Thursday, August 1, 2013

The Construction Euphoria Is Over

Click to enlarge.

Those anxiously awaiting the next construction boom may have to wait a very long time. As seen in the chart, we're still sitting at the very top of the long-term exponential decay channel.

Is this really as bad as it looks?

Click to enlarge.

As seen in the chart above, the answer would probably be yes. It is as bad as it looks. The uptrend from the pit of despair (November 2009) is over. Now we're heading back down again. Further, we're actually below the declining trend line.

For what it is worth, I am still firmly in the permabear camp. I cannot understand the optimism in the face of overwhelming long-term evidence to the contrary.

August 1, 2013
Stock market roars to record highs, S&P 500 closes above 1,700 for first time

Because the stock market often looks ahead 6-9 months, it’s not unusual for stock indexes to be ahead of economic indicators, when the economy is improving or worsening. Right now, stock investors may be anticipating a stronger economy and better earnings next year.

It can "roar" without me, just like it did from 2004 to 2007. This is not investment advice.

Source Data:
St. Louis Fed: All Employees: Construction / All Employees: Total nonfarm
St. Louis Fed: Real Total Construction Spending Growth per Capita


Stagflationary Mark said...

Mish: Treasury Yields Surge Following Allegedly Good Data; Is Bernanke Getting the Message?

Curve Watchers Anonymous notes treasury yields are on the rise following allegedly good economic data.

I have a somewhat different take. Money is moving from bonds to stocks on allegedly good economic data. It wouldn't be the first time.

As long as people believe that the allegedly good data is a sign that this country will remain prosperous well into the distant future, then they might be encouraged to spend more money on stuff they don't actually need. As long as they continue to spend more, more allegedly good data is generated. Virtuous ponzi-cycle.

I think you can probably guess my take on what would happen once the illusion begins to fade again though.

dd said...

Figure there's another year of this "recovery." Everyone can blame Ben when it goes but he'll be long gone. If it really is Summers (or Geithner) then it's over for the real economy; but the banks will continue to thrive.

Stagflationary Mark said...


Figure there's another year of this "recovery."

Yeah, that's my best guess too.

Here's an update to that first chart (real monthly durable goods orders per capita, April 2012 dollars). It seems unlikely to me that we will make it to 2015 without another downdraft. I'm using the semi-annual data to smooth it out this time.

We made it to about $940 in 2000.
We "recovered" to about $850 in 2007.

Will we "recover" to $760 in 2014?

Maybe. Maybe not. Who can say for sure?

Mr Slippery said...

The data doesn't show it, but all kinds of euphoria abounds, in housing, stocks, employment numbers.

I didn't know that part time jobs were as good or better than full time jobs with benefits, but I the Fed and CNBC are teaching me otherwise. Part time FTW.

I tried to post from Chrome on my phone on a few other threads, but was shut down by Google's own blogspot spam cop.

I can't predict the economy but I do have a timely tip. Get the Mad Dog, #2, at MOD Pizza when visitng Seattle. Crisp, thin crust loaded with meaty toppings. A winner!

Tried is get a view of Ranier before leaving but clouds were not having it. Did get a view of it above the clouds on the plane. It tasks me. It tasks me, and I shall have it.

Stagflationary Mark said...

Mr Slippery,

The data doesn't show it, but all kinds of euphoria abounds, in housing, stocks, employment numbers.

6,000 construction jobs lost in July. Average weekly hours down. Average weekly earnings down. Get out the party hats again. Sigh.

The 10-year spiked to 2.74% before the report. It fell back to 2.62% shortly thereafter. Big shocker.

But hey, a guest on CNBC reminded me that the 30 year rally in bonds is over though. Thought that interest rates would be 5% in a few years.

And in my opinion, magical unicorns will also fly out of my well, you know, as I jump up and down in joy at 162k job reports during economic expansions!

In all seriousness, if this is the best we can do 4 years into an expansion, then heaven help us when the next contraction hits.

mab said...

I have a somewhat different take.

Me too! The dog still wags the tail no matter what Mish thinks. QE is much ado about nothing, hence all the talk about the "taper" is nothing too.

If anything, QE is deflationary rather than inflationary.

Blockheads like Mish can't let go of their ideologies despite overwhelming evidence to the contrary. Modern eCONomics isn't a science. It's religion!

The widespread CONfusion about how our monetary and financial systems work is not an accident. It's cupidity, not stupidity.

mab said...

It's cupidity, not stupidity.

We can also look at it this way: It's cupidity AND stupidity!

In any event, the majority simply can't base their decisions on the truth.

Stagflationary Mark said...


And lucidity! ;)

Silent Lucidity

Your mind tricked you to feel the pain
Of someone close to you leaving the game

It's sort of a bagholder trick. The "someone" leaving was Goldman Sachs, 1.5 milliseconds before you could manually hit the sell button, lol. Sigh.