COGNITIVE DISSONANCE: DEATH BY A THOUSAND DATA POINTS

Takeaway: Domestic growth estimates continue to decline as the data comes in. Retail Sales were soft. Claims were good - but are becoming an outlier.

“Here, our books are filled with numbers. We prefer the stories they tell. More plain. Less open to interpretation”

- Iron Bank of Braavos, Game of Thrones

 

 

After yesterday’s negative revision to 1Q14 GDP (see HOW LOW CAN YOU GO), this morning’s retail sales data should serve as another blow to forward growth expectations. 

 

While full year growth estimates continue to get clipped with regular frequency, the collective cognitive dissonance over the outlook for consumption - in the face of overtly middling data - remains very much entrenched.  

 

Indeed, looking across our Economic Summary table (below), the amount of sequential Worseningcontinues to belie the “accelerating recovery” narrative and sticky, 4%’ish, consensus GDP estimates. 

 

We did see a modest, expected bounce across the breadth of manufacturing/confidence/labor data into 2Q and reported growth will accelerate sequentially but, essentially, we are what the numbers suggest. 

 

Take the average of (soon to be revised lower) 1Q14 gdp and the (overly optimistic) 2Q14 estimate:   

 

(-2.0%  + 3.5%) /2 = More Muddle

 

The current domestic macro reality is that with Inflation accelerating (food, shelter, energy), housing decelerating, the labor market middling, and tougher growth/inflation comps through 3Q14, the intermediate-term trend for consumption growth is one of deceleration.   

 

COGNITIVE DISSONANCE: DEATH BY A THOUSAND DATA POINTS - CPI breadth 061214

 

COGNITIVE DISSONANCE: DEATH BY A THOUSAND DATA POINTS - Eco Table 061214

 

 

RETAIL SALES:  Ugly April figures were revised higher, but back to deceleration in May.

 

Headline retail sales, supported by the significant jump in Auto Sales (+16.7M in May vs. 16.1M April), advanced 0.3% MoM in May (est. +0.6) while April numbers saw a positive revision to +0.5% from 0.1%.

 

Figures were more sanguine under the hood as more than half of industries saw negative MoM growth and decelerating YoY growth.  Further,  MoM growth in the Control Group (which feeds GDP) was slightly negative with growth decelerating -70bps and -10bps sequentially on and YoY and 2Y basis, respectively. 

 

The broader takeaway from today’s data is largely the same as its been the last 6 weeks or so – the numbers are ‘okay’ but do not reflect a material acceleration or any significant rebound demand from deferred 1Q consumption 

 

COGNITIVE DISSONANCE: DEATH BY A THOUSAND DATA POINTS - Retail Sales Control Grp

 

COGNITIVE DISSONANCE: DEATH BY A THOUSAND DATA POINTS - Inventory Sales

 

COGNITIVE DISSONANCE: DEATH BY A THOUSAND DATA POINTS - Retail Sales Table

 

 

INITIAL CLAIMS:  The labor market continues to positively clip along, but it's becoming an outlier amid an avalanche of negative evidence.

 

This morning’s initial jobless claims data showed a moderate, sequential deceleration in the rate of improvement, but the trend remains solid.  The continued strength in the high frequency labor market data is becoming a bit of a positive outlier.

 

Our head of Financials research, Josh Steiner, aptly contextualized this morning’s data:

 

There's growing uncertainty over the macro outlook. Data seemingly in conflict includes labor data that appears to be solid, but housing and retail sales data that are showing signs of cooling off. 

 

Our choice to use initial claims data as our macro weather vane stems from its accuracy in the last cycle at pinpointing both the top and bottom of the cycles on a real time basis. For example, in the last downturn initial claims began to move higher on a seasonally-adjusted basis in late 2007. Recall that the S&P 500 reached its peak level in October, 2007. Conversely, initial claims peaked and began to roll over sharply in March, 2009, also coincident with the trough in the market.

 

With that in mind, this morning's initial jobless claims data is good, though not great. Seasonally adjusted rolling claims are at 315k, which remains in bull market territory by historical standards. Meanwhile, the year-over-year change in rolling non-seasonally adjusted claims came in at -8.8%, also a strong print (though less strong than the week prior).

 

COGNITIVE DISSONANCE: DEATH BY A THOUSAND DATA POINTS - 1

 

COGNITIVE DISSONANCE: DEATH BY A THOUSAND DATA POINTS - 2

 

COGNITIVE DISSONANCE: DEATH BY A THOUSAND DATA POINTS - 16

 

More #InflationAccelerating data on deck for tomorrow…..

 

 

Christian B. Drake

@HedgeyeUSA


Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more