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Weaker than expected and Q1 forecasts still down, as the mainstream remains in denial that the oil price drop was a large negative for the US economy:
Atlanta Fed Q1 GDP forecast:
Remain towards the lows, means layoffs still tame:
This looks reasonable as well, but the Markit surveys are always suspect, and expectations fell:
United States : PMI Services Flash
The manufacturing sector may be sputtering but not the service sector, based on Markit’s flash PMI which is up strongly for a second straight month, to a 6-month high of 58.6 in final March vs 57.1 in final February (57.0 February flash). The final reading for January was 54.2.
Respondents are citing improvement in economic conditions, strengthening consumer confidence, and new product launches as pluses. New orders are at a 6-month high and backlogs are at a 5-month high. Employment is also up.
A negative however, and one seen in other data, is a downgrade in expectations. Those seeing a rise in business over the next 12 months is the lowest since June 2012.
Yet another depressed Fed survey:
United States : Kansas City Fed Manufacturing Index
Tenth District manufacturing activity declined in March, and producers’ expectations moderated somewhat but remained slightly positive. Most price indexes continued to decrease, with several reaching their lowest level since 2009. In a special question about the West Coast port disruptions, 32 percent of firms said it had affected them negatively.
The month-over-month composite index was minus 4 in March, down from plus 1 in February and 3 in January . The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. The overall slower growth was mostly attributable to declines in plastics, food, and chemical production and continued weakness in metals and machinery. Looking across District states, the largest decline was in Oklahoma, with moderate slowdowns in Kansas and Nebraska.
Other month-over-month indexes decreased from the previous month. The production and shipments indexes fell after rising last month, and the new orders and order backlog indexes dropped to their lowest levels in over two years. In contrast, the employment and new orders for exports indexes inched higher but remained negative. The finished goods inventory index eased from 3 to minus 2, and the raw materials inventory index also moved into negative territory.
Year-over-year factory indexes also decreased. The composite year-over-year index declined from 9 to minus 2, and the production, shipments, new orders, and employment indexes also moved into negative territory. The capital expenditures index eased from 9 to 3, and the order backlog index decreased further. Both inventory indexes moderated somewhat.
Most future factory indexes eased slightly but remained positive. The future composite index moved down from 11 to 4, and the future production, shipments, and new orders index also decreased moderately.
Still looking stone cold dead to me, with risk of going even lower.
Purchase apps up only 3% from a dismal period last year:
Way below expectations and prior month revised down, causing GDP estimates to be further cut as well:
Durable Goods Orders
The manufacturing sector continues to look weak. Durables orders fell 1.4 percent in February after rebounding 2.0 percent the month before. Market expectations were for a 0.7 percent gain. Excluding transportation, the core declined 0.4 percent, following a 0.7 percent drop in January. Analysts projected a 0.3 percent gain in February.
Transportation dropped 3.5 percent, following a monthly rebound of 8.8 percent the prior month.
Motor vehicles slipped 0.5 percent, nondefense aircraft decreased 8.9 percent, and defense aircraft fell 33.1percent.
Outside of the core, orders were mixed. Industries that advanced were primary metals and electrical equipment. Declines were seen in fabricated metals, machinery, computers & electronics, and “other.”
Nondefense capital goods orders excluding aircraft were down 1.3 percent, following a 0.9 percent dip in January. Shipments of this series were flat in February after rising 1.0 percent the month before.
The latest orders numbers point to continuing weakness in the manufacturing sector and may soften Fed hawk rhetoric-especially taking into account the latest sluggish March manufacturing surveys.
March 25 (WSJ) — At least one first-quarter tracking estimate is already close to zero. The Federal Reserve Bank of Atlanta on Wednesday put its gauge at 0.2%, down from its earlier estimate of 0.3%. Macroeconomic Advisers trimmed its estimate down to 1.2% from 1.5% beforeWednesday. The U.S. economy contracted at a 2.1% annual pace in the first quarter of 2014, a drop many economists attributed to severe winter weather. The economy bounced back with growth at a 4.6% pace in the second quarter, 5% in the third quarter and 2.2% in the fourth quarter.
March 25 (Reuters) — Non-defense capital goods orders excluding aircraft dropped 1.4 percent last month after a downwardly revised 0.1 percent dip in January. The so-called core capital goods orders were previously reported to have increased 0.5 percent in January. Shipments of core capital goods rose 0.2 percent last month after slipping by a revised 0.4 percent in January. They were previously reported to have gained 0.1 percent in January. Order books for core capital goods dropped 0.3 percent after barely rising in January.
It’s the net exports, paid for by non residents selling their currency to buy euro to spend, that drives up the euro until the net exports cease and trade goes negative. And with the rigidities/J curve/etc. the move up could be extreme, with the ECB unable to dampen it due to ideological restrictions on fx purchases.
March 24 (Markit) — German private sector output increases at strongest rate in eight months () Germany Composite Output Index at 55.3 (53.8 in February), Services Activity Index at 55.3 (54.7 in February), Manufacturing PMI at 52.4 (51.1 in February), and Manufacturing Output Index at 55.4 (52.2 in February). Survey participants noted that a positive economic environment combined with strengthening demand from both domestic and foreign markets accounted for much of the rise in new orders. Manufacturers reported the sharpest rise in new export business for eight months in March. Panel members partly attributed this to a weaker euro.
And the market of consequence for net exports is the US, where non petro imports continue their strong growth, with the strong dollar demand from portfolio shifting and speculators likewise having driven it to current levels that give the euro zone a cost advantage:
By Joseph Szczesny
March 23 (AFP) — US off-roaders seeking to rev up the four-wheel drive of a Jeep might soon find out that their American icon is made in Italy.
In a sign of what comes with the takeover of Chrysler by Italian giant Fiat, US auto dealers have begun selling the Italian-made Jeep Renegade.
March 24 (Nikkei) — Brisk exports a plus, but consumption key to full-blown recovery (Nikkei) “Production and exports are picking up,” State Minister for Economic and Fiscal Policy Akira Amari told a press conference. The index for transport equipment — including automobiles — rose 4% on the month, helped by increased shipments to the U.S. and Europe. The index for electronic parts and devices climbed 1.7% amid brisk exports to Asia. The ministry projects that the index for production machinery will drop 0.3% in February and 7.3% in March, and that the index for transport equipment will fall 1.6% and 0.5%.
As expected, still below Fed’s targets:
Less than expected and looks to still be softening to me:
FHFA House Price Index
House prices continue to rise in January but at a slower pace. FHFA house prices advanced 0.3 percent, following a gain of 0.7 percent in December. Analysts projected a 0.5 percent gain for January. The year-ago rate came in at 5.1 percent, compared to 5.4 percent in December.
Regionally, six Census regions reported gains in January while three declined.
Better than expected, and only slightly suspect, and still severely depressed vs prior cycles even as the population has grown:
New Home Sales
In a positive jolt out of the housing sector, new home sales picked up sharply in February to a 539,000 annual rate. Adding to the good news is a big upward revision to January, to 500,000 from 481,000. These are the first two 500,000 readings going all the way back to April and May of 2008.
The gain drew down what was already thin supply on the market, to 4.7 months at the current sales rate vs 5.1 and 5.3 months in the prior two reports. The current reading is the lowest since June 2013 and will undoubtedly encourage builders to expand construction. The lack of supply, however, did not lift prices where the median fell a sharp 4.8 percent in the month to $275,500. Sellers, in fact, seem to be giving price concessions with the year-on-year price up only 2.6 percent.
Looking at sales by region shows a big surge in the Northeast where, however, sales levels compared to other regions are very low. Sales in the Midwest, which is also a small region for new home sales, fell sharply in the month as they did in the West, a large region for sales that represents 23 percent of all sales. Sales, however, were very strong in the South, a region that makes up a whopping 59 percent of all sales and where sales are back to where they were in February 2008.
Lower than expected and not good:
Richmond Fed Manufacturing Index
March has not been a good month for the Richmond manufacturing sector where the index fell into contraction, to minus 8 vs zero in February. Order readings, both for new orders and backlogs, are down substantially as are shipments and the workweek. Hiring, however, remains respectable, at least for now. Price readings show only the most marginal pressure.
The early signals from the regional manufacturing reports (that is this report together with last week’s Philly Fed and Empire State reports) are all showing weakness in orders, a trend also highlighted by this morning’s PMI flash where weakness in export orders is specifically cited. Just last week, the FOMC underscored weak exports as a major factor holding back economic growth.
PMI Manufacturing Index Flash
The manufacturing sector has gotten off to slow start this year but may have picked up slightly in March, based at least on the PMI flash which is at 55.3, a 5-month high and vs 55.1 in final February and 54.3 in mid-month February. New orders are also at a 5-month high as rising domestic sales offset declining export sales and weak sales out of the oil sector. Output is at a 6-month high and employment at a 4-month high. Input costs are down for a 3rd straight month and output prices are rising at their slowest pace in 3-1/2 years.
The decline in export sales is of special note in this report which cites concerns among respondents that the dollar’s strength against the euro is hurting demand. Last week’s FOMC statement pointed to weak exports as a major factor holding down growth. This report in general has been running noticeably hotter than hard data from the government which have been no better than flat, if that, and which would correspond to a roughly 50 level for the PMI.
More bad new, and, again consumption down even with lower gas prices:
Chicago Fed National Activity Index
The economy has indeed gotten off to a slow start this year, confirmed by the national activity index which came in at minus 0.11 in February vs minus 0.10 in January. The 3-month average is now in negative ground, at minus 0.08 in February vs plus 0.26 in January.
The weakest component in February is for personal consumption & housing, at minus 0.17. The component for production-related indicators, at minus 0.07, is the second weakest. These readings offer tangible confirmation that both housing and manufacturing are pulling down economic growth.
But employment, importantly, continues to be the bright spot for the economy, at plus 0.11 with sales/orders/inventories fractionally positive at plus 0.02.
Also less than expected and depressed:
Existing Home Sales
Existing home sales bounced 1.2 percent higher in February to a 4.88 million annual pace which is above January’s 4.82 million but still isn’t that strong. The year, in fact, opens with the two weakest months for existing home sales since April last year. The year-on-year rate, however, is showing strength, at plus 4.7 percent in February for the strongest reading since October 2013.
The data are split between single-family homes and condos with the single-family component in front which is encouraging, up 1.4 percent to a 4.10 million pace and a year-on-year gain of 5.9 percent. The condo component was unchanged in February at 0.540 million for a year-on-year minus 3.6 percent.
The South is by far the largest region for total sales and rose 1.9 percent in February for a year-on-year plus 6.0 percent. The West and Midwest are the next largest regions with the Midwest unchanged in the month and up 4.9 percent year-on-year with the West up 1.9 percent in February for a year-on-year gain of 2.8 percent. February sales fell 6.5 percent in the Northeast, which lags in the distance in size. The year-on-year rate for the Northeast is plus 3.6 percent.
Existing homes on the market are still on the scarce side, at 4.6 months of supply and unchanged from January. A year ago, the rate was 4.9 months. Prices firmed in the latest report, up 2.5 percent to a median $202,600 and a respectable 7.5 percent ahead of a year ago. Note, however, that price data in this report are subject to volatility. Still the year-on-year reading is the best since February last year.
The housing market is soft though there are some signs of life in this report including the month’s gain for single-family sales. New home sales, like sales of existing homes, have also been soft and a decline is expected in tomorrow’s data.
By Nick Timiraos
March 22 (WSJ) — Business capital spending rose 6% last year due to gains from a broad base of U.S. industries. The drag from energy this year could cut that growth rate in half in 2015, according to Goldman Sachs. Moreover, equity analysts at the bank estimate capital spending globally by energy companies in the S&P 500 will fall 25%. Already, energy companies in the S&P 500 have announced about $8.3 billion in spending cuts. Excluding energy, capital spending will grow 4% for S&P 500 companies this year, says Citi.
Think of it this way- portfolios and speculators sold euro for dollars last year to people who sold dollars to buy euro to then make purchases from the EU, as the EU ran a trade surplus and the US ran a trade deficit.
So those euro that were sold were ‘reabsorbed’ by euro exporters who used them to pay expenses domestically, etc. as tight fiscal policy in the EU continued to keep euro in short supply.
That means the euro ‘aren’t there’ to be repurchased should the portfolios and speculators attempt to rebalance until they drive the euro high enough to reverse the trade flows.
Has he seen his own Atlanta Fed’s forecast?
Might make more sense to say no rate hike unless prospects improve…
March 20 (CNBC) — Atlanta Federal Reserve President Dennis Lockhart said Friday he expects the U.S. central bank to raise interest rates at either its June, July or September policy meetings, barring a significant downturn in the U.S. economy.
So my story is that traders and portfolio managers worried about inflation and currency depreciation from QE caused the depreciation during those periods, covering shorts and restoring dollar weightings after QE ended, returning the dollar to where it was. And now the latest spike is largely from the ECB’s QE announcement which caused strong desires to shift out of euro and into dollars. And this too should reverse at some point as, like everywhere else it’s been tried, QE will not reverse their deflationary forces or add to aggregate demand, and the euro shorts and underweight portfolios will be scrambling to get their euro back, while at the same time the current account surplus that resulted from the weak euro works to make those needed euro that much harder to get.
This should take q4 GDP down a bit more for the next published revision.
And it’s also consistent with my oil price narrative as well:
The nation’s current account gap widened sharply in the fourth quarter, to $113.5 billion vs a slightly revised $98.9 billion in the third quarter and driving the gap, relative to GDP, up 4 tenths to 2.6 percent. The gap on income is the main culprit, up $11.4 billion in the quarter and reflecting declining equity in foreign affiliates as well as transfers for fines and penalties. On trade, the goods gap rose $4.1 billion but was offset in part by a $1.0 billion increase in the services surplus.
Down from last month and a bit worse than expected:
Still no sign of life here:
MBA Mortgage Applications
Despite low mortgage rates, demand for mortgage purchase applications continues to be weak, down 2.0 percent in the March 13 week for a year-on-year rate of only plus 1.0 percent. Refinance applications fell 5.0 percent in the week. Rates moved lower in the week with the average 30-year mortgage for conforming loans ($417,000 or less) down 2 basis points to 3.99 percent.
Not looking good here either:
Washington, D.C. – March 18, 2015 – After its first negative score in ten months, the Architecture Billings Index (ABI) showed a nominal increase in design activity in February, and has been positive ten out of the past twelve months. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the February ABI score was 50.4, up slightly from a mark of 49.9 in January. This score reflects a minor increase in design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 56.6, down from a reading of 58.7 the previous month.
More evidence this was the source of credit expansion, now gone, that picked up the slack when taxes were raised and spending cut in 2013. BIS chart on left shows growth of energy sector debt that offset the 2013 tax hikes and spending cuts.
The subsequent cutbacks explains the sudden collapse of US GDP:
— Pedro da Costa (@pdacosta) March 18, 2015
Atlanta Fed GDPnow:
Unless some other agents steps up to spend more than its income GDP growth will not recover, and, as in prior cycles, the ‘automatic fiscal stabilizers’ will do their thing to reduce tax collections and increase transfer payments, thereby increasing the federal deficit in the ensuing slowdown until the deficit gets large enough reverse the downturn and support the next growth cycle.
Remember all the economists pointing to this when this was going up?
Not good, and last winter was even colder:
Housing starts unexpectedly fell sharply in February. Starts fell a monthly 17.0 percent, following no change in January. Expectations were for a 1.048 million pace for January. The 0.897 million unit pace was down 3.3 percent on a year-ago basis. This was the lowest starts level since January 2014 with a 0.897 million unit annualized pace.
Single-family units dipped 14.9 percent in February, following a 3.9 percent decrease the month before. Multifamily units dropped 20.8 percent after rising 7.9 percent in January.
By region, the Northeast Census region fell a whopping 56.6 percent (likely weather related). Declines were also seen in other regions: the Midwest down 37.0 percent; the West down 18.2 percent; and the South down 2.5 percent.
Housing permits, however, were more positive, gaining 3.0 percent after no change in January. The 1.092 million unit pace was up 7.7 percent on a year-ago basis. Analysts called for a 1.058 million unit pace.
The housing sector is hard to read due to severe winter weather. The outlook is not as bad as current activity. But this sector is still sluggish looking forward and this is another indicator that likely will keep the Fed dovish at this week’s FOMC meeting. Also, expect analysts to nudge down first quarter GDP forecasts.
And back down to the bottom of prior cycle lows, and the population is larger now:
Not good here either- no sign of retail pickup from lower oil…