GDP detail, Business optimism, Personal Income, Chicago PMI, US pending home sales, China news


Personal income not doing so well, as growth keeps ratcheting down:

China April factory growth unexpectedly slows as economy struggles for traction

(Reuters) The official Purchasing Managers’ Index (PMI) for manufacturing fell to 50.1 in April from March’s reading of 50.5, which was the first expansion in four months, data from the statistics bureau showed. Output expanded at a slower but still moderate pace, while growth in new orders eased only slightly. The official index for export orders continued to contract, but hit its highest level in eight months. The official PMI survey showed small and mid-sized manufacturers continued to fare worse than larger companies. But small manufacturers’ activity improved to a six-month high.

Chinese freight volumes hit as business softens

(FT) The headline FTCR China Freight Index, a composite reading of the results of a monthly survey of 200 logistics companies, fell to a nine-month low of 48.8 in April. April’s reading indicates that freight activity is shrinking, if at a relatively slow rate. Just 16.6 per cent of respondents said their volumes increased on the previous month compared with 26.8 per cent in March. Year-on-year readings were even weaker, with almost a third of companies reporting that volumes were down, while our index comparing rates this month with April 2018 pointed to a marginal drop.

Quarterly Growth:

Housing starts, Unemployment claims, China

Still heading south:

In addition to tightening requirements, states have found other means to keep people from receiving benefits:

Has the economy made it arder to get unemployment benefits?

Not every terminated employee is eligible to receive unemployment benefits. You have to earn a minimum amount to even qualify; you cannot quit or be fired for cause, as defined by Illinois law; and you must actively search for alternative employment. With these requirements in mind, the Illinois Department of Employment Insurance (IDES) has, in the past, generally appeared to lean in favor of the employee when determining eligibility.

However, through working with both executives and small business owners, my office has been seeing a shift. I am not sure if state budget pressures are pushing this change, but IDES employees have been seemingly going out of their way to contact small business owners and encourage them to contest unemployment claims.

Trade, Housing affordability, China, BOJ equity buying, Retail comment

Imports and exports both decelerating indicates a weaker global economy, and weak US retail sales indicates domestic consumer spending growth is slowing:

Highlights

First-quarter GDP looks to get a major boost from improvement in the nation’s trade deficit which, for February, came in at much lower-than-expected $49.4 billion. And the positives are more than just a technical calculation as exports, driven by aircraft, jumped 1.1 percent in the month on top of January’s 1.0 percent gain.

Exports of goods rose 1.5 percent to $139.5 billion as civilian aircraft rose $2.2 billion in the month. Outside of aircraft, however, gains are less striking with auto exports up $0.6 billion and with monetary gold and consumer goods showing marginal gains. For farmers, the results are slightly in the negative column with exports down $0.2 billion. But exports of services, at $70.1 billion in the month and usually a reliable plus, rose 0.3 percent.

Imports rose only 0.2 percent in the month, totaling $259.1 billion but with consumer goods showing yet another large increase of $1.6 billion in the month. Imports of industrial supplies fell $1.2 billion despite a 0.8 billion rise in the oil subcomponent. Imports for other categories were little changed.

Bilateral country deficits show a sharp decline with China, down $24.8 billion in unadjusted monthly data that are hard to gauge given strong calendar effects during the lunar new year. But year-to-date, the deficit with China is at $59.2 billion and down sizably from $65.2 billion in the comparison with the 2018 period. February’s deficit with both the European Union and Canada narrowed while deficits with Japan and especially Mexico, at $7.4 billion vs January’s $5.8 billion, deepened.

Today’s results are certain to lift first-quarter GDP estimates which had been roughly at the 2 percent line. The average deficit for the first two months of the quarter is $50.3 billion which is well under the $55.6 billion monthly average in the fourth quarter. And the easing deficit with China may well ease immediate tensions in U.S.-Chinese trade talks.


Interesting as debt service and financial burdens ratios remain historically low:


They’ve made fiscal adjustments that may be kicking in:

Bank of Japan to be top shareholder of Japan stocks

Bank of Japan to be top shareholder of Japan stocks (Nikkei) The BOJ held over 28 trillion yen ($250 billion) in exchange-traded funds as of the end of March — 4.7% of the total market capitalization of the first section of the Tokyo Stock Exchange. Assuming that the bank maintains its current target of 6 trillion yen in new purchases a year, its holdings would expand to about 40 trillion yen by the end of November 2020. This would place it above the GPIF’s TSE first-section holdings of more than 6%. The BOJ has likely also become the top shareholder in 23 companies through its ETF holdings. It was among the top 10 for 49.7% of all Tokyo-listed enterprises at the end of March.

This could explain why same store sales have been growing by about 5% year over year:

CNN: American retailers already announced 6,000 store closures this year. That’s more than all of last year.

Automatic cuts, China vehicle sales, Greenspan on wealth effect

Trump may allow $125B in cuts if Congress doesn’t act

(The Hill) President Trump has indicated that he would allow $125 billion in spending cuts to take place if Congress does not agree to his spending plan, White House adviser Larry Kudlow said Thursday. Kudlow was referring to budget caps set in place in the 2011 Budget Control Act (BCA), a law that was meant to force bipartisan cooperation on budgeting by threatening steep cuts to both defense and nondefense spending. Without legislation to raise the caps, 2020 defense spending would drop $71 billion and nondefense spending would drop $54 billion from current levels — about a 10 percent across-the-board cut.

Vehicle sales in China continue to drop, NEV sales rise

(China Daily) Chinese sales of passenger vehicles, MPVs, SUVs and minivans in March dropped 12 percent on a yearly basis to 1.78 million units. This is the 10th consecutive monthly decrease, according to the China Passenger Car Association (CPCA). The MPV sector saw the largest sales decline, 20.2 percent to 130,000 units in the past month, while SUVs and sedans dropped 10.7 and 12 percent, respectively. As China began to cut manufacturing sector VAT from 16 to 13 percent on April 1, some imported and high-end vehicle brands lowered prices to boost sales nationwide.

I hadn’t seen this quantified and looks reasonable to me, via the various credit channels:

However, Greenspan said much of the improvement has come from a rise in stock market prices: He sees a “stock market aura” in the economy. A rise of 10 percent in the S&P 500 corresponds to a 1 percent real GDP increase, he said. The S&P 500 has risen nearly 16 percent in 2019 and is on track for its best performance in history should current trends hold.

Auto sales, Lumber, Rail loadings, Global survey, Profits comments, Las Vegas Real Estate, Central Banks buying gold

This has been know to be associated with the housing cycle:

Framing Lumber Prices Down 30% Year-over-year

This has taken a dive recently:

Global economy enters ‘synchronised slowdown’

(F) The global economy has entered a “synchronised slowdown” which may be difficult to reverse in 2019, according to the latest update of a tracking index compiled by the Brookings Institution and the Financial Times. The Brookings-FT Tracking Index for the Global Economic Recovery (Tiger) compares indicators of real activity, financial markets and investor confidence with their historical averages for the global economy and for individual countries. The headline readings slipped back significantly at the end of last year and are at their lowest levels for both advanced and emerging economies since 2016.

Corporate Profit Squeeze Looms, Threatening Stocks’ Climb

(WSJ) Analysts project S&P 500 profits in the first quarter will contract 4.2% from a year earlier, according to FactSet, followed by flat growth in the second quarter. That puts the broad index at risk of entering its first earnings recession—marked by at least two or more consecutive quarters of negative earnings growth—since 2016. S&P 500 companies grew profits 20% in 2018, one of the best growth rates since the financial crisis, according to FactSet. Analysts see profits growing just 3.7% this year. S&P 500 companies are trading at 16.7 times their future earnings, the same level the broad index traded at in early October.

Las Vegas Real Estate in March: Sales Down 16% YoY, Inventory up 92% YoY

Gold buying like this functions as ‘off balance sheet deficit spending’. It’s off balance sheet as the payments by the CB don’t count as fiscal expenditures as they are accounted for as CB asset. And it’s functionally state deficit spending as the purchases add income in the form of net financial assets to the non government sectors:

China’s on a bullion-buying spree. The world’s second-largest economy expanded its gold reserves for the fourth straight month, adding to optimism that central banks globally will continue to build holdings.

The People’s Bank of China raised reserves to 60.62 million ounces in March from 60.26 million a month earlier, according to data on its website. In tonnage terms, last month’s inflow was 11.2 tons, following the addition of 9.95 tons in February, 11.8 tons in January and 9.95 tons in December.

China, the world’s top gold producer and consumer, is facing signs of a slowing economy, even as some progress is being made in trade negotiations with the U.S. The latest data from the PBOC indicate that the country has resumed adding gold to its reserves at a steady pace, much like the period from mid-2015 to October 2016, when the country boosted holdings almost every month. Should China continue to accumulate bullion at that pace over 2019, it may end the year as the top buyer after Russia, which added 274 tons in 2018.

Governments worldwide added 651.5 tons of bullion in 2018, the second-highest total on record, according to the World Gold Council. Russia quadrupled its reserves within the span of a decade amid President Vladimir Putin’s quest to break the country’s reliance on the U.S. dollar, and data from the central bank show that holdings rose by 1 million ounces in February, the most since November.

Retail sales, Construction spending, Chem activity, Apartment vacancy, Equity flows, South Korea exports, Trump comments

Not looking good:


Not looking good:


In contraction:

South Korea March exports contract for fourth month

(Reuters) Overseas sales slid 8.2 percent in annual terms in March. Imports shrank by 6.7 percent in March from a year earlier. This produced a $5.22 billion trade surplus, nearly doubling the amount in February, the Korea Customs Service data showed on Monday. Analysts say the fall in exports was led by a slump in semiconductor business, the country’s key export, as well as cooling demand from China, its biggest market, amid the trade war with the United States. Bank of Korea Governor Lee Ju-yeol said last week the central bank may change its current neutral stance on monetary policy should “recovery sentiment” worsen significantly.

Trump’s Great Lakes Whoppers

Trump, March 28: I support the Great Lakes. Always have. They’re beautiful. They’re big. Very deep. Record deepness, right? And I’m going to get, in honor of my friends, full funding of $300 million for the Great Lakes Restoration Initiative, which you’ve been trying to get for over 30 years. So we’ll get it done. It’s time. It’s time. You’ve been trying to get it over 30 years. I would say it’s time, right?

In its first fiscal year, Obama recommended — and the initiative received — $475 million. After that high point, funding dropped in fiscal year 2011 to just under $300 million. And funding has stayed steady around that level ever since.

In his last two budget proposals, including the fiscal year 2020 budget released this month, Trump proposed just $30 million — the equivalent of a 90 percent cut. In his first proposed budget for fiscal year 2018, the president allotted zero funding for the program.

GDP, Pending home sales, Trade, Chem index, Erdogan on rates

Decelerating faster than previously reported:

Weakness in imports may be confirming weak US consumer demand:

Highlights

January’s trade deficit came in at a much lower-than-expected $51.1 billion as exports rose a solid 0.9 percent to $207.3 billion while imports fell a sharp 2.6 percent to $258.5 billion. The goods deficit is the surprise in the report, at a still steep $73.3 billion but 10.1 percent lower than December’s outsized $81.5 billion gap. The nations surplus on services exports rose 2.4 percent to $22.1 billion.

Details show a very welcome $1.3 billion rise in food exports, which had been shrinking in prior months, as well as a $1.2 billion gain for vehicle exports. Imports of capital goods fell $3.0 billion, which is good for the deficit but a negative for business investment, while imports of industrial supplies, reflecting a decline for oil, fell $2.3 billion.

Country data show another deep deficit with China, at $34.5 billion but a little less steep than $36.8 billion in December, with deficits with all other major trading partners likewise narrowing.

This reports opens first-quarter net exports on a favorable footing which in turn should lift early estimates for first-quarter GDP.

Erdogan Revives Unorthodox Theory on Interest Rates, Prices

US manufacturing, and growth forecasts, LA port traffic, Japan trade

Decelerating global trade hitting home:

U.S. manufacturing sector slowing as economy loses steam

(Reuters) The Fed said manufacturing production dropped 0.4 percent last month. January was revised up to show output falling 0.5 percent instead of slumping 0.9 percent. Production at factories increased 1.0 percent in February from a year ago. Motor vehicles and parts output slipped 0.1 percent last month after tumbling 7.6 percent in January. Excluding motor vehicles and parts, manufacturing output fell 0.4 percent last month. Capacity utilization for the manufacturing sector fell to a nine-month low of 75.4 percent in February from 75.8 percent in January.

Economists Cut Forecasts for Jobs and Economic Growth in Early 2019

(WSJ) Private-sector economic forecasters surveyed in recent days expect U.S. economic output to grow, on average, at a 1.3% pace in the first quarter. That is a sharp drop from the last survey, in early February, when they predicted a 2% growth rate for the January-to-March period. 84.2% said they saw a greater risk that the economy would grow more slowly than that it would grow more quickly over the next 12 months. When asked about the biggest downside risk to their forecasts, 46.8% mentioned trade policy or China.

LA area Port Traffic Down Year-over-year in February

Container traffic gives us an idea about the volume of goods being exported and imported – and usually some hints about the trade report since LA area ports handle about 40% of the nation’s container port traffic.

On a rolling 12 month basis, inbound traffic was down 0.8% in February compared to the rolling 12 months ending in January. Outbound traffic was down 1.2% compared to the rolling 12 months ending the previous month.

Exports and imports fading:

Japan logs goods trade surplus of 339 billion yen in February

(Kyodo) Exports fell for the third straight month in February, slipping 1.2 percent to 6.38 trillion yen. Imports declined 6.7 percent to 6.05 trillion yen. China-bound exports increased 5.5 percent from a year prior, but that failed to make up for a 17.4 percent plunge in January. Japan’s trade surplus against the United States shrank to 624.9 billion yen as a 4.9 percent rise in imports such as aircraft outpaced a 2.0 percent increase in exports. With the European Union, Japan had a trade surplus of 58.2 billion yen as exports grew 2.5 percent while imports edged up 0.5 percent.

BOJ stands pat but downgrades view of output and exports

(Nikkei) “The Chinese economy is decelerating,” Gov. Haruhiko Kuroda said. But “stimulus steps are already being taken by the government. Their effects will show up in due course. Many believe that will be in the latter half of this year,” he added. “There are risks to the global economy. They need to be monitored carefully. But continued gradual growth remains our main scenario.” The BOJ downgraded its view of exports and output, saying they have been showing weakness recently. Previously, the central bank described export and output conditions as being “on an expanding trend.”

Economists Cut Forecasts for Jobs and Economic Growth in Early 2019

(WSJ) Private-sector economic forecasters surveyed in recent days expect U.S. economic output to grow, on average, at a 1.3% pace in the first quarter. That is a sharp drop from the last survey, in early February, when they predicted a 2% growth rate for the January-to-March period. 84.2% said they saw a greater risk that the economy would grow more slowly than that it would grow more quickly over the next 12 months. When asked about the biggest downside risk to their forecasts, 46.8% mentioned trade policy or China.

Small business index, BOJ on trade, China, Atlanta Fed

Trumped up expectations largely reversed:

Highlights

At 101.7, the small business optimism index fell short of expectations in February, recovering only 5 tenths of January’s 3.2 point dip. Econoday’s consensus was looking for 102.5 with the low estimate at 101.8. Employment plans lost ground for a second straight month with a turn lower for earnings trends the biggest negative in the month. One plus is that the he outlook for economy, after dropping sharply in January, did turn positive in the month.

Bank of Japan weighs gloomier view of exports and output

(Nikkei) “We have no choice but to recognize that recent export and production trends are weak,” said a top official at the central bank, a view echoed by other senior officers there. In January, exports dropped 5.2% from the previous month in real terms, according to BOJ data, and the economy ministry’s index of industrial production shrank for a third straight month. The BOJ at its January policy meeting that both exports and industrial production were “on an increasing trend,” but it is considering revising that language during the two-day meeting ending Friday.

Sentiment among large Japanese companies plunges in 1Q 2019

(Nikkei) The Business Survey Index of large companies across all industries stood at minus 1.7 in the first three months of 2019. That is a 6-point drop from the October-December period of 2018. A negative reading means there are more companies that think business conditions are getting worse than there are that think things are improving. The Business Survey Index for Japan’s manufacturing sector, which relies heavily on exports, dropped to minus 7.3 from positive 5.5. Among large companies, the second quarter forecast is minus 0.3, and the period from July to Sep. is plus 5.7.

China’s top property developers see plunging sales in February

(Xinhua) China’s top 100 real estate developers saw a sharp monthly decline in its total sales due to the Spring Festival holiday. The total sales volume of China’s top 100 property developers was down by 22.9 percent month-on-month, and 11 percent year-on-year in February, according to China Real Estate Information Corp (CRIC). Floor area sold by Vanke, China’s housing market giant, plunged 22 percent to 2.47 million square meters, with the sales falling 12 percent to 43.19 billion yuan (around 6.4 billion U.S. dollars) month-on-month.

China car sales drop 17.4% in February to 1.22m units

(Nikkei) Sales of passenger cars fell 17.4% to 1.22 million units in February, China Association of Automobile Manufacturers, or CAAM, said. Sales of passenger cars and commercial vehicles fell 13.8% to 1.48 million units, while commercial vehicles saw an 8% increase during the month. The sales in February were hurt by weak demand during the Chinese New Year, CAAM said. The slump in February marks the eighth straight monthly decline in auto sales. Vehicle sales in China fell 15.8% in January, following a 2.8% decrease last year.

GDP forecasts are low and falling:

Employment, Housing starts, Euro slowdow, China fiscal, Semiconductor market

It will take another few months to know if this is just ‘noise’ or it’s about to go negative. If you average the last two months, for example, it’s about 165,000 each:

Highlights

Averaging extremes is good advice to find an underlying path and February and January payrolls are an immediate example. Nonfarm payrolls rose by only 20,000 last month vs a revised 311,000 rise in January with the average at a very healthy 166,000.

Payrolls are part of the establishment survey of businesses while the unemployment rate is based on the household survey which includes those who are working but not on payrolls. Here February’s story is much more positive showing a sharp rise in the number of those employed (up 255,000) and a sharp fall in the number of unemployed (down 300,000) that make for an unexpected 2 tenths dip in the unemployment rate to 3.8 percent.

And wages in today’s report are another indication of labor market strength, jumping 0.4 percent in the month which is outside expectations for a year-on-year rate of 3.4 percent that is at the high end of expectations.

But payrolls are definitely weak with construction down 31,000 and ending a run of gains while retail, down 6,000, extended its mostly weak performance. One positive sign of labor market demand comes from professional & business services where payrolls jumped 42,000 and include a 6,000 rise for temporary workers in readings that continue to confirm employers are scrambling to build up their staffs.

Winter is traditionally the most difficult period to seasonally adjust data and related questions are certain to come up to help explain away the volatility in payrolls so far this young year. Though the drop in February may well be cited at the coming FOMC this month as a reason for caution, there is still little question that strong demand for labor, underscored by the rise in average hourly earnings, is the central strength of the U.S. economy.

Up from last month, but, again, looking at the two months together it’s still trending down:

This is a small step but in the right direction:

China to raise fiscal deficit target

(China Daily) China will raise its fiscal deficit target to 2.76 trillion yuan, or 2.8 percent of GDP, this year from 2.6 percent in 2018. The measure is being taken to stabilize economic growth by enlarging government spending, according to the annual Government Work Report. As a major measure to tackle economic risks, the proactive fiscal policy in 2019 will become stronger and more efficient, Premier Li Keqiang said. Total government expenditure is budgeted at over 23 trillion yuan, up by 6.5 percent from last year. “We will refrain from using a deluge of stimulus policies,” Li told participants of the opening of the session.

Global semiconductor market dips for first time in 30 months

(Nikkei) Worldwide semiconductor sales receded 5.7% on the year to $35.5 billion in January, according to World Semiconductor Trade Statistics, the first decline in 30 months. A market that had previously expanded at a 20%-plus clip started losing steam in the second half of 2018. Flash memory prices plunged more than 40% in a year. Chinese semiconductor sales between November 2018 and January 2019 crashed by nearly 20% by value compared with August to October, according to WSTS. China accounts for 30-40% of a global semiconductor market that amounted to $469 billion last year.