The ‘Green Shoots’ of recovery that has been the favorite two words of many of late has been mostly predicated on the dramatic drop seen in inventories over the past few months and the subsequent inventory replenishment process that may help to stabilize the economy. The CEO of TXN in last nights earnings press release sums up this scenario well with a necessary caveat, “demand for our products has begun to stabilize after sharp drops in the past 2 q’s. Many customers have increased orders for TI products as they have begun to slow down their inventory reductions. However, we remain sensitive to continuing weakness in the global economy, and we have yet to see signs of a broad based recovery in our business.” With the results and release of the ‘stress test’ just two weeks away, the man leading the process, Mr. Geithner, testifies at 10am in front of the Congressional Oversight Panel. German ZEW rose to the highest since July ’07.

Category: BP Cafe, MacroNotes, Think Tank

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One Response to “Green Shoots with a caveat”

  1. johnbougearel says:

    Peter,

    Once again we find points of agreement. I did a bit of research and found quite a bit of anecdotal evidence we will see some green shoots in the slew of economic reports out between now and next Wed’s FOMC meeting.

    This Thursday, jobless claims contracted sharply last week, and may show further improvement. On Friday, Durable Goods showed improvement in Feb, and if you add the 1, that too could carry over into March. These two reports alone could provide further signs of Bernanke’s “green shoots” and Obama’s “glimmer of hope.” Until I looked ahead at the upcoming economic data, I could not figure out what would pick the stock market back up between now and the Fed release of the banksters stress-tests on Monday May 4. What comes into focus is a nascent improvement in economic data, just as Bernanke is seeing it.

    Next Tuesday will be Consumer Confidence, and that too seems to have bottomed in Feb and March 09. The two, five, and seven year auctions will be held next Tues through Thursday, and on Wednesday there will be another FOMC meeting. Generally speaking, treasuries have remained under pressure until the auctions end on Thursday. If pressure resumes this week on favorable economic data, it could extend into Wednesday/Thursday of next week, quite easily.

    Further support for Friday’s March Durable Goods report will come from the March ISM and March IP reports. The ISM manufacturing report in March shows manufacturing bottomed in December 2008, and have shown 3 consecutive months of “relatively flat” improvement indicating some stabilization in the rate of change in the economic contraction

    Adding to the optimism, at Moody’s Economy.com was the April 15 Industrial Production report for March. Yes, like the ISM report, it was still contracting, but there is a hint that the rate of contraction is slowing. Again this is all “second derivative” trading for market participants. Inside the IP report, capacity utilization fell below 70% for the first time since the series began in 1966. While this is not encouraging, economy.com still found “there are increasing signs that carnage in the industrial sector will diminish.” The details are admittedly murky and on shaky ground, economy.com adds, “Because industrial output was not falling as fast in the latter part of the first quarter as it was in prior months, it is on a better trajectory heading into the current quarter.”

    Consumer confidence plunged from 37 in January to 25 in Feb then stabilized in March at 26. Again, it is the stabilization factor we are noting. The employment component not surprisingly was abysmal, and sentiment is going to remain in the gutter for quite some time, but at least the sense of being flushed further down the toilet is diminishing. They are in the crapper and they know it. The “holy shit” feeling is passing and for many a sense of “let’s do something about it now” is seeping in.