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Tuesday, May 12, 2009


sales continue to decline

green shoots and all that, but clusterstock passes on observation of the economist and socgen.

The economic data may have improved, but only from some terrible lows. It would have been amazing, given the amount of stimulus thrown at the economy in the form of lower oil prices and interest rates, quantitative easing and fiscal deficits, if there had not been some kind of rebound.

Nevertheless, an observer who had woken after sleeping for the past two years, would be alarmed at the numbers. Nominal GDP in America has fallen for two consecutive quarters for the first time in more than half a century. Industrial production is still dropping at a double-digit annual rate in America, the euro zone and much of Latin America and South-East Asia.

Companies are still defaulting on their debts at a steady rate; 40 issuers did so in April and Moody’s expects the default rate to reach 14.3% by next March. Even the results season has been mixed. Andrew Lapthorne at Société Générale points out that 62% of American companies have missed expectations for sales. That implies the profit improvement is coming from higher margins, something that it is hard to believe can persist given the economic backdrop.

says henry blodget:

The earnings surprise is good. But you can't fire your way to prosperity. Until companies start surprising on revenue, all this particular "green shoot" shows is that companies are reacting quickly to the recession.

this adjustment is prerequisite to recovery, no doubt. but someone has to illustrate how sales might pick up. with production, spending, inventories, hours worked and employment all still falling, it's not easy to make that case clearly.

moreover, the skepticism of the chinese recovery story is receiving some ammunition in today's financial times.

Chinese bank lending slowed dramatically in April because of fears that loan growth in the first quarter had been excessive and could pave the way for loans of deteriorating quality, so possibly creating a new round of asset bubbles. ...

Some regulators also worried about the potential for rampant inflation. Those fears were somewhat eased by price measurements released on Monday showing China remained in deflationary territory in April for the third consecutive month.

The consumer price index fell 1.5 per cent from a year earlier in April, compared with a fall of 1.2 per cent in March, while the producer price index fell 6.6 per cent after falling 6.0 per cent in March.

Chinese bank lending is usually strongest in the first quarter and moderates as the year goes on. However, the abnormally steep April drop raises some concerns that China’s nascent economic recovery could flounder without the injection of huge volumes of new loans.

so china will be cutting stimulative loan growth amid a deflationary shock.

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