Those who think manufacturing is going to lead the way to a sustainable recovery need to think again. Data suggest durable goods sales are about to collapse.

Let’s tie this together starting with the Mortgage Application Weekly Survey (Emphasis Mine)

The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending July 9, 2010. The Market Composite Index, a measure of mortgage loan application volume, decreased 2.9 percent on a seasonally adjusted basis from one week earlier. This week’s results include an adjustment to account for the Independence Day holiday. On an unadjusted basis, the Index decreased 12.6 percent compared with the previous week.

The Refinance Index decreased 2.9 percent from the previous week and the seasonally adjusted Purchase Index decreased 3.1 percent from one week earlier. This was the lowest Purchase Index observed in the survey since December 1996. The unadjusted Purchase Index decreased 12.7 percent compared with the previous week and was 43.0 percent lower than Independence Day week one year ago.

Consumers certainly will not be buying appliances (or carpeting, or landscaping, or nick-knacks) for the homes they are not buying either.

Will Commercial Real Estate Provide Growth?

Hardly. Vacancies are rising and rent prices are falling. Looking ahead US nonresidential building seen down 20 pct in ’10

Spending on U.S. nonresidential construction is likely to fall more than 20 percent this year before recovering slightly in 2011, according to a semiannual survey by an architects’ trade group.

The survey’s consensus forecast calls for a 20.3 percent decline in construction spending, according to the American Institute of Architects.

The AIA cites an oversupply of nonresidential facilities in most construction categories, weak demand for space, continuing declines in commercial property values, and real estate lenders’ reluctance to provide credit.

Recovery of nonresidential construction activity typically lags a recovery in the wider economy, especially an employment revival, which drives demand for office and retail space.

Conditions have deteriorated over the past year, even as the wider U.S. economy has begun to rebound from recession. For 2010, survey respondents had forecast a 13.4 percent drop in January and only a 12 percent decline a year ago.

What about Business Equipment, Routers, Etc?

Intel had a blowout quarter. The equity market’s reaction was ho-hum at best. Treasuries which had been in a short-term slump have rallied.

By the way, Intel had a blowout quarter in April as well. This was the result.

click on chart for sharper image

Market Priced for Perfection

It takes increased sales and/or lowered expectations to produce consecutive “blowout quarters”.

The key question now is “Where to from here?”

Pundits everywhere seem to think Intel will jump-start a further stock market rally. Articles are everywhere you look. They said the same thing in April, and look what happened.

In contrast, I see little fundamental reason for business spending to pickup from here, and no technical reason to think anything other than Intel’s blowouts are more than priced in.

So, if consumers are not going to be buying appliances (or cars according recent surveys), and if commercial real estate is going to remain in the dumps, technology spending is likely unsustainable, and states will be laying off workers to balance budgets, pray tell where is the second half growth or jobs coming from?

Here’s a hint: Don’t expect miracles from further stimulus either.

The current Congress is not much in the mood and the next Congress is likely to be downright hostile to significantly more deficit spending.

All things considered, earnings estimates and the stock market are both priced well beyond perfection, as are forward GDP estimates.

Mike “Mish” Shedlock
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