Not only is the financial system unstable, but in contrast to other credit events, this is happening at a time when the economy is extremely weak: Industrial production tanked 1.1% in August in the worst performance since the aftermath of Katrina in September 2005 and before then you have to go back to January 1982 when the economy was knee deep in one of the most pronounced recessions of the post-WWII era (as an aside, the consensus was looking for a 0.3% decline). What caught our eye was how weak the consumer elements of this report was -- apparel (-1%), autos (-11.9%), appliances (-5.5%), home electronics (-0.3%). Of course, the decline was dominated by depressed auto-related activity, but even outside of that, ex-auto manufacturing production fell 0.3% and has declined now for three months in a row. Definitely a recessionary trend. In all, production of consumer goods fell 2% and this was the largest decline since January 1990 -- the last time we endured a consumer recession of any significance. As the chart below vividly illustrates, when you see production of consumer goods down 3% on a year-over-year basis, you know we have a consumer recession on our hands.


It doesn't look as though industrial activity improved in September, either -- at least based on the NY Empire manufacturing index: It came in at -7.41 in September (consensus was +1) from +2.77 in August. The inflation indicators were also very benign -- prices paid down to 44.83 from 65.17 -- the lowest since Jan/08. Prices-received fell to a four-month low of 24.14 from 32.58 in August. Delivery delays slowed to -4.60 from -3.37; unfilled orders stayed in negative terrain at -3.45. Very bond bullish. The employment index went to -4.60 from -4.49.

Source: Merrill

<font color="#CC6600" size="1">[ September 16, 2008 10:23 AM: Message edited by: The Big Sexy ]</font>