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French Prime Minister Manuel Valls Outlines Spending Cuts

(WSJ) French Prime Minister Manuel Valls unveiled some details as to how the government aims to extract €50 billion ($69 billion) in savings between 2015 and 2017.

Almost reads like he knows savings comes from deficit spending!
;)

Mr. Valls indicated for the first time that the government is prepared to take aim at politically sensitive areas of France’s welfare state to achieve the savings, including freezing benefit and pension payments at current levels for the next year. He also said a freeze in the basic pay of civil servants would continue.

Since the price level is ultimately a function of prices paid by govt, this type of thing is a highly disinflationary force.

“I am obliged to tell the truth to French people. Our public spending represents 57% of our national wealth. We can’t live beyond our means,” Mr. Valls said.

Which is true under their current institutional arrangements. So seemes no move to ‘change the rules’

Mr. Valls said the central state would account for €18 billion of the savings; local authorities €11 billion; health care €10 billion; and social security €11 billion.

Another anemic ‘bounce’- down 5.9% from last year. And more reason to believe the much touted November/Dec ‘spike’ had something to with expiring tax credits. And with mtg purchase applications still running almost 20% lower year over year the housing contribution to GDP in general is so far looking lower than last year.

Housing Starts

Highlights
Housing starts picked up in March but not as much as expected. However, strength was in the single-family component while it was expected to be in the multifamily component. So, the expectations shortage really is not bad. Overall starts rose 2.8 percent after a 1.9 percent increase in February. The March annualized pace of 946,000 fell short of analysts’ forecast for 965,000 and was down 5.9 percent on a year-ago basis.

Single-family starts jumped 6.0 percent, following a 2.9 percent rise the month before. Multifamily starts slipped 3.1 percent in March after no change the month before.

Overall permits dipped 2.4 percent in March after surging 7.3 percent the prior month. The annualized rate of 990,000 was up 11.2 percent on a year-ago basis. The median market forecast was for 1.010 million. The softness came from the multifamily component which declined 6.4 percent after a 22.8 percent spike in February. The single-family component rebounded 0.5 percent, following a 1.7 percent dip in February.

Overall, the headline number was below expectations but the fact that moderate strength was in the single-family component is encouraging. Last month’s data in permits suggested more strength in the multifamily component. But the multifamily component is volatile and based on recent permits, there still is strength in that component. The gain in the single-family component is a bonus.

Somewhat volatile but over time just chugs along at a steady pace.

It’s generally the rest of gdp that’s does the moving and shaking:

Not much of an April bounce here either:

Housing Market Index

Highlights
The new home market is showing no spring lift whatsoever at least based on the housing market index which, at a lower-than-expected 47, remains below breakeven 50 for a third straight month. The weakness is centered in traffic which remains far below 50 at 32. Weakness in traffic points to lack of participation by first-time homebuyers and the importance of all-cash buyers who have been holding up the housing market.

But other readings are positive led by strength among prospective buyers where the index is at 57 for a 4 point gain in the month. Present sales show marginal growth, unchanged for a third month at 51. Regional data show the West, Midwest, and South clumped near 50 with the Northeast, by far the smallest region for new home sales, far back at 33.

The housing market index posted a record 10-point loss to 46 in the heavy weather of February and hasn’t yet recovered, in what is a bad omen for the housing sector where many are banking on spring strength. Expectations for tomorrow’s housing starts & permit data are no better than flat. The Dow is moving down from opening highs in early reaction to today’s report.

Another non bounce, this time an April survey:

Empire State Mfg Survey

Highlights
The first look at the manufacturing sector this month is flat with the Empire State index barely over zero, at 1.29 vs 5.61 in March and 4.48 in February. New orders, the most important of all readings, is in the negative column at minus 2.77. Shipments show some growth, at plus 3.15, while employment shows better growth, at 8.16 vs March’s 5.88. On the negative side are unfilled orders, at minus 13.27. Inventories show a draw while price data do show some upward pressure. A positive is a more than 5 point uptick in the 6-month outlook to a very solid 38.23. This report, held back by the dip in new orders, is no better than mixed suggesting that the beginning of the spring, at least in the New York manufacturing economy, didn’t make for much of a bounce.

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Draghi says a stronger euro would trigger looser ECB policy (Reuters)

Except by my calculations he has it backwards, as lower rates make a currency like the euro stronger, not weaker, via the interest income channels, etc.

ECB President Mario Draghi said that euro appreciation over the last year was an important factor in bringing euro zone inflation down to its current low levels, accounting for 0.4-0.5 percentage point of decline in the annual rate, which stood at 0.5 percent year-on-year in March. “I have always said that the exchange rate is not a policy target, but it is important for price stability and growth. And now, what has happened over the last few months is that is has become more and more important for price stability,” Draghi said at a news conference. “So the strengthening of the exchange rate would require further monetary policy accommodation.

As above.

If you want policy to remain accommodative as now, a further strengthening of the exchange rate would require further stimulus,” he said.

I agree, except I’d propose leaving rates at 0 fiscal relaxation to the point of domestic full employment, etc.

Furthermore, their policy of depressing domestic demand to drive exports/competitiveness has successfully resulted in growing net exports. However, unless combined with buying fx reserves of the targeted market areas, the euro appreciates until the net exports reverse, regardless of ‘monetary policy.’

As suspected Obamacare doesn’t add to the deficit, otherwise the Republicans would have let us know for sure!

However, it also means it’s a pro active contractionary bias that will make it that much harder for GDP growth to meet expectations this year.

CBO estimates slightly lower deficits as health subsidies fall

April 14 (Reuters) — U.S. budget deficits over the next decade will be $286 billion less than previously estimated, the Congressional Budget Office said on Monday, attributing much of the decline to lower estimates of subsidy costs under President Barack Obama’s health insurance reform law.

The non-partisan CBO, in revisions to its annual budget estimates, said the fiscal 2014 deficit would fall to $492 billion from $514 billion estimated in February. The forecasts assume no changes to current tax and spending laws.

The agency attributed the current year’s decline to technical revisions to the way it estimates spending on discretionary programs. But from fiscal 2015 onwards, it estimates a $186 billion decline in outlays for health insurance subsidies under the Affordable Care Act, commonly known as Obamacare.

This reflects a lower projection of premiums charged for health care plans offered through government-run exchanges, CBO said, based on an updated analysis of plans now being offered.

Overall, the budget referee agency now projects cumulative 10-year deficits at $7.62 trillion compared to its previous forecast of $7.9 trillion.

In addition to the lower health insurance subsidy costs, CBO also estimated a $98 billion 10-year reduction in Medicare outlays due to lower spending on prescription drugs and hospital insurance. Medicaid, the health care program for the poor, would see a $29 billion reduction, CBO said.

CBO lowered its 10-year cost estimate for the federal food stamps program by $24 billion, based on new data from the Department of Agriculture on monthly average benefits.

But the CBO left intact its previous economic projections, which envision rising deficits after 2015 as more of the massive “baby boom” generation retires or drops out of the workforce.

Deficits will reach a low point of $469 billion, or 2.6 percent of U.S. economic output, in 2015, then gradually start to rise, topping $1 trillion again in 2023 and 2024.

U.S. deficits exceeded that dollar amount during each of the first four years of Obama’s administration as the economy recovered slowly from the worst recession since the 1930s, falling to $680 billion in fiscal 2013.

Headline retail sales y/y with 3 mma:

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3 month moving average nudged up to 2.5% which is a relished move as sales catch up from losses due to weather. But it’s going to take more months like this one to reverse what looks like a longer term trend towards lower levels.

Note however that Red Book and Goldman retail sales reports, though ‘minor’ indicators, haven’t shown much strength.

You can see the dip and recovery of the monthly prints on this graph:

Mortgage purchase applications (4 week ma, Y/Y)

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Just noticed wholesale sales didn’t bounce much yet either. The Hope now is for gradual improvement

Wholesale inventories 0.5% in February a slower pace in February than in the 0.8% gain the prior month, which could support views that restocking will not help the economy in the first quarter. Wholesale Sales rebounded 0.7% in February after a 1.8% decline in January.

The post weather ‘bounce’ didn’t even reverse the prior month’s drop:

Highlights
There are signs of confidence in the small business optimism index which jumped 2.0 points to 93.4 to nearly reverse a 2.7 point downswing in February. The March gain is led by expectations for future sales and by plans to build inventories — both pointing to expectations of building strength. Of the 10 components, six are up in the month, two are unchanged, and only two are down. Unfortunately, of the two that are down one is hiring plans.

Note the year over year rate of growth:

As previously discussed, in order for GDP to grow at last year’s pace all the pieces, ‘on average’ have to do same.

And so far, housing and cars are well below last year’s growth rates.

And the contribution of net govt spending is well below last year’s contribution.

And so far net export growth isn’t coming to the rescue.

Nor is consumer credit driving spending.

Even capex just took a hit.

And the personal income growth rate isn’t looking like it’s ‘bounced’ any.

Employment growth, a lagging indicator that’s largely a function of sales, if anything looks a tad less as well.

The ‘surveys’ are still showing positive growth, and maybe they’ll turn out to be correct. But I have noticed a tendency for their responses to be influenced by the stock market.

Hopefully we’ve just had a weather pause, and the consumer and business celebrate spring with a material surge of spending that exceeds their incomes to off set the ongoing ‘demand leakages’.

But if not, growth slips into reverse until the federal deficit again gets large enough to stop the slide.

See charts
Must be reading my blog
;)

Economy Knocking At Recession’s Door

Total vehicle sales year over year showed some post winter bounce.

The narrative was that March started off slow but picked up due to large incentives for the last week.

We’ll see if it all holds up for April.

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Factory orders ‘bounced’ from large declines but not yet enough to ‘make up’ for the declines.

And regarding capital goods, as with construction measures, I remain concerned that what looked like a year end spike was tax driven and ‘borrowed’ from this year.

Highlights
Factory orders bounced back strongly in February, up 1.6 percent to edge above the high end of the Econoday consensus. The month got a major lift from a 13.4 percent upswing in commercial aircraft orders. A 3.0 percent gain in motor vehicle orders also helped the total. But the total excluding transportation orders, which is a closely tracked reading, is also healthy, up 0.7 percent following 0.1 percent declines in the prior two months.

There is, however, a negative in the February numbers and that’s a sizable 1.4 percent decline in nondefense capital goods orders excluding aircraft. This is considered a core reading on the outlook for business investment. February’s decline more than reverses a 0.8 percent rise in January. Orders for this reading were especially weak in December, at minus 1.6 percent.

Other data include a weather-related bounce in shipments, to plus 0.9 percent following January’s 0.7 percent decline. Inventories rose 0.7 percent, in line with shipments and keeping the factory sector’s inventory-to-shipment ratio unchanged at 1.30. Unfilled orders are a positive, up 0.3 percent.

This report is mostly positive if it weren’t the decline underway in core capital goods orders, a decline that points to weakness in the business outlook. Early indications on the manufacturing for March have also been mostly positive, with the exception of yesterday’s slowing in the ISM employment index.

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Highlights
Global manufacturing has softened in recent months. At 52.4 in March, down from 53.2 in February, the J.P.Morgan Global Manufacturing PMI fell to a five-month low, but remained above its average for the current 16-month sequence of expansion.

Global manufacturing production increased for the seventeenth consecutive month in March. However, the rate of expansion eased to a five-month low, mainly on the back of a slowdown in Asia. Growth of total new orders also eased slightly, despite improved inflows of new export business.

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Employment, generally a lagging indicator, was up some, but the chart still seems ‘uninspiring’ at best:

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Not to give this all that much weight, and they are limited surveys with Easter distortions as well, but the year over year lines aren’t showing any rebound yet:

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Purchase Mortgage applications up 1% for the week but down 19% vs last year.

What I’m saying is that Jan and Fed were weather depressed. And with the federal deficit now running maybe below 3% of GDP, down several % from last year, some pro active and some from the auto stabilizers, my concern is that the underlying support for a bounce is no longer there and the rate of growth continues to decelerate. Yes, lending is up some, but it could be the financing of utility bills and inventory/reduced cash flow growth, which takes away from future sales.

Still strong net demand for Saudi crude so prices don’t go down unless they decide to lower them, etc.

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Notice the capital share started falling prior to the most recent recessions:

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Not a lot of bounce back here yet:

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