Contradictory data

Posted By Darren Winters on Dec 10, 2019


Contradictory data

Contradictory data ultimately results in a blurred picture for investors. Data watchers are currently being bombarded with contradictory data, which is when two or more statistics and facts imply that the opposite is true.

Did anyone notice the contradictory data in the recent upbeat US jobs growth report and dismal manufacturing survey? 

The best US jobs growth report in half a century doesn’t jibe with the worse manufacturing survey reading in the same quarter. 

Yet that is what was posted with November’s non-farm payrolls surge by 266,000, which exceeded market expectations of 187,000. 

So the US unemployment rate has fallen to 3.5% from 3.6%, which is near 2019 low and matches the lowest jobless rate since 1969. 

Part of that improvement in November’s payroll was due to the end of the GM strike, which helped to boost employment in motor vehicles and parts by 41,300. Moreover, 54,000 extra manufacturing jobs were created in November, according to the job’s report. 

Contradictory data

Even the missing piece of the puzzle, the rise on average hourly earnings managed to post a rise of 3.1% from a year ago.

Upbeat Larry Kudlow, Director of the National Economic Council last week at CNBC’s eagerly took to the stage and said, “Bottom line, America is working.” 

But the latest US manufacturing survey, which shows the worst reading in a decade is the contradictory data to shatter the narrative that the US economy is firing on all cylinders. 

An obvious question comes to mind. How can a contraction in manufacturing lead to an increase in manufacturing jobs?

The ISM U.S. manufacturing purchasing managers’ index came in at 47.8% in September, the lowest since June 2009 and it marks the second consecutive month of contraction. 

The new export orders index also fell to only 41%, the lowest level since March 2009. 

What’s more, the contraction in manufacturing is not only underway in the US, as a drop off in manufacturing activity has also been registered across advanced economies.

So the data suggests a global manufacturing slump with output in the last quarter lower than a year earlier across all 36 advanced economies.

Moreover, sentiment indicators show that it is the most geographically widespread manufacturing downturn for seven years. 

Why is there an earnings recession

But let’s stay with the theme that the US economy is firing on all cylinders and creating an abundance of jobs, then the collapse in heavy trucking orders is another contradictory data for investors to add to the equation. 

Heavy-duty trucking orders totaled 17,300 units for the month, which marks the slowest November since 2015 and a 39% collapse from November 2018. The slowdown in orders has resulted in hundreds of production workers being laid off by companies like Daimler Trucks North America, Volvo Trucks North America, Paccar Inc., and Navistar International Corp. That also harms the supply chain with engine manufacturer Cummins Inc, “laying off 2,000 white-collar employees globally in the first quarter of 2020”.

November is typically a month when fleet companies place orders to support increasing road freight during the festive season. 

Tim DeNoyer, ACT Research vice president and a senior analyst said: “The freight market downturn worsened in the past month, and uncertainty surrounding trade and tariffs continue to weigh on truck buyers’ psyches”.

So two sets of data suggest a recession is nearing the dismal US manufacturing survey and the collapse in heavy-duty trucking orders. The logic is straightforward, if manufacturers are producing fewer goods then that means demand for road freight service is also likely to be weak, hence the lackluster sales for heavy trucks. 

October’s US credit card usage surge is the contradictory data for the bears

US consumers are spending like there is no tomorrow, charging it all on their credit cards.

Total consumer credit jumped by $18.9 billion in October, almost doubling the previous month’s total, driven by a fresh surge in credit card usage. 

Is a rise in credit card usage a sign of a robust economy, or is it the reverse where households are buying essential items with credit because they can’t make it to the end of the month on their income? 

The rise in consumer credit doesn’t tally with the rate of economic growth.

Total consumer credit has risen to 5.5% annual rate to $4.165t, which is more than double the rate of growth of the broader economy. Moreover, student loans are now $1.639 trillion, and auto loans are now $1.194 trillion, both all-time highs. 

To put it simply, US household consumption is riding on a massive credit wave

Think about it. Why do the world’s largest consumers need to go into massive debt to finance their living standards if the economy were doing so great? Why too are tent cities of homeless on the rise too?

Perhaps the great jobs report is the contradictory data, noisy data in the data set

So the contradictory data that we are being bombarded with is giving a blurred image of reality. 

But who needs to see reality in the fairy tale land of central bank fiat money printing?

In the greatest US economy ever the Fed, the world’s central bank by default, is creating more liquidity, “in not QE” at a rate not seen since the financial crisis of 2008.

Indeed, the Fed Is expanding its Balance Sheet at the fastest pace since the last Great Recession. So QE4 has begun, but this time it is being aimed at the $1.2 trillion per month hole in the repo market. 

Since the Repo market blow-up, the Fed has been entering the market and buying the short end of the bond yield curve to the tune of $1.2 trillion per month.

So the Fed’s balance sheet is expanding at a faster rate than QE2 or QE3 and matched only briefly by QE1. 

The chart entitled, Monthly Change in Fed balance sheet ($bill) tells the story like none other.

So the Fed’s balance sheet blowout is another bit of contradictory data to an economy firing on all cylinders.

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