Freight

It’s all in contraction:

A slump in freight shipping flashes warning signs for economy as US-China trade war rages

Air freight volumes fell nearly 5% in June, the eighth consecutive month of declines.
Freight airlines say demand has dropped amid the worsening trade war between the U.S. and China.
Economists and executives are trying to assess the health of the economy amid conflicting signals.

Trump comments, Mexico, Fox News polls

Powell’s getting the perfect opening to resign:

Trump tweets: ‘Who is our bigger enemy,’ Fed Chairman Powell or Chinese President Xi?

Serious dementia- hopefully enough for Pence to pull the plug:

Stocks fell to their lows of the day on Friday after President Donald Trump ordered in a series tweets that U.S. companies find alternatives to their operations in China.

Trumps tariffs and related policy taking it’s toll globally:

Mexico Economy Contracts for 1st Time since 2009

The Mexican economy shrank 0.8 percent year-on-year in the second quarter of 2019, compared to a preliminary reading of a 0.7 percent contraction and a 1.2 percent

Japan exports, RV sales, Tariff delays

Japan Exports Fall for 8th Month

Exports from Japan dropped 1.6 percent from a year earlier to JPY 6.64 trillion in July 2019, the eighth straight month of decrease and compared to market expectations of 2.2 percent fall, amid weakening global demand and the US-China trade dispute.

An Economic Warning Sign: RV Sales Are Slipping

Elkhart, Ind., is flashing a warning sign that a recession could be just ahead.

Capital of the country’s recreational-vehicle industry, the northern Indiana city and the surrounding area are watched by economists and investors for early indications of waning consumer demand for luxury items, often the first sign of economic anxiety.

Shipments of recreational vehicles to dealers have fallen about 20% so far this year, after a 4.1% drop last year, according to data from the RV Industry Association. Multiyear drops in shipments have preceded the last three recessions.

Aides got Trump to delay tariffs by telling President it could ‘ruin Christmas’

(CNN)- President Donald Trump’s trade advisers were searching last week for a strategy to forestall his threatened tariffs on China, they struck upon a novel approach: appeal to his Christmas cheer.

Under pressure from retailers to prevent a move that would likely have caused prices of popular consumer goods to spike, the President’s team came to him during a meeting last week with a warning. Applying new tariffs on all Chinese imports, they cautioned, could effectively “ruin Christmas,” according to people familiar with the matter.
It was a tactic that worked: Trump announced the tariffs would be delayed until December 15.

Germany, Euro IP, China

German Economy Contracts in Q2 as Exports Fall

Germany’s gross domestic product contracted by a seasonally-adjusted 0.1 percent on quarter in the three months to June 2019, following a 0.4 percent expansion in the previous period and matching market expectations, a preliminary estimate showed. Net external demand contributed negatively to the GDP, mainly due to a slump in exports, while fixed capital formation in construction also declined.

China Industrial Output: Growth at Over 17-Year Low

China’s industrial production increased 4.8 percent year-on-year in July 2019, the weakest annual gain since February 2002 and below market consensus of 5.8 percent, on the back of

China news, CNBC small business survey

China Vehicle Sales Fall for 13th Month

Vehicles sales in China decreased 4.3 percent from a year earlier in July 2019, the 13th consecutive month of decline, as the economy slows further amid the trade spat with the US. Sales of new energy vehicles (NEVs) tumbled 4.7 percent to 80,000 units, the first yearly drop in more two years, following China’s move to cut NEV subsidies last month.

Interesting how the chart shows the belief trade policy would help increased for a bit before going back down:

Employment, Factory orders, Trade, Construction

Deceleration continues- see chart:

Highlights

How far along the rate-cut path will the Fed go? Maybe a bit further given a middling employment report where an important detail is pointing to big trouble for the next industrial production report. First the headlines as nonfarm payroll rose 164,000 which is actually 13,000 above Econoday’s consensus for 151,000. But much of the strength came for a second month from government payrolls which, reflecting the heavy government spending that’s underway, rose 16,000 to top June’s 14,000 rise. Private payrolls, which exclude government payrolls, rose 148,000 which, in contrast to the nonfarm headline, is 12,000 under Econoday’s consensus.

But a key detail is a decline in manufacturing hours, at 40.4 hours in the weeks and down from 40.7 hours in June, with manufacturing overtime also down, at 3.2 hours from 3.4 hours. These are inputs into the manufacturing component of the July industrial production report and point to a quick reversal from June’s strength, one that would no doubt focus new attention on the weakness of the sector and the effects of slowing global trade.

Yet wage pressures may be dulling at least some of the Fed’s stimulus bias, especially for the two FOMC members who voted against Wednesday’s rate cut. Average hourly earnings rose 0.3 percent which is at the top-end of Econoday’s consensus range while June’s rise is revised 1 tenth higher and now also stands at 0.3 percent. Year-on-year, earnings rose 1 tenth to 3.2 percent and though moving upward in the month have been higher, at 3.4 percent back in February this year.

Even if wages aren’t rising that much, the availability of labor does show some tightening. The unemployment rate held steady at a very low 3.7 percent but the participation rate did rise 1 tenth to 63.0 percent. The pool of available workers fell nearly 200,000 in the month to 11.1 million.

Turning back to payrolls, manufacturing posted a strong gain of 16,000 which easily tops the consensus range even if the hours in the sector fell in the month. Payroll gainers aren’t eye popping but do include a second straight 38,000 rise for business services which points to demand for contractors and temporary workers, as well as an 18,000 rise for financial activities. On the downside is yet again retail which fell 4,000 in the month to extend its very severe contraction.

Manufacturing is the focus right now and today’s report points squarely at an unfavorable reading for the sector in the next industrial production report which will be posted Thursday, August 15. Otherwise today’s report is mixed showing a solid and sustainable pace for overall payroll growth fed in part by government workers and incremental but not excessive tightening in labor conditions.


Lower than expected and downward revisions:

Highlights

Capital goods that surged in last week’s advance data are revised down a bit in the factory orders report, limiting June’s monthly headline increase to 0.6 percent which is inside of Econoday’s consensus range but misses the consensus by 2 tenths. New orders for core capital goods (nondefense ex-aircraft) are trimmed back 4 tenths to what is still a very strong 1.5 percent monthly gain in June. May is also trimmed back, by 1 tenth to 0.2 percent. Shipments for this category, which are inputs into GDP business investment, are also trimmed back several tenths over June and May to gains of 0.3 and 0.4 percent.

Orders for nondurable goods are the fresh data in today’s report and, pulled down by the effects of lower oil as well as coal prices, fell 0.5 percent in June following a 0.3 percent dip in May. The second estimate for June’s durable goods orders is shaved 1 tenth to a 1.9 percent gain, a very strong showing boosted by capital goods.

Inventories rose a thin 0.2 percent for a third straight month to pull the inventory-to-shipment ratio down to 1.37 from 1.38. If manufacturing is slowing, and year-on-year total new orders in June were down 1.2 percent, at least inventories are being kept in check.

Capital goods orders had been softening and duly raising concern at the Federal Reserve over the health of business investment; June’s jump does not fit into this pattern. If strength continues to appear in this reading, then a central concern for the Fed and its policy shift will be less pressing.

Continuing deceleration, no growth in orders or shipments:


Imports and exports contracting as the global trade collapse continues:

Highlights

June was a very soft month for US trade and though the month’s headline does show marginal improvement from May, at an adjusted deficit of $55.2 billion versus a revised $55.3 billion, both imports and exports contracted, down a monthly 1.7 percent and 2.1 percent respectively.

And not only did goods exports fall, down 2.8 percent to $137.1 billion, but services exports which are usually solid also fell, down 0.7 percent in the month to $69.2 billion. Imports of goods fell 2.2 percent to $212.3 billion with imports of services up 0.2 percent to $49.2 billion.

Turning to details on goods, the deficit with China in June was $30.0 billion versus May’s $30.2 billion in country data that may be unadjusted but are still indicative of a deep and persistent bilateral deficit. The deficit with Mexico also remains very deep, at $9.9 billion from May’s $9.6 billion.

By categories, exports of consumer goods were the weakest posting a $1.9 billion monthly decline in adjusted data to $16.2 billion with exports of capital goods, despite a welcome rise of $0.6 billion in civilian aircraft exports, down $1.2 billion to $44.9 billion. Exports of agricultural products rose slightly in the month to $12.1 billion. On the import side, oil price effects made for a $3.2 billion decline in industrial supplies while consumer goods, the heaviest category for imports, fell $0.9 billion to a still steep $54.7 billion.

June’s trade report edges the trade debate deeper on the troubled side, but only slightly. Yet if the pattern continues and both exports and imports contract, the Federal Reserve’s concerns over the effects of slowing global trade, expressed by this week’s rate cut, will look more and more justified.


In contraction:

Highlights

The construction sector has been a stubborn disappointment all year, failing to show much life despite strong conditions in the domestic economy and favorable financing rates. Construction spending in June fell 1.3 percent to miss the low end of the Econoday’s consensus range. Year-on-year, spending is down 2.1 percent.

The one positive for the sector has been public spending which, however, fell sharply in June for both educational building and highways & streets. Yet year-on-year, both of these categories are still rising at solid mid-single digit rates reflecting what are strong yearly increases in state & local spending of 5.9 percent and federal spending of 9.7 percent.

When turning to data on the private side of construction the story changes. Private nonresidential construction is down 0.4 percent on the year and June was another soft month with the transportation and power sectors both lower. Manufacturing is showing some life, up in the month and up 10.5 percent year-on-year while commercial building did improve in June but is still down 12.0 percent on the year.

The worst news in the report continues to come from the residential sector where spending is down 8.1 percent from June last year. This despite strong gains in multi-family construction which are being offset by contraction in single-family construction, falling 0.7 percent on the month and down 8.5 percent on the year. And home improvements have likewise been weak, down again in the month and for yearly contraction of 5.1 percent.

This report brings up questions of possible contraction in foreign investment in US real estate and whether construction, like manufacturing, is being pulled down by global slowing and related tariff effects. Watch for construction payrolls in tomorrow’s employment report for the first indication on July conditions in the sector.

GDI, Productivity, China pmi, Dallas Fed

Gross domestic income was just revised higher. The blue bars are the previously reported levels and the red bars are the revised levels. This further meant that the savings rate unspent income) was higher as previously discussed. And an increasing savings rate generally reflects a deceleration in borrowing:


Lack of aggregate demand- desires to not spend income not being sufficiently ‘offset’ by’ private or public sector net (deficit) spending:


I see deceleration in both, just less so in services:

Highlights

Texas manufacturing activity bounced back but not as much expected in July, with the general business activity index rebounding by 5.8 points from June’s three-year low though remaining in contraction at minus 6.3. The production index also improved slightly, rising 0.4 points to 9.3, indicating factory output growth at roughly the same pace as in June.

The survey’s demand indicators were mixed but mostly stronger, however. Showing acceleration were new orders, which rose 1.8 points to 5.5 in an extension of June’s improvement, and moving out of contraction the growth rate of orders rose 8 points to 2.7. Shipments rebounded strongly by 8.5 points to 10.2, and capacity utilization rose to 1.6 points to 11.2. But unfilled orders did fall 6.2 points to minus 2.8 and delivery times fell 4.3 points to minus 4.8. Inventories of finished goods fell another 4.5 points to minus 10.6.

employment measures bounced back strongly after slipping previously, with the employment index rising 7.2 points to 16.0, well above the long-term average. Hours worked rose 1.9 points to 6.6, while wages slightly dipped by 1.6 points to a still strong 20.1.

Also pointing to strength ahead, capital expenditures rose sharply after falling to two-year lows previously, rising 8.3 points to 15.2.

On the inflation front, manufacturers saw upward pressures remaining about the same for raw materials input costs, with the index edging up 0.6 points 17.0, much stronger than for prices received, where price growth was down 2.9 points to minus 1.7.

Expectations for future business conditions improved, though remaining well below average, with expected general activity returning into positive territory by rising 8.7 points to 6.0 and the company outlook rising 5.5 points to 9.1.

Today’s report shows Texas manufacturing recovering in July from June’s slide more strongly than the headline suggests, and will probably not strengthen the case for more accommodation by the Fed.

Dallas Fed: “Texas Manufacturing Continues Moderate Expansion”

The general business activity index rose six points but remained in negative territory for a third month in a row, coming in at -6.3. The company outlook index rose five points to -0.9, with the near-zero reading indicating that the share of firms noting a worsened outlook roughly equaled the share noting an improved outlook. The index measuring uncertainty regarding companies’ outlooks retreated 12 points from its June peak, coming in at 9.7.

This is what the Fed is looking at- a steep deceleration after tariffs were announced:

Trucking index, Tariffs, Singapore exports, Turkey retail sales

FTR Trucking Conditions Index weakens in May


The President is in no hurry because he narrowly views the some $5 billion/mo in tariff revenues as a profit for the US at China’s expense, totally insensitive to the global economic downturn this ‘tax hike’ has created:

Trade war to drag on as Trump says long way to go and China strikes hard-line tone