It’s the forward-looking indicators right now that look the worst. This is why we think Euro$ #4 is still closer to its beginning than its end. Even though it may be entering its fifth quarter of existence here in Q2 2019, these things are long processes that take a lot of time to fully play out.
Euro$ #3, for example, you can date its opening to at least the start of 2014 (CNY) if not the middle of 2013. It didn’t fully complete the (mini) cycle until early 2016, the middle of that year at the latest. In total, somewhere between two and a half and three years beginning to end. And throughout every bit of that time, the US economy in particular was declared to be “strong.”
In manufacturing during Euro$ #4, which is where Euro$ #3 really showed up in the domestic economy, producers are still in the adjusting phase. That is, they haven’t yet delved into the deeper modifications to business schedules still believing right now that the economy is strong but softening.
Automobile manufacturers, for instance, posted rather negative sales numbers in Q1. As more complete data is being released, we now know that the topline comps would’ve been much worse had carmakers not “sold” so much product to fleet buyers. It’s the sort of pretend strategy that the big car companies have used forever (Chrysler’s “sales bank” in a smaller, softer form), hoping to smooth out rough spots until the economy actually lives up to its billing.
Auto executives claim they are merely responding to demand from rental and fleet customers, but for some reason that demand always seems to show up just when its most needed. But they can only do this for so long before deeper adjustments will be required. Channel stuffing only works if the soft patch is temporary.
The hit to earnings from selling lower margin product, as fleet sales are discounted heavily compared to retail list prices, eventually catches up. Once it does, production really production costs will become the overriding concern.
The Census Bureau reports today new orders for the overall manufacturing sector. These Factory Orders are some of the forward-looking indications that right now are on a slight downward tilt. At $497.4 billion in February 2019, that’s down 0.5% from January and a little less than last March.
Reminder: it was during the month of April 2018 that the most visible signs of global monetary trouble erupted.
