Bank loans, CEO confidence, India

Tariffs have caused a global economy (that has a pro cyclical bias) to turn south.

It’s always an unspent income story. When decisions to not spend income (decisions to ‘save’) are not sufficiently ‘offset’ by agents spending more than their incomes GDP (sales/income) decelerates until said deficit spending- private or public- expands to fill the gap.

JOLTS, Wholesale trade

Heading south:


Sales in contraction year over year and inventories again elevated:

Highlights

Wholesale inventories rose 0.2 percent in August which is down from an initial estimate of 0.4 percent posted late last month. Inventories in July rose 0.2 percent.

Sales at the wholesale level are subdued, unchanged in August to keep the stock-to-sales ratio in the sector unchanged at 1.36. For GDP, wholesale inventories in the first two months of the third quarter rose roughly in line with the second-quarter build which would be neutral for the inventory component of third-quarter GDP.

Small business, Japan, Rails

Highlights

Small business optimism continues to ease, down 1.3 points in September to a slightly lower-than-expected 101.8. No components rose in the month with six down and three unchanged. The report notes that uncertainty is up and respondents are more reluctant to make major spending commitments. Tariffs are cited by 30 percent of the sample as a negative for their business. Labor compensation continues to rise in contrast, however, to selling prices which are comparatively flat.

Global trade continuing to contract:

Japan’s current account surplus came in at JPY 2.16 trillion in August 2019, widening from last year’s JPY 1.82 trillion and above market expectations of JPY 2.07 trillion. The goods account switched to a JPY 0.05 trillion surplus from a JPY 0.26 trillion deficit, as imports fell to JPY 6.03 trillion from JPY 6.91 trillion, while exports fell to JPY 6.08 trillion from 6.65 trillion.

Deep in contraction:

Employment, Vehicle sales

Weakness continues and new tariffs kicking in will only make it worse:

Highlights

Is there slack in the labor market or isn’t there? Judging by September’s 3.5 percent unemployment rate, a rate that falls below Econoday’s consensus range, there may not be much available capacity at all. Yet wage pressures, as measured by average hourly earnings, eased significantly in September for a 2.9 percent year-on-year growth rate that is the lowest since July last year.

Payroll growth itself is running a notch or two below last year and is well under 200,000, but it is still very solid as well as steady and would look to further test the labor market’s available capacity. Nonfarm payrolls rose 136,000 in September with August revised sharply higher, up an additional 38,000 to 168,000. Yet manufacturing, the economy’s weak link right now due to slowing global trade, is showing weakness, down 2,000 in September versus expectations for a 3,000 gain. Over the last three months this sector has added only 4,000 payroll jobs, a detail that won’t miss the eye of Federal Reserve policy makers who are focused specifically, and with concern, on the health of this sector.


After the great oil capex collapse, the blip up from the tax cuts has been more than offset by the tariffs:


Down to the lows and then sideways:


Stalled out 3 years ago at levels from 20 years ago:

Employment, Vehicle sales, Consumer durables, NYC

Rapid deceleration:

BEA: September Vehicles Sales increased to 17.2 Million SAAR

“The job market has shown signs of a slowdown,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “The average monthly job growth for the past three months is 145,000, down from 214,000 for the same time period last year.”

Negative year over year:

BEA: September Vehicles Sales increased to 17.2 Million SAAR

BEA released their estimate of September vehicle sales this morning. The BEA estimated sales of 17.19 million SAAR in September 2019 (Seasonally Adjusted Annual Rate), up 1.1% from the August sales rate, and down 0.7% from September 2019.

Sales in 2019 are averaging 16.96 million (average of seasonally adjusted rate), down 1.1% compared to the same period in 2018.

Manhattan real estate prices take the biggest tumble since the financial crisis

ISM Manufacturing, Construction, Trump Fed comments

The deceleration that’s been going on all year due to the tariffs seems to finally be getting some media attention after US manufacturing reports that it’s in contraction. Something like the 10th plague…

Highlights

Contraction in export orders is severe and is pulling composite activity for ISM manufacturing’s sample under water. September’s 47.8 headline is more than 1 point under Econoday’s consensus which is significant, since nearly all forecasters take a stab at this report. And bleeding at a troubled rate are new export orders which at 41.0 posted their the third straight month of contraction that echoes the very substantial contraction being suffered by the PMI manufacturing sample in Germany right now.

Total new orders in September’s report are at 47.3 and also well below break even 50 to indicate outright monthly contraction. Backlog orders at 45.1 have been in contraction for this sample since May, and evaporating backlogs are not a positive signal for employment which at 46.3 is under 50, and well under 50, for a second straight month and is pointing to trouble for factory payrolls in Friday’s employment report. Suffering from a downturn in new orders and a lack of backlogs to work down, production is also under 50 for a second straight month, at 47.3.

Other details include flat price pressures for inputs, contraction in inventories, and improvement in delivery times — all consistent with a sample that is sinking. This report is very closely watched, whether among policy makers or among US manufacturers themselves who frequently cite it in their own statements and forecasts. Slowing in global trade has hit this sample hard and confirms the concerns at the Federal Reserve which started its move to rate cuts in July citing the risk that slowing global demand would specifically hurt US manufacturers. Today’s report will build expectations for now that the Fed, despite its own internal divisions, is likely to cut rates at least one more time this year.


Rolled over and heading south. And adjusted for inflation still way below prior cycle peak:


The President has the interest rate thing backwards, of course, but so does the Fed, and pretty much everyone else, as markets anticipate more fed rate cuts in response to the weak economic data: