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Factory Sector -- Seasonal Adjustment or Disaster?

Recs

7

January 02, 2008 – Comments (10)

The factory sector showed an amazing decline this past month.

I think December is probably a slower month just because of Xmas, but 47.7% from 50.8% is a decline of 6.1% on the index. 

The new-order, and essentially future economy index, fell to 45.7% from 52.6%.  That's a whopping 15% decline in the index and apparently only once in the past 25 years has it been lower.

Economists only excpect this thing to slide to 50.5%, so it slide 10% more than they expected. 

Oh dear, here is another one that has no commentary, but looks pretty bad to me.  The export orders index fell to 52.5% from 58.5%, an 11% decline.

I am fairly opinionated despite my claim that I'm not an expert (I am not), and this last one just leaves me wondering where are all the experts.  The US dollar is down big time from last year and if anything, it makes their exports more competitive.

So how the heck does the export index fall 11%??????

If anything, this is the one index I would have expected to see some strength.

Seems like soon people will be able to par take in cliff diving without buying cliff diving equipment... Hmmm, learn something new every day, maybe you don't need equipment for cliff diving...  It doesn't look like it.

 

10 Comments – Post Your Own

#1) On January 02, 2008 at 2:28 PM, MakeItSeven (31.82) wrote:

Nice diving photo.

Anyway, several Fools have been searching for a trend.  I think the trend has arrived and it's bearish. !!

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#2) On January 02, 2008 at 5:10 PM, dwot (45.74) wrote:

I liked that picture too.  I thought they used little parachuts when they dived off cliffs...

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#3) On January 02, 2008 at 9:05 PM, abitare (49.76) wrote:

More bearish news, Great! I would love to be wrong and see a soft landing.  

When I said I expected the S&P to come down 25%. I did not mean this week? The impact of $99 oil has not been reflected at the pump, yet. Saxo Bank is calling for $175 per barrel. 

I hope there is no panic here in the US, but there is a possibility.

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#4) On January 02, 2008 at 11:14 PM, dwot (45.74) wrote:

I don't understand how come oil is going up...  It should go down, but I think it is just speculation pushing it up right now.

Yes consumers all continue using oil, but an economic slow down means business use is down, and I think at the current energy prices consumers reduce their consumption as well.  Demand should fall at least 10%.

I don't really understand how the oil industry works in comparison to say mining or natural gas.  With the latter two if you get into over supply they can't just cut the supply off to fix it.  It takes a couple months of planning to shut down a mine and there is a heck of a lot of capital invested so they tend to carry on longer than they should hoping to see prices turn around.  So, supply keeps coming.

When natural gas went into gross over supply 2-3 years ago the over supply continued and it is only just now catching up with itself.  We had a guy come to our school to talk to our high school students and they were only running 30-40% of their rigs because of over supply.  They were actually just setting out to get the first new project in about 2 years going.

Is oil able to just shut off oversupply much easier than these industries?  Because the only way I see oil maintaining these kinds of prices is if the demand remains strong than the supply, but the economy suggest otherwise.

I don't get it.  Even with peak oil there will be ups and down because of supply and demand and the economy suggests it should go down. 

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#5) On January 02, 2008 at 11:36 PM, abitare (49.76) wrote:

dwot,

I found a good write up by BBC quoting Nouriel Roubini. It might be a good post for you:

If you have a $200bn loss, that reduced your capital by $200bn, you have to reduce your lending by 10 times as much
Professor Nouriel Roubini City of debt shows US housing woe By Michael Robinson http://news.bbc.co.uk/2/hi/business/7164898.stm Also on  $100 oil, here is why:http://news.bbc.co.uk/2/hi/business/7168664.stm If you get bored watch "Crude Awakening". It is a good review of peak oil.  Also on $100 oil
Mexican Oil Output Could Drop by One Third Mexico Is No. 2 Supplier to U.S. and No. 6 to the World - For Nowhttp://www.thedailygreen.com/environmental-news/latest/mexico-oil-47010204  A goodsite to find news:http://popurls.com/ 

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#6) On January 03, 2008 at 1:06 AM, dwot (45.74) wrote:

Thanks abitarecatania.  They are predicting about $2 trillion in a credit contraction, which is in line with that $200 billion you just mentioned.

 

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#7) On January 03, 2008 at 1:11 AM, EScroogeJr (< 20) wrote:

Roubini is one of the most incompetent economists ever. Of course, I would love to see his bearish predictions come true, but I see very little hope for a recession.

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#8) On January 03, 2008 at 1:23 AM, StockSpreadsheet (69.03) wrote:

dwot,

I think that oil can be shut off easier than other industries.  Just turn off the spigot on the wells and you shut them down.  (I know it is more complicated than just shutting off your faucet, but it has got to be relatively easy.  Think of how OPEC can adjust their output up and down all the time.  They couldn't do that if shutting down wells, or at least reducing their output, was too time-consuming and cumbersome.)

Also, major winter storms are hitting the Mid-West and Northeast U.S., which will drive up fuel usage to heat the homes.  Supplies of heating oil have been falling for 7 straight weeks, (from what I saw on the news today), so all of that heating oil will need to be replaced, increasing demand for oil to distill into heating oil.  Finally, there were more rebel attacks in Nigeria,  so that has people worried that Nigerian productions might be cut further.  (And since Nigerian oil is light, sweet crude, which is easier to refine and produces more gasoline per barrel than many of the other oils out there, (such as the Orinoco fields in Venezuela), then a reduction of this supply is more damaging than an equivalent reduction in supply from Venezuela or many other countries.)  All of this news will make traders nervous and encourage speculators to bid up the price of oil, at least for the short term.  

Anyway, those are the answers I would have for your questions.  I think they are right, but I am no expert on the subject.  Take care and have a nice day.

Craig 

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#9) On January 03, 2008 at 1:23 AM, dwot (45.74) wrote:

EscroogeJr, I disagree on this one.  I think we are going to see a recession that dwarf most recessions that people remember.

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#10) On January 03, 2008 at 1:45 AM, EScroogeJr (< 20) wrote:

dwot, I agree with you on one count: IF we are going to have a recession, it will be a serious one. Right now we're at a bifurkation point. Homebuyers and lenders of the 2005 viontage are going to be justified or wiped out.

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