6/2/2015
By Jennifer Coombs

Gallup’s May reading of the economic confidence index (ECI) declined to an average of -7, which was down from the -3 reading in April. Confidence peaked at +3 in January and this is the lowest monthly reading since the -8 reading noted in November 2014. Nevertheless, confidence still remains much higher than what Gallup has found since Americans started to feel the effects of the 2008 recession. This higher confidence in January was most likely related to a drop in gasoline prices. However, the index began deteriorating after that and has had negative monthly averages since March. It remains to be seen just how much lower gas prices are impacting consumer confidence for the long term.

Lastly, and most importantly, factory orders for the month of April fell by 0.4% over the prior month, for the 8^th month decline in the last 9 months. This depressing streak resumed in April after March’s revised +2.2% (from +2.1%) gave hope to this economic reading. Unfortunately, the gain was primarily due to a higher monthly swing in the number of civilian aircraft orders, subsequently inflating the headline gain. There was a significant amount of downward revisions to the durable goods section of the reports, which was strong last week, but now it looks as though durable goods orders are down 1.0% versus the initial decline of 0.5%. Capital goods in the durable goods report looked strong, but not with today's revision with orders for non-defense capital goods sinking by 0.3% versus an initial and very strong gain of 1.0%. When transportation orders are excluded, orders are unchanged for the month, which is well below the 0.5% gain recorded in the durable goods reports. Nondurable goods were actually a positive offset in this report, up 0.2% and reflecting strength for chemical products. Inventory levels remain relatively weak, where the inventory-to-shipments ratio rose to 1.35 in April from 1.34 in March. Ultimately, this downward revision to core capital goods is a sizable setback, as it indicates far less business optimism than was initially reported. Weakness continues to be concentrated in the exports and energy sectors, and less activity at the factory level doesn’t spell good news for the May jobs report.

_{Source: Bloomberg}

Jennifer Coombs
Wall Street Strategies

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