U.S. stocks slid on Friday to wipe out the gains made early in the week to close down for the seventh of the past eight weeks.  Greece was on the minds of traders again on Friday as we await that crucial austerity vote, scheduled for Wednesday.  The 10-year Treasury rallied again on Friday; its yield isn’t only below 3.00% again but sub-2.90% as it’s settled at 2.87% this morning.

The only of the 10 major industry groups to close higher Friday was utilities.  Energy and tech shares led the losses.  The price of crude is trading at $90.81/bbl right now and wholesale gasoline is down to $2.76/gal.  The national average at the pump is $3.57, which is down from $3.80 a month ago – too bad it’s taken bad news to get the price lower.

This morning U.S. stock futures are a bit higher after most of Asia traded lower last night but Europe is up a little this morning.  That Greek vote will be what everyone will be talking about for the next two days.  The Greek parliament needs a simple majority to pass it and word is there’s no room to spare as the yeas are at 151.  Bailout funds are supposedly contingent on this vote, but they’ll be released even if it goes down in flames because this is more about the European banking system than it is about Greece.  But then if the plan is passed, the country may just go down in flames anyway as an incensed populace takes things to the next level.

Market Activity for June 24, 2011

Sector Activity for June 24, 2011

Durable Goods Orders

Durable goods orders didn’t’ turn out too bad in May, even though the headline increase failed to offset April’s decline – the ex-trans and capital spending components did more than offset their April declines.

Overall orders rose 1.9% (better than the expected 1.5% increase) after slumping 2.7% in April (though less than previously expected as that April number was revised higher).

Excluding transportation orders (removing the very volatile commercial aircraft component and the “Japanese effected” autos), orders rose just 0.6% (missing the 0.9% increase expected).  And on that supply-chain disruption due to the Japanese quakes and tsunami, I still don’t understand why that should adversely affect orders, production and shipments yes, but not orders.  This is why I think the manufacturing slump is about more than just Japan, or the backlog of orders within those surveys wouldn’t have crashed to negative territory.

In terms of the components, electronics and computer orders rose just 0.4%, but machinery and electrical equipment were strong, up 1.2% and 3.2%, respectively.  And one would think the machinery figures should be strong as firms take advantage of the higher depreciation allowances for 2011.  (Still, the business spending component is up less than 1.0% at an annual rate for all of 2011.)  Autos came in up just 0.6% after the big 5.3% slide in April and commercial aircraft orders soared 36.5% following April’s 29.0% drubbing.

Shipments of durable goods are off to a horrible start for the quarter (down 1.1% with just one month worth of data left for Q2) and this is the number that is plugged into GDP.  Now, this figure is affected by the Japanese issue, but orders are weak too so it’s not all supply-chain problems.

Second Revision of GDP

The latest revision to GDP was revised a touch higher to 1.9% from the previously believed 1.8%.  The number inched up as inventories were slightly higher and the trade gap wasn’t quite as bad as previously calculated.

But you don’t want the higher revision coming from the inventory side, you want the boost to be driven by business spending and in normal time personal consumption (but not right now as households have that debt problem to work off; we want that debt paid down right now).

So since the higher revision largely came from the inventory side, that means the real final sales figure (the measure of demand) edged even lower, but only fractionally.  Round it up as the BEA does and it remained at 0.6% at a real annual rate during Q1.  As we’ve talked about many times over the past year, this figure has averaged just 1.6% during this expansion.   Judged by history this is a pathetic showing, it should be at least 4.0% -- it’s a debt thing; paying this debt down is a necessary condition for future growth to return to normal.

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Have a great day!

Brent Vondera, Senior Analyst

Phone: 636-449-4900