The US triple dip panic arrives

Sigh. Here is the Citi economic surprise index courtesy of Sober Look:

The Citi Economic Surprise Index continues its relentless slide. The US PMI (52.9 vs. 53.3 expected), the Philadelphia Fed Diffusion Index (-16.6 vs 0 expected), Empire Manufacturing, Industrial Production, etc. are all coming in below expectations. It would seem that economists would adjust their forecasts by now, but that hasn’t happened.

This is somewhat reminiscent of last summer when a mix of US budget issues and fears in Europe increased market volatility and put downward pressure on economic activity.

Regular readers will not be at all surprised of course. I have written many times that with the slowdown that has become obvious in manufacturing over the past three months, markets are only one bad housing report away from a full blown triple dip panic. The manufacturing decline was confirmed again last night with another material fall in the Philly Fed Index, from from -5.8 in May to -16.6 in June. From Calculated Risk comes the following chart showing the average of the NY and Philly Fed indexes compared with the ISM:

And we appear to have stepped closer to that panic after the Fed disappointed yesterday. Overnight, the housing data did miss but not by a lot, and the market cracked anyway. NAR existing homes came in:

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, declined 1.5 percent to a seasonally adjusted annual rate of 4.55 million in May from 4.62 million in April, but are 9.6 percent above the 4.15 million-unit pace in May 2011.

Consensus was for 4.57 million so that’s hardly a big miss.

New home sales are the next big report, out early next week, and I reckon we’re in for a bigger disappointment than this.  The FHA fee increase boosted sales “contracts” in Feb, March and April. There’ll be be pay back now, as always.

In short, we are setting up for a fading housing recovery in the US much like what transpired in 2010 when the long runway of stimulus jammed house prices higher in the first half.  The stimulus is more enduring this time, not least being the record lows in mortgage rates thanks to Europe crushing the thirty year bond. So I don’t expect a repeat of the collapse witnessed in 2010. Also from Calculated Risk:

But the idea that US housing has reached escape velocity or is in some glowing new recovery is equally implausible. It’s a fair bet that the US triple dip panic is upon us.

As I said yesterday, China is going nowhere fast with its lousy data trends and moderate stimulus. The US is going nowhere either and there’s no support for markets in more free money. It’s all about Europe now. Only a big new move towards integration will save markets.

David Llewellyn-Smith
Latest posts by David Llewellyn-Smith (see all)


  1. Aristophrenia

    ” It’s all about Europe now. Only a big new move towards integration will save markets.” –

    Oh what – leave us hanging ?

    What do you mean….

    • if Keen’s idea happens, they have to call it something else.

      Debt Jubilee sounds so shit.