a lot to be desired and Amazon.com seems to be killing the retail sector. The lack of demand for goods and services is stifling.”
Elsewhere in the L.A. area, Reader Robert said: “In Los Angeles, especially on the Westside, it’s almost impossible to find a suitable apartment to rent under $2,000/month. Apartment owners are squeezing every last dollar out of their units because of a boom in ecommerce businesses opening campuses here. Buildings are selling for super-high multiples.”
Further up the California coast, Reader Carla shared this view from the San Francisco Bay Area: “Here in suburban Walnut Creek, there has been an insane amount of over-development and unsustainable growth. The downtown area is being overbuilt at breakneck speed, with high-density, high-end apartments (with a two-bedroom running $3,500 per month).
“This used to be a charming village-like community. Now it’s bumper-to-bumper endless traffic on poorly delineated streets. The stress and chaos is building.”
And shifting farther south, Reader Shell said: “My husband and I are real estate brokers and investors here in San Diego. Prices have jumped since December across the board! Anything, even slightly near the coast, under $1 million gets multiple offers within a few days. We have very limited inventory so it’s still a sellers’ market.
“Rents have skyrocketed, but many people don’t qualify for these high prices. New home developers are few and they’re selling quickly. We’ve seen a LOT of available commercial but have commercial clients who can’t find what they need (due to permits). Crazy times!”
I appreciate the on-the-ground intelligence, and I’m sure your fellow investors do as well. I really do believe we’re at a turning point in the real-estate cycle again, with this unfolding downturn likely to be led by commercial property rather than residential. The exception is the apartment market, where overbuilding of the sort a few of you noted in your comments particularly egregious.
You can find out much more on my real estate take, as well as my overall market outlook by …
==> Joining me at the MoneyShow Las Vegas from May 9-12 at Caesars Palace. I have two presentation slots at this invaluable gathering, which will feature more than 160 hours of educational classes, engaging panel discussions, an exhibit hall filled with industry-leading companies, live trading and software demos, and unsurpassed networking opportunities. Call 800-970-4355 to register today (please mention priority code 040948).
==> Participating in the Money, Metals, & Mining Cruise this summer from July 10-17. Departing from the Port of Anchorage, Alaska, the Crystal Serenity will set sail for seven fabulous days through some of the most pristine wilderness and breathtaking vistas in the Pacific Northwest.
You will also visit popular ports-of-call like Sitka, Juneau, Skagway, and Vancouver – and you’ll do it aboard the cruise line named “World’s Best Large-Ship Cruise Line” by the readers of Travel + Leisure and Conde Nast Traveler magazines for the last 19 years.
I can’t think of a better environment for you and I to talk about the recent surge in gold, the major threats to U.S. economic growth, the multiple ways you can profit from them, and more. If you want more information, definitely call our representatives at 800-797-9519 and ask for the Money, Metals, & Mining special rates.
In other economic news, the Richmond Fed index dropped to 14 from 22 a month earlier. That makes the March spike to seven-year highs look even more anomalous.
A separate report on home prices from S&P/Case-Shiller showed year-over-year appreciation of 5.4% in February. That’s still healthy, but a definite cool down from the double-digit rates we saw in 2013 and 2014. As a matter of fact, it was the smallest gain since October 2015.
Will they or won’t they … exit the European Union, that is? That’s what investors continue to wonder about the U.K. The British pound gained some ground today against the dollar amid increased optimism the Brits will remain in the Union. But given that we still have two months until the referendum, sentiment could swing either way between now and then.
The earnings parade continued today, with a mixed bag of results from the likes of 3M (MMM), Du Pont (DD), Ingersoll-Rand (IR), Whirlpool (WHR), and Masco (MAS). My quick take? There is too much optimism about deep cyclicals and industrial stocks. They’ve rallied on the back of a temporary bout of debt-fueled Chinese stimulus … but that sugar high is going to run out fast. That makes these kinds of names among the most vulnerable out there to me.
Anything you want to add, on house prices, Brexit, or the outlook for industrial stocks? Then be sure to hit up the comment section below.
Until next time,